Bruce Campbell's Top Picks
Bruce Campbell, president and portfolio manager, StoneCastle Investment Management
FOCUS: Canadian stocks
May was another volatile month for markets with the completion of a seven-week selloff and a sharp snapback rally off the bottom. Now investors are trying to determine if this is a bear market bounce before the next move down or the start of a new bull market after the correction. Ultimately only time will tell but we can weigh the evidence and determine the probable outcomes.
Much of the investor uncertainty revolves around out-of-control inflation and the steps the central banks need to take to curb inflation. Investors are concerned the central banks are behind the curve and will be required to aggressively raise rates for a longer period to slow inflation. So far, the inflation data is showing little signs of abating. With the price of oil over US$110 per barrel level and energy being a big component in inflation, we will most likely see inflation high in May. Will higher inflation and higher rates push the economy into a slowdown or recession? Higher inflation will mean the rate debate will not end soon and the market uncertainty will continue.
On the other side of the argument is market sentiment. Fundamentals matter but so does sentiment. At the May lows, sentiment from multiple sources (CNN Fear and Greed, AAII, NAAIM, Smart Money Dumb Money index) all pointed to extreme levels of negative sentiment. It was no wonder markets bounced with so much pessimism. Has that pessimism subsided? The number of articles dismissing the rally as a bear market rally has recently hit a level that is double the prior record high in April 2020.
Last week we experienced a significant buying surge where 80 per cent of volume on the NYSE flowed into advancing stocks. In the three previous times that we experienced 80 per cent NYSE up volume within five days of a 52-week low (1970, 2016 and 2020), the market was up 100 per cent of the time two months, three months, six months and one year later.
The evidence is mixed, the short-term technical tools have improved while the longer-term tools still need more improvement. As a result, we are taking a barbell approach with the portfolio. Holding more cash, holding some low volatility ideas and having a higher growth portion in the portfolio.
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Tidewater is focused on natural gas processing, liquids upgrading, storage and transportation in B.C. and Alberta. TWM also owns 69 per cent of Tidewater Renewables, a green energy platform. Management has been growing organically and via acquisition, has strong minimum volume contracts and pays a dividend. My last purchase was $1.48, funds own, I do not own and my family does not own.
The company is an independent provider of non-invasive ventilation services in the home respiratory care industry. They have grown revenue at a 40 per cent CAGR since 2010. The stock trades at a 50 per cent discount to the sector average. Management owns 17 per cent of the company and the company has a regular buyback in place. Last purchase was $6.81, funds own, I do not own it personally and my family does not own it.
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 $32.94, funds own, none owned personally and none owned by my family.
PAST PICKS: June 29, 2021
CloudMD Software (DOC TSXV)
- Then: $2.19
- Now: $0.50
- Return: -77%
- Total Return: -77%
Salona Global Medical Devices (SGMD TSXV)
- Then: $1.15
- Now: $0.78
- Return: -32%
- Total Return: -32%
GreenPower Motor Company (GPV TSXV)
- Then: $25.79
- Now: $5.75
- Return: -78%
- Total Return: -78%
Total Return Average: -62%