Colin Stewart, CEO and portfolio manager at JC Clark Limited

FOCUS: North American large cap stocks

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 cannot be overlooked. While asset prices are elevated (almost everywhere), the combination of the aforementioned vaccine and significant pent-up consumer demand makes us optimistic on the economic outlook for 2021. 

Despite ongoing challenges for small businesses and many consumers, governments should be able to help to bridge the gap over the next 6-12 months until large amounts of the global population are 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 away from the “stay at home” categories, and towards the “re-opening” categories. It will also have notable implications for many segments of the stock market. More specifically, we believe value will outperform growth, cyclical stocks will continue to 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

Richards Packaging (RPI/U TSX) – Last purchased in March, 2021 at $68.50

Richards is the third largest packaging distributor in North America with over 16,000 customers. The company focuses on the food/beverage, cosmetics, and health care industries. Richards has enjoyed strong growth over the last several years and benefited from increased product demand during COVID. The company has an excellent balance sheet, continues to generate significant free cash flow and is poised to grow further through acquisitions over the next couple of years.  

Maple Leaf Foods (MFI TSX) – Last purchased in March, 2021 at $26.95

Maple Leaf Foods is a leading packaged food company operating in two primary segments – meat protein, and plant protein. The company has successfully grown revenue and expanded margins in its meat protein segment by focusing on sustainable meat and RWA (raised without antibiotics) products. Maple Leaf is aggressively expanding its plant based segment which is the second largest in North America. While this business is currently a drag on profitability, the long-term potential is significant. Despite a strong market position, excellent brands, and continued growth, MFI trades at a material discount to its peers. We see upside to $40+/sh. over the next couple of years.

Sylogist (SYZ TSX) – Last purchased in March, 2021 at $11.50

Sylogist is a Canadian based software provider to the North American public sector including municipal governments, not-for-profit organizations, and the education and defence sectors. The company recently hired a new CEO who is focused on accelerating growth. The underlying business is very attractive, with recurring revenue, high margins, and strong free cash flow. Relative to many expensive software peers, Sylogist is undervalued and trades at only 12x forward EBITDA.  

PAST PICKS: January 27, 2020

Information Services (ISV TSX)

• Then: $14.79
• Now: $22.37
• Return: 58%
• Total return: 66%

New Look Vision Group (BCI TSX)

• Then: $32.78
• Now: $38.00
• Return: 16%
• Total return: 16%

Canfor (CFP TSX) – Position sold in 2020

• Then: $12.79
• Now: $26.71
• Return: 109%
• Total return: 109%

Total return average: 64%

WEBSITE: jcclark.com