Bruce Campbell, president and portfolio manager at StoneCastle Investment Management

Focus: Canadian equities and cannabis stocks
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MARKET OUTLOOK
The economic indicators that we follow continue to show improvements. Specifically, the ISM Manufacturing and Service Indices continue to expand. As well, the ECRI leading economic indicators continue to show improvements. These indicators give us comfort that the probability of a recession in the next six months is low based the history of the indicators at these levels.  

The top-down market indicators that we follow have also continued to improve during most of 2016 and early 2017. We look at short-, intermediate- and long-term indicators. The intermediate-term indicators are comfortably positive and continue to improve. The long-term indicators have turned positive in the last three months. Historically, once the long-term indicators turn positive, they stay positive for an 18- to 36-month period. The short-term indicators are suggesting a little caution, but not a time to panic. We may be in for a period where volatility increases and markets experience negative returns. Given the long-term indicators and the economic indicators, this should be a buying opportunity, but more data is needed to determine that accurately.

We will continue to monitor the top-down indicators we follow for any changes. 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 the indicators and whether we are on offence or defence. The next webinar is March 15, 2017 at 4:30pm ET. To register, contact info@stonecastlefunds.ca.

TOP PICKS

PATIENT HOME MONITORING (PHM.V)
From being the darling of the street two years ago to the dog of the street over the last year, PHM is one of the most hated stocks in Canada. The company management has been working hard to restructure and right the company after the acquisition spree two years ago. The high-growth segment is providing respiratory service to chronically-ill patients in their homes. PHM reported earnings just a couple weeks ago and the results were impressive, with the first quarter in company history of positive cash flow. The stock now has a strong organic growth rate and trades at a very attractive valuation for investors who can cover their noses and buy. The last purchase was $0.18. Funds own, but none personally or family.

ORGANIGRAM HOLDINGS (OGI.V)
OrganiGram is one of 39 licensed medical marijuana producers in Canada. Over the next five years, the marijuana business will be a huge growth business in Canada and globally. OGI is currently Canada’s only producer in the Maritimes and were one of the first licensed producers in Canada. Recent events around the recall of product sold in 2016 and a class-action lawsuit launched against the company has caused the share price to drop more than it has for peers. This creates a great entry point. With the selloff, we added to our regular funds, and it will be a core holding in our cannabis fund that we will be launching soon. The last purchase was $1.99. Funds own, as well as personally and family.

CCL INDUSTRIES (CCLb.TO)
The company produces specialty packaging and labels for a variety of industries. CCL is a growth-by-acquisition company combined with a strong organic growth company. CCL is not your typical roll up company. They generate strong free cash flow from their acquisitions, which allows them to pay down debt quickly with minimal shareholder dilution. The company does not trade at a cheap valuation, but management’s track record for growth deserves a premium multiple. Last purchase was $284.75. Funds own, but none personally or family.
 

PAST PICKS: JANUARY 13, 2016

FAIRFAX FINANCIAL (FFH.TO)

• Then: $681.90
• Now: $629.09
• Return: -7.74%
• TR: -3.78%

ALGONQUIN POWER AND UTILITIES (AQN.TO)

• Then: $10.89
• Now: $12.32
• Return: +13.13%
• TR: +18.62%

ALIMENTATION COUCHE-TARD (ATDb.TO)

• Then: $59.02
• Now: $61.20
• Return: +3.69%
• TR: +4.22%

TOTAL RETURN AVERAGE: +6.35%