Don Lato, president, Padlock Investment Management
Focus: North American equities
MARKET OUTLOOK
Turbulence is a bit of an understatement for the market action this month. Markets have had to deal with continued trade war issues, inverted yield curves and an increasingly erratic POTUS. These issues, combined with the typical lower liquidity in August, have led to heightened volatility. In this environment investors should step back and not be panicked out of solid long-term holdings, but also keep their powder dry until some semblance of calm returns. Solid companies with little or no debt can still be held for the long term, and those paying dividends allow you to be paid while you wait.
TOP PICKS
Brookfield Business Partners (BBU-U:CT) – Last purchased in July at $51.60
Three years ago, Brookfield Business Partners was spun out of Brookfield Asset Management (BAM/A:CT). BBU, the public-equity arm of BAM, is diversified among several industries that are not captured within other entities in the Brookfield group. The company raises funds from outside investors and redeploys it along with its own capital into the wholly- or partially-owned international businesses that comprise the portfolio. The stock price has lagged over the past year with the current level representing a great entry point to invest, alongside this highly-regarded investment team, for the next few years.
La-Z-Boy Inc. (LZB:UN) – Last purchased in mid-2018 at $31.75
This iconic brand can be found in many homes around the world. The company sells and distributes La-Z-Boy furniture through many independent furniture dealers and its own La-Z-Boy Furniture Galleries. The company also produces other brands including the recently-acquired Joybird brand, which brings an added online presence and familiarity with millennial shoppers. In spite of having grown earnings 15 per cent in the last 12 months, La-Z-Boy’s price-earnings multiple has declined to 13.4 times April 2020 year-end earnings, well below the company’s historical average.
YETI Holdings (YETI:UN) – Last purchased in early June at $24.01
YETI has continued its geographic expansion since its IPO in October 2018. The maker of premium-brand coolers and drinkware is moving beyond its southern U.S. roots and has no shortage of markets in which to expand. In the first two full quarters since its IPO, YETI has had positive earnings surprises as it has grown revenues 13 per cent and earnings per share by 52 per cent for the first six months of 2019. In its August earnings release, YETI raised its guidance for the balance of this year and still trades at a very reasonable multiple of 19.5 times 2020 earnings estimates, down from a high of 29.0 times earlier this year.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BBU-U | N | N | Y |
| LZB | Y | Y | Y |
| YETI | Y | Y | Y |
PAST PICKS: AUG. 23, 2018
Hi-Crush Partners (HCR:UN)
- Then: $12.10
- Now: $1.64
- Return: -86%
- Total return: -86%
Parex Resources (PXT:CT)
- Then: $19.11
- Now: $19.41
- Return: 2%
- Total return: 2%
Sleep Country (ZZZ:CT)
- Then: $31.42
- Now: $20.89
- Return: -34%
- Total return: -31%
Total return average: -38%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| HCR | Y | Y | Y |
| PXT | Y | Y | Y |
| ZZZ | Y | Y | Y |
FUND PROFILE: PADLOCK GROWTH COMPOSITE
Performance as of July 31, 2019:
- 1 month: 2.9% fund, 2.1% index
- 1 year: -5.5% fund, -3.7% index
- 3 years: 5.5% fund, 5.1% index
Index: 50% TSX Total Return Index, 50% S&P 500 Total Return Index
Returns are based on reinvested dividends, net of fees and annualized
TOP HOLDINGS AND WEIGHTINGS
- Apple: 11%
- Visa: 8.9%
- Parex Resources: 8.2%
- Alphabet: 7.7%
- Equitable Group: 5.2%
WEBSITE: padlockinvestment.com
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