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

MARKET OUTLOOK

The volatility surrounding COVID-19 has brought a tremendous number of crosscurrents to our top-down indicators. We have not seen such level of volatility in our generation. 

The top-down economic data continues to show weakness with a magnitude of the decline never seen before. Investors are struggling to reconcile the economic weakness and the potential longer-term economic damage with the rebound in markets. When we dig into the economic data, we do see some areas that are starting to show improvements. Monitoring these areas could be critical for investors going forward to avoid the dreaded double dip. 

Reconciling the economic data with the actions of central banks and governments to provide stimulus to the markets will be important for investors to understand. During the Financial Crisis, investors were concerned about the banking system; today, the concern is about the bank’s clients. Central Banks have learned from prior crises liquidity can help and as a result we have seen record amounts of liquidity added by central banks.

The top-down market technical indicators fell off a cliff in February to mid-March. At the market bottom in March, indicators were as washed out as they have been in a generation. Since then, we have seen recovery in some of the technical indicators, and several big changes have occurred in the last 10 days. Investors should continue to monitor the indicators and market breadth to identify sectors to avoid and sectors that will yield profits. 

We review the top-down indicators and sectors during our monthly webinar scheduled for June 2. To receive an invitation to the webinar, please send an email to info@stonecastlefunds.ca and we will add your email to our invite list.

TOP PICKS

ENGINE ESPORTS (GAME TSXV)

Esports is one of the fastest entertainment verticals in the world. Engine is combining three businesses to monetize Esports with content, advertising, intellectual property, and betting revenue sources. The company has a strong management team with past success in media. The company has current revenue and trades at a discount to peers. A U.S. listing is planned for later in the year, which should increase exposure. Last purchase was $0.75. 

XEBEC ADSORPTION (XBC TSXV)

Xebec provides gas purification systems to take raw gases and turn them into marketable renewable gas. Consumer demand is driving renewable energy with several judications setting targets for renewable gas. Xebec has been growing both organically and via acquisition. The last purchase was $2.05.

PROTECH HOME MEDICAL (PTQ TSXV) 

Protech is focused on the home healthcare sector, providing ventilation, oxygen, sleep apnea and mobility equipment. The company is benefiting as in-home healthcare has been increasing. The company has been growing organically and via acquisition and the stock trades at a significant discount to peers. Last purchase was $0.95. 

PAST PICKS: MAY 1, 2019

NEXTLEAF SOLUTIONS (OILS CSX)

• Then: $0.71
• Now: $0.32
• Return: -56%
• Total return: -56%

GREENBROOK TMS (GTMS TSX)

• Then: $3.28
• Now: $1.60
• Return: -51%
• Total return: -51%

HERITAGE CANNABIS HOLDINGS CORP (CANN CSX)

• Then: $0.55
• Now: $0.17
• Return: -69%
• Total return: -69%

Total return average: -59%

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WEBSITE: www.stonecastlefunds.ca