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. 

TOP PICKS

CITIGROUP (C.N)

  • Citi is a leading global financial institution that will benefit from strong global economy.
  • Rising interest rates will help to improve net interest margins.
  • Share price has lagged year-to-date. Citi is the cheapest among large-cap U.S. banks at 9.5 times price to earnings (2018 estimate) and 0.86 times price to book value.
  • The company is returning more capital to shareholders via share buybacks and dividends

BRICK BREWING (BRB.TO)
Most recent purchase was in the last few days at $3.93 per share.

  • Brick is a leading Canadian craft brewer (its brands include Waterloo, Laker and Landshark Lager) with excellent management team. It’s the fifth-largest brewer overall in Canada.
  • Significant regulatory changes to beer distribution in Ontario have created growth opportunities for craft brewers like Brick.
  • Its state-of-the-art brewing facility in Cambridge, Ont. provides ample room for growth (organic and via acquisition).
  • Long-term, we believe Brick is likely a takeout target for a larger industry player.

HAMMOND POWER SOLUTIONS (HPSa.TO)
Most recent purchase was close to one month ago at $9.60 per share.

  • Hammond Power is a global manufacturer of electrical transformers. It’s the largest manufacturer of dry-type transformers in North America.
  • It’s trading at less than six times earnings before interest taxes depreciation and amortization (EBITDA), which is a significant discount to precedent transactions occurring at eight to 10 times EBITDA. Applying such EBITDA multiple to the business would garner a stock price of $13.50 to $17.25 per share, which would represent upside of 44 to 84 per cent.
  • There’s significant earnings growth potential as end-markets such as public infrastructure, commercial construction, industrial, mining, oil and gas, renewable energy and utilities should perform well over the next two to four years.
  • The company’s balance sheet is in a strong position, with net debt to EBITDA at 0.8 times. The dividend yield is 2.55 per cent.
  • There’s a strong alignment of interest, with insiders owning more than 30 per cent of the stock.
  • Potential upside from the build-out of electric vehicle (EV) infrastructure.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
C N N Y
BRB N N Y
HPSa N N Y

 

PAST PICKS: MAY 29, 2017

CITIGROUP (C.N)

  • Then: $62.07
  • Now: $66.78
  • Return: 8%
  • Total return: 10%

POLARIS INFRASTRUCTURE (PIF.TO)

  • Then: $16.34
  • Now: $13.03
  • Return: -20%
  • Total return: -17%

TRICON CAPITAL (TCN.TO)

  • Then: $11.18
  • Now: $10.56
  • Return: -6%
  • Total return: -3%

Total return average: -3%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
C N N Y
PIF N N Y
TCN N N N

 

FUND PROFILE

JC Clark Preservation Trust – Class B
Performance as of May 31, 2018

  • 1 Year: -2.45% fund, 8.43% index
  • 3 Years: 2.09% fund, 5.48% index
  • Since inception: 9.33% fund, 4.22% index

* Index: S&P500 + S&P/TSX
**Returns are annualized and net of management fees and performance fees.

WEBSITE: http://www.jcclark.com/