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

MARKET OUTLOOK

The markets continue to be challenging for investors to navigate, with the economic data improving but still down significantly from a year ago. With economic data weaker than the highs of earlier this year, several market indices are hitting new all-time highs. This puts investors in a situation where they fear missing out but are concerned that the economic reality might catch up with share prices.

Looking at the economy, the data is weaker than it was at the start of the year or even one year ago.  There are pockets of strength such as recreational goods (boats, RVs, ATVs) and the housing and home improvement markets continue to be strong. The economic data we analyze continues to move in a positive direction which is what the market is keying on.

Back in February we started to see some interesting trends emerge in the top-down indicators we follow. In late February to mid-March almost every indicator fell off a cliff with the economy and markets. Once the markets stabilized, the trends we saw in January and February started to emerge again. They have now rebounded and in many cases are the best we have seen since 2016. With the top down indicators showing strength we have our portfolios positioned on offence.  We continue to see sector rotation in many of the indicators we follow; this could present opportunities for astute investors heading into the end of the year.

We review the top down indicators and sectors during our monthly webinar.  The next webinar is scheduled for September 16th.  To receive an invitation to the webinar, please send an email to info@stonecastlefunds.ca and we will add your email address to our invite list.

TOP PICKS

GR Silver (GRSL TSXV) - Most recent purchase price: $0.27

GRSL is exploring for silver in a historic Mexican mining district. The company has successfully discovered 39MM ounce resources over the last couple years and trades at a discount to peers with similar sized reserves. GRSL recently acquired a previously mined property that comes with 500 drill holes that have not been publicly reported from First Majestic Silver. They will continue to release results from drilling as they prove out a larger resource.  

Lightspeed POS (LSPD TSX) - Most recent purchase price: $25.28

Lightspeed is a software provider to small and medium sized retailers and restaurateurs. The company operates globally and has grown their revenue in the last few years at an impressive rate. The stock pulled back during the March COVID-19 sell-off on concerns over the level of business with so many restaurants struggling. This creates an opportunity to get into the stock as they expand geographically and into other segments.  

Xebec Adsorption (XBC TSXV) - Most recent purchase price: $3.60

Xebec provides gas purification systems to take raw gases and turn them into marketable renewable gas. Consumer demand is driving renewable energy with several jurisdictions setting targets for renewable gas. XBC has been growing both organically and via acquisition.  
 

PAST PICKS: August 9, 2019

Indus Holdings (INDS CSE)

• Then: $5.67
• Now: $1.60
• Return: -72%
• Total Return: -72%

K92 Mining (KNT TSXV)

• Then: $2.40
• Now: $7.95
• Return: 231%
• Total Return: 231%

C21 Holdings (CXXI CSE)

• Then: $0.89
• Now: $0.92
• Return: 10%
• Total Return: 10%

Total Return Average: 80%