Full episode: Market Call for Tuesday, February 18, 2020
Gerard Ferguson, CEO and portfolio manager at Jemekk Capital Management
Focus: Canadian stocks
Capital markets continue to take out old highs to much amazement, though they’re facing many challenges investors typically tend to discount quickly and move on.
From a positive standpoint the markets are bolstered by:
- Positive yet slowing earnings growth, augmented by reasonable valuations.
- A supportive Fed indicating rates are not moving higher in the near term.
- The beginnings of synchronized global economic growth.
- An easing in trade tensions, particularly with respect to the U.S. and China.
However, many risks remain that suggest a moderate, but not aggressive positioning:
- Valuations have risen as market growth has significantly outpaced earnings, suggesting multiple expansion.
- Macro risks such as the coronavirus will impact global growth, particularly in the first half of 2020.
- The U.S. presidential election is sure to cause volatility.
We view the risk/return opportunities to be equal-weighted right now and see upside as the year unfolds, though those returns we expect to be volatile. A lot of our outlook is based on our belief that the current virus outbreak will be contained and that the Fed will remain hospitable in the face of the U.S. election.
BORALEX (BLX TSX)
Boralex is an independent power producer with operations primarily in renewables in Canada and France. Although the company provides a healthy dividend (2.25 per cent), it’s primarily focused on growth (not return of capital), with a healthy pipeline of projects.
Boralex has been a big beneficiary of the increased funds flow to the ESG space. Although valuation has increased significantly over the past year (commensurate with the whole independent power producer group), the company continues to trade at a healthy discount to its peers.
DREAM UNLIMITED (DRM TSX)
Dream is an innovative real estate manager primarily focused on the commercial and residential sectors. It recently monetized its ownership in Dream Global REIT (both ownership and management contract), cashing it up for future growth opportunities.
Very under-covered and with high insider ownership, the company recently underwent a substantial issuer bid in which the largest unitholders declined to participate, thus increasing their ownership and, as it was done below net asset value, increased the NAV per share. The company continues to trade at a substantial (now even greater) discount to NAV, with over half its value represented by its holdings in other Dream-related companies that present opportunities for liquidity.
ANDLAUER HEALTHCARE GROUP (AND TSX)
A new name for us and the TSX, Andlauer IPO’d in December at $15 and so far has been well received.
Don’t let the name fool you: This is not a healthcare company, but a supply chain management company with a platform of third-party logistics (3PL). The company specializes in healthcare, with services such as temperature management, quality assurance, regulatory compliance and security.
Andlauer’s customers include 22 of the top 25 global pharmaceutical manufactures. The company is a market leader and will continue to leverage its platform to further scale nationwide, with the goal of eventually entering the U.S.
We have only initiated a starter position while we wait for management to shed more clarity as they begin reporting quarterly earnings. What draws us to the story is the pure-play aspect of this rapidly growing segment of the logistics business, which has low levels of competition with strong margins further coupled with high free cash flow generation and a low debt load.
PAST PICKS: JULY 22, 2019
WHEATON PRECIOUS METALS (WPM TSX)
- Then: $35.65
- Now: $41.11
- Return: 15%
- Total return: 16%
EVERI HOLDINGS (EVRI NYSE)
- Then: $11.63
- Now: $13.50
- Return: 16%
- Total return: 16%
BOYD GROUP SERVICES (BYD TSX)
- Then: $169.96
- Now: $225.35
- Return: 33%
- Total return: 33%
Total return average: 22%
Jemekk Long/Short Fund
The Jemekk Long/Short Fund is an alternative, multi-strategy investment vehicle that invests primarily in Canadian mid and small cap securities. The fund is focused on investing in securities with the objective of providing investors with consistent, positive, absolute returns. These investment goals will be met primarily through long and short investments in equities, convertible bonds, options, and other capital market instruments.
Performance as of Jan. 31, 2020
- 1 month: 0.26% fund, -0.57% index
- 1 year: 4.61% fund, 9.74% index
- 3 years: 6.47% fund, 2.6% index
INDEX: 50% TSX, 50% TSX Small Cap.
Returns are based on reinvested dividends, net of fees and annualized.