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

MARKET OUTLOOK

I don’t pay much attention to the vagaries of the stock market because as a general rule the stocks I’m most interested in don’t correlate very highly with the major indexes. Turnarounds and undervalued, potentially high-growth orphan stocks generally don’t go up in a strong market or down in a weak one. Rather, they move up or down on company-specific news and activity. That said, if anything, I’d welcome a big selloff because it would allow me to deploy some of the cash I’m sitting on.

TOP PICKS

GOEASY (GSY.TO)

I’m sticking with a winner because I think there’s more room to grow. The company is funded to continue growing its primary loan book and poised to enter other lines of business. The price-to-earnings (P/E) multiple is only 12 because investors view it as highly sensitive to the economy, yet unemployment fell to a 40-year low. If the company can sell less products that are less volatile to the income statement, the P/E multiple might improve and the earnings will too, giving it a turbo-charged return. Last purchased at $38 in January. 

GREENPOWER MOTOR CO (GPV.TO)

GreenPower manufactures electric buses ranging from small shuttles to full-size transit vehicles. There’s growing demand among cities and states, particularly in California, for electric buses and incentives for buyers. This shows up in the company's backlog, which stands at more than 200 vehicles and should be good for US$40 million of revenue in the current fiscal year and US$100 million next year. But there’s a second trend that should boost the stock. Transit authorities are getting nervous about Uber and Lyft, which are encroaching on their traditional business. The more forward-thinking authorities are looking at buying smaller, electric buses that can drive through residential areas and pick up passengers much closer to home, if not at home, and deliver them right to their destination. GreenPower’s EV Star is custom built for this and has no competition at the moment. An up-listing this fall to the NASDAQ, where electric vehicle companies get much higher multiples, should provide another catalyst. Last purchased at 46 cents in May. 

COLABOR GROUP (GCL.TO)

Colabor distributes food and related items to restaurants and grocers in Eastern Canada. It also wholesales certain items. The company produces more than $1 billion of annual revenue and yet has a market cap of only $90 million because its earnings have been badly damaged by poor decisions in the past and high debt. But the management team is now brand new, insiders have bought up almost a third of the shares over the past couple of years and there are signs of margin improvement. The company also recently sold an asset which will reduce debt by 20 per cent. The stock rallied on the news and I think there are more divestitures to be made, and more improvements. It’s a classic turnaround at just the right time, with the stock hitting fresh 52 week highs. I believe the price can multiply from here. Last purchased at 82 cents in June. 

PAST PICKS: MAY  8, 2018

INVESCO DB COMMODITY INDEX TRACKING FUND (DBC.N)

• Then: $17.73
• Now: $15.18
• Return: -14%
• Total return: -13%

TREE ISLAND STEEL (TSL.TO)

• Then: $3.46
• Now: $2.12
• Return: -39%
• Total return: -36%

GOEASY (GSY.TO)

• Then: $39
• Now: $50.70
• Return: 30%
• Total return: 33%

Total return average: -5%