Bruce Campbell, president and portfolio manager at StoneCastle Investment Management
FOCUS: Canadian equities
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MARKET OUTLOOK

We follow top down economic and market indicators to help us to determine if our portfolios are on offence or defence at any given time. 

Currently the top down economic indicators have been strong and improving. The ISM Manufacturing and ISM Services indices have been good examples of this strength. Both of the ISM indices have been hitting highs last seen over a decade ago. One of the leading indicators we follow, the Chemical Activity Barometer, is also showing economic strength. The market isn’t as concerned with the level of the indices as the trend direction of these indices. To track that trend direction we like to watch the Citi Economic Surprise Index (CESI), which we find tends to lead the ISM indices over the shorter term. The CESI is at a level where it looks like the next move could be down from here. If that is the case the economic numbers could start to show weakness a few months later.    

The top down market technical indicators that we follow have been positive since August. We transitioned our portfolios back to offence with the top down markets changes in September. We continue to see the top down indicators improve on several of the market sectors and also market capitalizations. One area we watch that warrants some caution is the sentiment of investors currently. Sentiment is a contrarian indicator and with many sentiment indicators hitting highs it could mean a short term pullback is possible.       

Each month we host a regular monthly webinar where we update investors on the indicators and whether we are on offence or defence with our portfolios. The next webinar is January 31, 2018 at 4:30pm ET. To register contact info@stonecastlefunds.ca

TOP PICKS

Indiva (NDVA.V)
The company is a LP under Health Canada’s ACMPR program focused on medical cannabis. The company received their cultivation licence in July 2017 and began cultivation in September of 2017. They have a fully funded expansion to 40,000 square feet. Their master grower has a long history of helping medical patients using the cannabis plant. They recently went public and are not on the radar of many investors. Last purchase was $1.28. 

Kinaxis (KXS.TO)
Provides cloud-based software that allows customers to control and analyze their supply chain operations. The company has been growing organically at +20 per cent per year, and now appears to be at another inflection point. They currently have 100 customers and an addressable market of 4,000 companies. Management has been revising guidance for revenue and profitability higher. Last purchase was $85.60. 

Grande West Transportation (BUS.V)
The company manufactures mid-sized heavy duty buses for transit authorities and commercial enterprises. The company recently got their USA certification and we should start to see an increased sales volume during 2018. Management has been focusing on increasing the production numbers to meet their backlog. During the last three quarters we have seen a constant improvement in the number of buses delivered each quarter. Last purchase was $2.32.  

PAST PICKS: JANUARY 25, 2017

Centric Health (CHH.TO) 

• Then: $0.64
• Now: $0.57
• Return: -10.93%
• Total return: -10.93%

Pacific Insight Electronics (PIH.TO) – De-Listed on October 4, 2017

• Then: $10.14
• Oct. 4, 2017: $18.49
• Return: 82.31%
• Total return: 82.34%

Goeasy (GSY.TO)

• Then: $29.73
• Now: $37.63
• Return: 26.57%
• Total return: 29.54%

Total Return Average: 33.65%