Jul 27, 2016

Bruce Campbell's Top Picks: July 27, 2016

BNN Bloomberg

Bruce Campbell , BNN

Bruce Campbell, President & Portfolio Manager, StoneCastle Investment Management

FOCUS: Canadian Equities

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MARKET OUTLOOK:

The last four weeks have seen an impress rally in equity markets worldwide. Much of the rally seems to be as a result of improvements in global economic conditions. While many market commentators debate where the markets head next we have witnessed a rare market indicator give a positive signal in the last two weeks. The 2-1 Advance Decline signal (buying thrust) occurs with when twice as many shares on the NYSE advance vs. decline on average over a 10 day period. This is only the 13th time this signal has occurred since 1950. The last time we experienced one of these buying thrusts was in March of 2009 following the financial crisis. One technical analyst that we follow refers to this signal as “reading tomorrow’s newspaper today” in his book “Mind, Money, and Markets.” The average 3 month, 6 month and 12 month gain following these buying thrusts is 6.5 per cent, 19.4 per cent and 22.1 per cent.

While the buying thrust has produced fantastic intermediate term results following a signal, the markets have been almost straight up over the last 4 weeks. Investors would be prudent to buy on pullbacks as they will inevitably occur over the next couple weeks. It’s time to prepare your shopping list and then put the money to work when the market is weaker.

We will continue to monitor the top down indicators for any changes. As of right now, we continue to be on offence with the indicators. We have just recently seen another interesting change in a relative relationship that we follow. A relative momentum indicator between growth stocks to the S&P/TSX has recently changed in favour of the growth stocks; this change along with our indicators being on offences indicate markets should produce positive returns while the indicators are positioned this way. If we see those indicators change, investors will want to adjust their portfolios to build a more defensive posture. We host a regular monthly webinar where we update investors on whether the indicators are on Offence or Defence. The next webinar is August 24, 2016 at 4:30 p.m. ET. To register contact info@stonecastlefunds.ca

Top Picks:

Just Energy (JE.TO)

Just Energy provides energy solutions to residential and commercial customers in the electricity, natural gas and solar areas. The company has been growing in the high single digit range in past years and this could accelerate as they expand into the solar market in the U.S. and roll out traditional services in Europe. The stock trades at a reasonable valuation with a well-supported dividend. The last purchase was $8.18, funds own, but none personally or family.

Pacific Insight Electronics (PIH.TO)

Pacific Insight Electronics designs and manufactures components for the automotive, heavy truck and marine industry. The company provides LED lighting, electronic control modules and wire harnesses. Customers include Ford, Caterpillar, Daimler, and Harley Davidson. The company grew EPS over 30 per cent the last year and the stock trades at a reasonable valuation of less than 9 times earnings. The stock is not covered by analysts and is now showing up on the radar or many institutional investors due to the market capitalization. The last purchase was $12.15, funds own, but none personally or family.

Sleep Country Canada (ZZZ.TO)

Sleep Country is the number one mattress retailer in Canada. The company went public in July of 2015 for the second time. The business continues to provide impressive growth with the last eight quarters of same store sales averaging 10.8 per cent. Sleep Country continues to add new stores across the country and can continue to add stores to reach their store location goals. The stock trades at a reasonable valuation for the past and future growth. The last purchase was $24.72, funds own, but none personally or family