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

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. Currently, they’ve been strong and resilient on multiple data points.

We also apply technical analysis to economic data. This is where things get a little more interesting. Some of the economic data is getting extended and technically reaching levels where the trends may also lengthen. We will need to watch the shorter-term economic indicators (such as the Citi Economic Surprise Index) for a trend change. Signs of economic weakness may be the first signs of the economy topping prior to a recession.

The top-down market technical indicators that we follow experienced significant weakness during October. Many short- and intermediate-term indicators experienced significant deterioration. We’re now watching these indicators to determine if a market bounce is a dead cat bounce before more downward selling or the end of the correction. At the present time, our portfolios are positioned in neutral with cash buffers built up while we wait for confirmation from the indicators we follow.

We review the indicators each month in our monthly indicator webinar. 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

PROTECH HOME MEDICAL (PHM.V)
Last purchased at $0.12.

Protech sells hardware and supplies for home healthcare. Ventilation, oxygen, sleep therapy and mobility are their key markets. The company has been growing organically at high single-digits and trades at less than five times 2019 EBITDA. In comparison, peers trade in the 10 to 14 times range. Management owns over 18 per cent of the company and has been working hard to improve its financial ratios over the last three quarters.

CANNEX CAPITAL (CNNX.CD)
Last purchased at $0.70.

Cannex operates vertically integrated cannabis operation in Washington state. Based on state government data, they control 15 per cent of the Washington’s overall market and rank in the number one spot for processing revenue. The stock recently sold off after management made the decision not to proceed with its announced California acquisition. The stock trades at very reasonable valuation of 10 times forward EBITDA versus peers trading in the 20 times range. The company has stated it will continue to look for acquisitions to be a multistage operator.

POLARIS INFRASTRUCTURE (PIF.TO)
Last purchased at $12.50.

Polaris owns and operates renewable geothermal assets in Latin America. Management continues to expand the facility’s capacity and just recently announced an acquisition in Peru that will diversify the company from a single country risk. The shares have pulled back since April after political unrest surrounding the government concerned investors.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
PHM  N N Y
CNNX N N Y
PIF N N Y

 

PAST PICKS: NOV. 8, 2017

RELIQ HEALTH TECHNOLOGIES (RHT.V)

  • Then: $0.60
  • Now: $0.35
  • Return: -42%
  • Total return: -42%

BEWHERE HOLDINGS (BEW.V)

  • Then: $0.47
  • Now: $0.30
  • Return: -37%
  • Total return: -37%

StorageVault Canada (SVI.V)

  • Then: $2.24
  • Now: $2.66
  • Return: 19%
  • Total return: 19%

Total return average: -20%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
RHT Y N Y
BEW N N Y
SVI N N N

 

FUND PROFILE

Purpose Canadian Equity Growth Fund
Performance as of: Nov. 6, 2018

  • Year-to-date: -8.96% fund, -3.79% index
  • 1 year: 16.54% fund, -2.59% index
  • 5 years: 11.90% fund, 7.74% index

INDEX: S&P/TSX Composite Index Total Return.
Returns include all distributions and are net of all fees.

 TOP 5 HOLDINGS AND WEIGHTINGS

  1. Cash: 29.2%
  2. Planet 13 Holdings: 3.38%
  3. Valeura Energy Inc: 2.88%
  4. Kinaxis Inc: 2.56%
  5. Artizia Inc: 2.56%

TWITTER: @sc_funds
WEBSITE: www.stonecastlefunds.ca