Fabrice Taylor's Top Picks: Jan. 11, 2019

Fabrice Taylor, publisher of the President’s Club Investment Letter
Focus: Small and mid-cap Canadian equities

MARKET OUTLOOK

It’s been 10 years since the bull market started and we’ve had low/falling interest rates for even longer. Most investors don’t know what rising interest rates will do, especially to one of the biggest and longest bull markets on record. It’s safe to say falling rates fueled the run in stocks, so if they do start to rise (which is debatable), there could be more carnage.

A good place to hide is in stocks that are uncorrelated to the market as much as possible, stocks with specific catalysts that can move them higher even in a falling market: Turnarounds or disruptors. These are riskier by nature, and they aren’t immune from a broad selloff, but they can buck the trend. With cash returns (GICs and money market funds) increasing, it’s not a bad place to hide even at 3 per cent if the alternative is more market carnage. 

TOP PICKS

COLABOR GROUP (GCL.TO)

I recommended this stock two years ago and at first it almost doubled within four or five months, but the turnaround lost traction and the stock sank to new lows in 2018. Colabor has since bounced a little and the company has cleared out deadwood and brought in new management with excellent credentials who are drawn to the opportunity of turning this company around and making a lot of money for themselves. Insiders have quietly amassed 25 per cent of the stock and some of the traded debentures, so I think this is the year the turnaround takes off. With more than a billion in sales and a market cap of about $50 million, there is room for a multiplication of the stock price.

HELIUS MEDICAL TECHNOLOGIES (HSM.TO)

Helius’ PoNS device helps victims of traumatic brain injury and other physical ailments recover more quickly. The application is considered an “unmet need” and is safe, which generally makes FDA approval easier. A decision is expected by month-end from the FDA. Health Canada approved it last fall. If FDA grants permission, this is a billion-plus company. The CEO is a commercialization expert and those plans are well underway as we await the decision. The stock has been as high as $25 and is now half that, so I think it has a lot of room to run if it works out as hoped.

SIYATA MOBILE (SIM.V)

Siyata’s main product is the Uniden UV250, a cellular-based two-way radio that aims to disrupt the traditional radio-frequency gadgets that have been in use for decades by truckers, cabbies, ambulance, police and so on. The company cleared Bell Canada’s due diligence and is now on offer by Bell. Revenues should follow shortly. The real money will come if and when a big U.S. carrier follows suit. That is the bet here, and it’s a good one on a risk-reward basis. If it happens, and the device sells well (early signs are that it will) this is a big business and the stock price should reflect it. 

PAST PICKS: NOV. 16, 2017

GOEASY (GSY.TO)

The stock did very well for the first seven or eight months and then fell along with the market starting in August. I bought more at the end of the year on the tax-loss trade and it has recovered well. I believe there is still a lot of growth to come for this business. 

• Then: $33.23
• Now: $42.87
• Return: 29%
• Total return: 33%

CANWEL BUILDING MATERIALS (CWX.TO)

Lower lumber prices and a suddenly weak U.S. housing market combined to hurt the stock, as did the market. The dividend cuts the loss by a third. The CEO bought a lot of stock at much higher prices, which gives me the confidence to hold. Strong jobs growth bodes well for housing, so Canwel shares may get a bounce. 

• Then: $6.81
• Now: $4.80
• Return: -30%
• Total return: -21%

ROCKY MOUNTAIN DEALERSHIPS (RME.TO)

The company now trades at nine times earnings versus 12 times when picked. I thought 12 was cheap. I was wrong. With a yield of only 5.5 per cent and no enthusiasm for the stock in the market, it’s not exciting enough to hold on to. 

• Then: $12.90
• Now: $8.94
• Return: -31%
• Total return: -27%

Total return average: -5%