Oct 4, 2018

Bruce Campbell's Top Picks: Oct. 4, 2018

BNN Bloomberg

Bruce Campbell , BNN Bloomberg

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.

During all of 2018, these indicators have been strong and haven’t shown many signs of economic weakness. We continue to see signs of expansion in the ISM Manufacturing and ISM Services indexes. Both have been hitting highs last seen over a decade ago. To track the intermediate trend direction, we monitor the Citi Economic Surprise Index (CESI), which we find tends to lead the ISM indexes over the shorter term. The CESI was weak for most of 2018, but during the last month has started to show areas of improvement. From the cycle analysis that we've done, historically when this happens the economic numbers improve in the months ahead. The top down-market technical indicators that we follow have been mixed over the last few months. The long-term indicators and many of the intermediate-term indicators have stayed positioned all year long. The short and some of the intermediate-term indicators have been weaker, but once again showing some signs of improvement lately.

The cannabis sector has shown strong seasonality in September, October and November of the last four years. This year appears to be looking the same, with the Constellation/Canopy news getting the sector performing a little ahead of the historical performance trend.

We review economic and market technicals in a monthly webinar as well as have a weekly cannabis review. To sign up for these updates send an email to info@stonecastlefunds.ca.

TOP PICKS

CANNTRUST HOLDINGS (TRST.TO)

CannTrust is one of Canada’s licensed producers under the Access to Cannabis for Medical Purposes Regulations (ACMPR). It has had a medical background and focus since the start, but has been recently building out their recreational program. They’ve announced supply contracts with eight provinces for 25,000 kg of production. The stock trades at a third of the valuation of their peers. Last purchase was at $12.48.

VALEURA ENERGY (VLE.TO)

Valeura is exploring for gas in Turkey with their partner Equinor (formerly Statoil). Recently, the company has had success with their Yamalik well and it’s working to expand the discovery when they drill their second well, the Inanli well, this fall. The recent currency crisis in Turkey has put pressure on the stock and presents and opportunity, with several exploration catalysts to follow this fall. The last purchase was at $4.26.

C21 INVESTMENTS (CXXI.CD)

This company is a multi-state operator and consolidator in the U.S. cannabis sector. They’re in the process of closing their transaction to acquire a Sparks Nevada cultivation and dispensary operation. The company is guiding to exit 2019 with over $75 million in revenue. From a valuation perspective, the stock trades at one-tenth the valuation of many of their larger multi-state peers. Last purchase was at $1.66.