My expectations heading into 2016 was that equity markets would provide positive but modest returns for the year.  After a quarter filled with extreme volatility and modest returns, my expectations remain the same.  Valuations are not stretched but nor are they extremely compelling,   We are on the verge of entering the seasonally weakest period  for equities and thus a pull back from the recent highs could be expected before those highs are challenged and surpassed later in the year.

Longer term Padlock remains constructive on equities fueled by the continued lack of optimism among investors.  Investors continue to withdraw funds from equities at rates well above normal which has historically been a precursor to above average returns for equities.
 

TOP PICKS:

Tourmaline Oil (TOU.TO) 

Last purchase in January at $22.50

Past pick from one year ago that has suffered due to the precipitous fall in natural gas prices.  The company has done everything asked of it and should increase production by almost a third to over 200,000 boe/day in 2016.  While AECO prices were cut in half from last year’s $2.50 per/mcf level, TOU was busy enhancing its infrastructure to be positioned for the eventual recovery in nat gas prices.  With finding and production costs among the lowest in the industry, an impeccable balance sheet and a huge inventory for future exploration, TOU is more than capable of reaching its previous highs during the next upcycle.

Performance Sports Group (PSG.TO)

Latest purchase in early March at an average of about $4.25CDN.

An existing position was increased dramatically when the stuck dropped by 67% following the release of the company’s outlook for its third quarter that ended in February.  Earnings have declined dramatically and the company faces issues on several fronts (including a weak CDN$ and the bankruptcy of its large customer, Sports Authority and its impact on the industry) but the company is still generating surplus cash to pay down debt and should not be remotely close to threatening any of its bank covenants.  With bankruptcy off the immediate table, the industry leader in most of its product categories should return to profitability and growth be potentially hugely rewarding to shareholders.

Walgreen Boots Alliance (WBA.O)

Latest purchase early January at $81.20.

The stock has traded in a relatively wide range since peaking at over $97.00 at the market peak last summer.  With the acquisition of RiteAid and its in-process integration, WBA was able to once again demonstrate is transactional and operational skills as a driver of long term earnings growth. The stock trades at roughly a market multiple of 16 times August 2017 earnings.  WBA is well positioned to continue to benefit from the aging population’s health care needs and continue the stellar earnings growth that it has enjoyed for the last several years.

Past Picks: May 4, 2015

Chartwell Retirement Residences (CSH.TO)

Gilead Sciences (GILD.O)

Tourmaline Oil (TOU.TO)

Total Return Average : -9.05%