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

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MARKET OUTLOOK

We expect market volatility to increase going forward. Elevated risk of a global trade war, rising interest rates, historically high equity valuations and continued geopolitical risks will likely create more uncertainty for investors. While the global economic backdrop and corporate fundamentals remain relatively strong, we believe much of this good news is already reflected in stock prices. Broadly speaking, we're late in the market cycle and risk levels remain elevated. As such, the current environment warrants a more defensive investing approach with a focus on high quality companies.

TOP PICKS

FAIRFAX FINANCIAL (FFH.TO)
Most recent purchase in the last few days at around $700 per share.

• Fairfax is a property and casualty insurance company. The insurance operations are performing well, with a combined ratio of around 96 per cent.
• Its investment portfolio has been heavily weighted in cash, but Fairfax is beginning to reinvest. Its long-term track record is exceptional.
• It's recently crystalized large gains on investments in Asia and India.
• The acquisition of Allied World provides significant growth.
• Fairfax is trading at only 1.1 times book value: a discount to the group.
• A recent pullback in the share price provides a buying opportunity.

IBM (IBM.N)
Most recent purchase in the last few days at around $149 per share.

• IBM has been undergoing a turnaround. The recent quarter suggests progress is being made.
• Revenue is beginning to grow again, with the company investing heavily in its cloud strategy.
• The business is much less hardware-dependent: It's now 80 per cent software and services.
• The valuation is very attractive at 10.5 times price-to-earnings,  a 4.4 per cent dividend yield and an 8.5 per cent free cash flow yield.
• Low investor sentiment provides opportunity for a re-rating.

GAMEHOST (GH.TO)
Most recent purchase in March 2018 at around $10.80 per share.

• Gamehost is a casino owner and operator in Alberta. It owns three properties: one in Calgary, one Grand Prairie and one in Fort McMurray.
• There's high barriers to entry in the local industry with a current moratorium on new casino licenses in Alberta.
• The Albertan economy is beginning to gradually improve. This should benefit Gamehost's properties.
• It has a strong balance sheet, giving the company flexibility to look at acquisitions.
• The valuation is reasonable at 10.4 times enterprise value to earnings before interest taxes depreciation and amortization (EV/EBITDA). It pays a 6 per cent dividend yield.

PAST PICKS: AUG. 29, 2017

POLLARD BANKNOTE (PBL.TO)
We countinue to hold our position.

• Then: $13.95
• Now: $20.60
• Return: 48%
• Total return: 49%

WESTSHORE TERMINALS (WTE.TO)
We sold several months ago due to concerns over potential trade exposure.

• Then: $24.80
• Now: $24.33
• Return: -2%
• Total return: 1%

CLEARWATER SEAFOODS (CLR.TO)
Sold on October or November at approximately $8 per share. We were concerned about balance sheet leverage.

• Then: $10.47
• Now: $5.47
• Return: -48%
• Total return: -46%

Total return average: 1%

FUND PROFILE

JC Clark Preservation Trust

• 1 Year: -1.01% fund, 9.76% index*
• 3 Year: 0.98% fund, 6.73% index
• 5 Year: 5.35% fund, 8.62% index

* Index: S&P500, S&P/TSX.

WEBSITE:  www.jcclark.com