I would expect a sideways market until either the world economy improves or we get a real correction. We are still seven years into a bull market, and while we had a “mini” correction, valuations are still high. Having said that, I think we’re in for a generation of low interest rates, which may force investors to adapt new valuation models that are less reliant on history. Bond rates, after all, determine the value of equities for the most part. The good news is that there’s always something going up, and investors need to work harder to find them. Keep lots of cash on hand and pounce on solid opportunities. Dividends will have a bigger premium as investors realize bond yields are going to stay low for a long time.

TOP PICKS:

Diversified Royalty Corp (DIV.TO)

Diversified owns three royalties, one on Mr. Lube, another on Sutton Realty and the third on a restaurant group called Franworks. The stock has been the victim of weak oil prices because a considerable amount of its revenue comes from Alberta because that’s where Franworks’s restaurants are concentrated. The result of this negative sentiment is a 10% yield. The bet here is that low oil prices become less of a factor through 1) an improvement in prices, 2) a diversification in Franworks’ business via the opening of new restaurants in other places and 3) another royalty acquisition that dilutes the influence of Franworks. If things improve such that in a year, investors are content to get paid say 8% on the dividend, the upside is 35% all in for investors who buy today. I own it and last bought it for $2.40.

FitBit (FIT.N)

This is a contrarian bet on a stock that, until recently, was heavily (and accurately) shorted. The short position has diminished a lot as the stock’s valuation came back to earth. FitBit is the leader in fitness wearables. It trades for about 12 times what analysts expect it to make in the coming year and has a very good balance sheet. While there are cheaper competitors, and many fear that Apple’s watch could crush FitBit, the company’s products are best in class. Apple doesn’t lower prices and its watch is far more than a FitBit device and more expensive. The cheaper Chinese competitors, meanwhile, are just that: cheap and tawdry. I own it and last bought at $14.

Helius Medical Technologies (HSM.TO)

Helius is an interesting speculation in the medical devices space. The company has developed the PoNS, a device that stimulates the brain and appears to dramatically improve the results of therapy for brain damage caused by trauma or disease. PoNS has a lot of anecdotal and clinical data that suggests the device has improved the recovery of patients with traumatic brain injury and multiple sclerosis. The U.S. military has invested $10 million into the development, and the families of patients successfully treated using the device have donated about $4 million out of gratitude, so there are powerful signs that it works. In the third or fourth quarter the FDA will determine if the device can claim that it improves recovery for traumatic brain injury. There is also a MS study underway. While it sounds like weird science the company’s advisory board includes several MDs and PhDs including two from Harvard. If the FDA approves it, the stock price should multiply. If not, it will get crushed, so invest only a small amount.  I believe there are good enough chances of success to make a speculative bet. I own it and last bought at $1.11. 

Past Picks: June 9, 2015

Air Canada (AC.TO)

Urbana (URB.TO)

Cash

Total Return Average : -15.80%