Colin Stewart, CEO and portfolio manager at JC Clark Limited

FOCUS: North American large cap stocks

MARKET OUTLOOK:

Economic activity, while uneven by region, is exhibiting a strong recovery from the depths of the lockdown in 2020. With rapid vaccine deployment and a fast re-opening, the U.S. is the poster child for what Canada and other countries should see in the months ahead. U.S. economic activity has been very strong in recent months and consumers are out in full force spending excess savings and stimulus cheques. Restaurants are busy, live sporting events are sold out, and the power of pent-up demand is on full display.  We are optimistic that Canada is not far behind.

With recent improvements in the vaccine rollout, excess savings, and a consumer eager to get out and spend, it is only a matter of time until the hospitality and retail sectors here see a similar rebound. With government largess continuing here and south of the border (both in the form of fiscal and monetary support), the continued vaccine rollout, and a strong desire by consumers for a sense of normalcy, we believe the near-term economic outlook is robust. The equity market outlook is somewhat more mixed. Stocks are generally expensive with much of the good news reflected in current prices. Inflation and the continued evidence of speculative activity are both risks to the outlook and investors will need to search harder to find good value going forward.

TOP PICKS:

Heroux Devtek (HRX TSX) –last purchase approx. $16.75/sh. a month ago

Heroux-Devtek designs and manufactures landing gear and actuation systems for the aerospace market. The company has a robust defense business and also sells into the commercial aerospace market. Despite challenging industry conditions, Heroux Devtek generated strong profitability and free cash flow during 2020. The company is poised to benefit from a rebound in the commercial airline business, is well positioned to grow via acquisition, and trades at a significant valuation discount to its peer group.

Uni-Select (UNS TSX) –last purchase approx. $15/sh. 1 week ago

Uni-Select is a leading distributor of automotive and industrial paints and auto parts. The company operates in Canada, the U.S. and the U.K. After a challenging period, the company is positioned to benefit from a rebound in vehicle miles driven and improving margins due to a cost reduction program. Under the new leadership of well-respected CEO Brian McManus, Uni-Select should see improved profitability, balance sheet de-levering, and ultimately an expansion in its valuation multiple. 

Ag Growth International (AFN TSX) –last purchase approx. $36.25/sh. approx. 1 week ago

Ag Growth International is a leading provider of agricultural equipment globally. The company is benefiting from strong crop prices and robust demand from farmers for new equipment purchases. Despite improving profitability and a strong demand outlook Ag Growth International trades at only 9x EV/EBITDA, a discount to other AG companies. Ag Growth International also has a growing technology offering which likely has significant hidden value.

PAST PICKS: March 17, 2020

Richards Packaging Income Fund (RPI-U TSX)

• Then: $74.97
• Now: $62.00
• Return:  -17%
• Total Return: -17%

Maple Leaf Foods (MFI TSX)

• Then: $27.65
• Now: $25.85
• Return: -7%
• Total Return: -6%

Sylogist (SYZ TSX)

• Then: $13.85
• Now: $13.76
• Return: -1%
• Total Return: 0%

Total Return Average: -8%

Company Webite: www.jcclark.com