Full episode: Market Call for Monday, April 29, 2019
James Hodgins, president and chief investment officer at Curvature Hedge Strategies
Focus: Small and mid-cap stocks
We’re seeing classic end-of-cycle action in currency, credit and equity markets. As you might recall, in the past two cycles ending in 2000 and 2007, emerging market currency and credit markets led equities lower eventually. We anticipate a similar outcome this time around. We believe equity markets are at risk of another 50 per cent drawdown, similar to the past two cycles.
SILVERCREST METALS (SIL.V)
As central banks move from tightening to easing at the end of the cycle, we believe precious metals will outperform the rest of the market. Silver is also trading at historical lows relative to gold. In addition to these macro tailwinds, SilverCrest has one of the highest-grade exploration projects in the world and is a prime takeover candidate. Our target is $5.
CHORUS AVIATION (CHR.TO)
Chorus is the safest pick we can think of in the current environment. There are two ways a stock valuation can go up: Growth in the numerator or a decline in the risk premium. We believe both apply to Chorus after Air Canada extended its capacity purchase agreement until 2035 and invested roughly $100 million into the company’s leasing business. With a very safe yield of nearly 7 per cent wich will grow roughly with air travel inflation over time, we believe Chorus should be trading closer to $11.
BAYLIN TECHNOLOGIES (BYL.TO)
Baylin's ground antennas business has a new growth driver in small cell (LTE+) densification. This is a huge opportunity with a massive spend cycle for its blue chip clients, including AT&T and Verizon, through 2025. We believe Baylin is uniquely positioned to take advantage of the opportunity in 5G which will require five times the location density of 4G. Baylin is trading at 7.8 times 2019 enterprise value to earnings before interest, tax, depreciation and amortization (EV/EBITDA) versus comparables at 11 times with a business that is growing at about a 20 per cent compound annual growth rate (CAGR).
PAST PICKS: NOV. 27, 2018
CORBY SPIRITS AND WINE (CSWa.TO)
- Then: $19.23
- Now: $17.52
- Return: -9%
- Total return: -6%
CIPHER PHARMACEUTICALS (CPH.TO)
- Then: $2.15
- Now: $1.24
- Return: -42%
- Total return: -42%
- Then: $3.09
- Now: $4.47
- Return: 45%
- Total return: 45%
Total return average: -1%
Curvature Fund LP
Performance as of: March 31, 2019
- 1 month: -0.6% fund, 0.6% index
- 1 year: -9.1% fund, 4.8% index
- 3 years: -2.7% fund, 6.1% index
INDEX: TSX Composite.
Returns are based on reinvested dividends, net of fees and annualized.
TOP 5 HOLDINGS
- Goeasy bond 5.75% (07/31/2022): 2%
- Gran Tierra Energy bond 5.0% (04/21): 2%
- Parex Resources: 1.9%
- Chorus Aviation: 1.9%
- Crombie REIT: 1.3%