May 10, 2018

Bruce Campbell's Top Picks: May 10, 2018

BNN Bloomberg

Bruce Campbell , BNN Bloomberg

Bruce Campbell, president and portfolio manager at StoneCastle Investment Management
Focus: Canadian equities and cannabis stocks

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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. Recently, the longer-term, top-down economic indicators have been strong. We also have seen a bottoming in the shorter-term economic indicators. These are suggesting we may see another acceleration in the longer-term ones in the coming months.

The big change we've seen recently has been from our top-down market technical indicators. We've been positioned in "neutral" since late January with our portfolios, we're now starting to see the early signs of the technical indicators improving, which would move our portfolios back to offence.

In the cannabis sector, we're also seeing technical indicators improve. This improvement is similar to what we saw the previous four times just prior to significant advances in the sector. We feel the timing is excellent for the launch of our new StoneCastle Cannabis Growth Fund.

Each month, we host a regular monthly webinar where we update investors on the indicators and whether we're on offence or defence with our portfolios. The next webinar is May 16 at 4:30pm ET. To register, contact info@stonecastlefunds.ca

TOP PICKS

GRANDE WEST TRANSPORTATION (BUS.V)

The Company manufactures mid-sized heavy duty buses for transit authorities and commercial enterprises. They've recently had a disappointing earnings announcement that caused the stock price to drop. This is often the case with a new company trying to balance market expectation and operational results While they missed expectations, the product is great and the production issues will be ironed out with time. Now is the chance to buy the former high-flyer at an attractive valuation. Management owns 30 per cent of the outstanding shares, which is always comforting. Last purchase was at $1.30.

CANNEX CAPITAL (CNNX.CD)

Cannex is an operating Cannabis company with revenue, earnings before interest taxes depreciation and amortization (EBITDA) and cash flow. They operate in Washington State under the Northwest Cannabis brand and are looking to expand into California via their acquisition of Jetty Extracts. While a head-to-head comparison of Canadian and U.S. cannabis companies isn’t fair, they trade at a significant discount to both Canadian and U.S. peers from a valuation standpoint. Last purchase was at $1.08.

HYDROPOTHECARY (THCX.V)
The company operates cannabis cultivation facilities in Quebec. Hydropothecary is one of the lowest cost producers in Canada due to lower power and labour costs in Quebec. They also have one of the largest supply agreements in Canada, signing a multi-year deal with the SAQ. The stock trades at a significant discount to other larger Cannabis companies. The last purchase was at $4.72.