Colin Stewart, CEO and portfolio manager at JC Clark Limited
Focus: North American large caps

MARKET OUTLOOK

The rapid development of highly effective COVID-19 vaccines is a huge positive for the economic outlook and for humanity in general. The magnitude of this impressive scientific achievement can’t be overlooked. While asset prices are elevated, the combination of the aforementioned vaccine and significant pent-up consumer demand creates an optimistic economic outlook as we move into 2021.

Despite ongoing challenges for small businesses and many consumers, governments should be able to help to bridge the gap over the next six to 12 months until a large part of the global population is vaccinated and life begins to gradually return to normal. As this occurs, we believe consumer spending patterns will shift significantly. In our view, there is material pent-up demand for travel, dining out, in-person shopping and other activities mostly curbed by the pandemic. This will result in a re-allocation of consumer spending from the “stay-at-home” categories towards the “re-opening” categories, which will also have notable implications for many segments of the stock market. More specifically, we believe value will outperform growth, cyclical stocks will recover, and some of the pandemic high-flyers will lose ground. With a broadly expensive stock market and many investors anticipating an economic recovery, value has become scarce and astute stock-picking will be more important than ever during 2021.

TOP PICKS

INFORMATION SERVICES (ISV TSX) – Most recently purchased on December at approximately $19.50

Information Services provides registry and information management services for public data and records. The company operates the land registry for Saskatchewan, a services segment and a technology solutions business. Information Services holds a monopoly-like position in its registries business, generates recurring revenue and enjoys high barriers to entry. Despite consistent revenue and EBITDA growth, it trades at a low multiple of 8.5 tunes EV/EBITDA, and at a significant discount to competitors. The company also generates significant free cash flow and offers investors a 4 per cent annual dividend yield.

Fairfax Financial (FFH TSX) – Most recently purchased on December at approximately $431

Fairfax is a global property and casualty insurance company experiencing strong growth in insurance premiums and pricing due to a “hard market” in the insurance industry. This should lead to strong operating earnings over the next few years. Combined with improving investment results, it’s expected to generate outsized growth in book value per share. Despite a positive outlook and a very strong historic track record, Fairfax trades at a substantial discount to book value per shares (price to book value is 0.68 times) and to its peer group. A very significant insider purchase ($150 million) by CEO Prem Watsa in 2020 also suggests management shares the view that its stock is materially undervalued.

Waterloo Brewing (WBR TSX) – Most recently purchased in August at approximately $3.10

Waterloo Brewing is a leading Canadian craft brewer. The company produces well-known brands such as Waterloo, Laker and Landshark Lager. It also provides contract manufacturing for large global beverage companies. Waterloo has experienced rapid growth in recent years thanks to new contract wins, strong volume growth from core brands and a growing presence in ready-to-drink mixed beverages. The outlook is very positive and it should continue to grow rapidly both organically and via acquisition. Despite strong execution by management and outsized growth prospects, thee stock trades at only 9.4 times EV/EBITDA, a material discount to other brewers. It offers investors a 2 per cent dividend yield.

PAST PICKS: JAN. 27, 2020

NEW LOOK VISION GROUP (BCI TSX)

• Then: $32.78
• Now: $36.25
• Return: 11%
• Total return: 11%

CANFOR (CFP TSX)

• Then: $12.79
• Now: $23.21
• Return: 81%
• Total return: 81%

INFORMATION SERVICES (ISV TSX)

• Then: $14.79
• Now: $19.91
• Return: 35%
• Total return: 41%

Total return average: 44%

WEBSITE: jcclark.com