Bruce Campbell's Top Picks
Bruce Campbell, president and portfolio manager, StoneCastle Investment Management
FOCUS: Canadian stocks
June was another awful month for investors and 2022 has been even worse. Investors continued to be concerned with high inflation across the globe. We have started to see some moderation in certain areas of inflation (used cars, some commodities, shipping rates), but the largest components, shelter and food costs continue upwards. This may mean inflation will only moderate at a limited rate in the back half of 2022 and as a result, central banks will continue to aggressively raise interest rates.
Most investors’ focus has turned from solely inflation (and rate increases) to also being concerned about a future recession. Ned Davis Research’s (NDR) global recession probability model is now at 89.3 per cent and it has never moved above 90 per cent without the global economy heading into a recession. Now the question becomes, when will the recession be recognized and how long will it last?
If we do experience a recession how much has been discounted into the markets? Bulls will argue it is mostly priced in, but bears know that if it is a deep recession the market has further to drop. Consumer sentiment is at historic lows and bottoms in consumer sentiment have historically been times when future equity price returns have been positive.
Investor sentiment is washed-out and at historically low levels. Sentiment Trader has found that five-week market volatility is the highest rate since 1928. In the last 90 years, similar declines in market sentiment have corresponded with the end of bear markets.
NDR cycle composite looks at historical market cycles and based on the one-year, presidential and decennial cycles are looking for a strong market rally in the second half of the year.
At that point in time, investors must determine their time horizons. If you are a short-term trader (time horizon of less than one year) you will want to be defensive and trade and fade market rallies. If you are a long-term investor (longer than one year) you can start to take advantage of attractive prices for the inevitable market recovery.
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Salona Global Medical Devices is focused on medical devices for the post-operative and recovery markets. SGMD has been growing organically and via acquisition. The company recently announced two accretive acquisitions that once closed will move their revenue from $47 million to $70 million. The stock trades at an attractive valuation and has several potential acquisitions in the pipeline. Last purchase was $0.55.
Verano Holdings (VRNO) Verano is a vertically integrated U.S. multi-state operator in 13 U.S. states. The company has 120 retail locations and 13 cultivation facilities. Looking out over the next year, we anticipate multiple catalysts that could result in closing the valuation gap with peers that trade at twice the multiple of Verano. Last purchase was $14.81.
Lightspeed provides cloud-based point of sale systems for payment processing, accounting, reporting and analysis in restaurants and retail. The company has delivered 78 per cent revenue growth and is guiding towards breakeven EBITDA in 2024. A return to in-person shopping and dining should continue to accelerate the company’s revenue. Last purchase was $27.83.
PAST PICKS: September 2, 2021
Avanti Energy (AVN TSXV)
- Then: $2.03
- Now: $1.01
- Return: -50%
- Total Return: -50%
Quipt Home Medical (QIPT TSXV)
- Then: $8.41
- Now: $5.86
- Return: -30%
- Total Return: -30%
Reliq Health Technologies (RHT TSXV)
- Then: $1.23
- Now: $0.48
- Return: -61%
- Total Return: -61%
Total Return Average: -47%