Aug 28, 2018
James Hodgins' Top Picks: Aug. 28, 2018
James Hodgins, president and chief investment officer at Curvature Hedge Strategies
Focus: market-neutral investing (small and mid-cap stocks)
MARKET OUTLOOK
Equity markets remain severely overvalued on a historical basis. We’re also now well over a year into a global monetary tightening cycle. It’s just a matter of time until a major accident hits equities and therefore we remain fully hedged in our portfolios at all times.
TOP PICKS
LEUCROTTA EXPLORATION (LXE.V)
Leucrotta is a Montney junior producer with over 140 prime net sections in northeastern B.C. The company has delineated a significant liquids-rich resource and recently partnered with a major royalty company on a land package adjacent to a new Upper Montney oil discovery. We believe the sum of parts between these high production growth acreages is well over $3 per share. Leucrotta’s CEO is heavily incentivized to create this value with fellow shareholders relatively soon.
CIPHER PHARMACEUTICALS (CPH.TO)
Cipher is a specialty pharma company whose stock was caught up in the whole Concordia/Valeant mess and is now severely undervalued. It’s not economically sensitive and has a strong development platform that investors aren’t paying for. Our one-year target is $6, but we can see materially higher prices over two to three years.
ITAFOS (IFOS.V)
Itafos is an underfollowed fertilizer company that’s been transformed through acquisitions and restructuring. The company owns a diversified asset base with strategic assets located in the U.S., Brazil and Guinea-Bissau. The company's earnings and cash flows are growing as efficiencies at Conda are realized and yields at Arraias are increased. Moving closer to 2019, investors will begin looking forward to 2020. A stock price under $2 has Itafos trading under 5 times 2020 earnings and under 4 times EV/EBITDA based on Raymond James analyst estimates. We believe the asymmetric risk/return profile of Itafos is an anomaly in the current market environment.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CPH | N | N | Y |
| LXE | N | N | Y |
| IFOS | N | N | Y |
PAST PICKS: JUNE 23, 2017
LEUCROTTA EXPLORATION (LXE.V)
- Then: $1.85
- Now: $1.90
- Return: 3%
- Total return: 3%
KLONDEX GOLD (KDX.TO)
Acquired by Hecla Mining on July 23, 2018.
- Then: $4.76
- Now: $3.10
- Return: -35%
- Total return: -35%
CASH
Total return average: -11%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LXE | N | N | Y |
| KDX | N | N | N |
FUND PROFILE
Curvature Fund LP
Performance as of: July 2018
- 1 Month: -0.52% fund, 0.96% index*
- 1 Year: -0.61% fund, 8.52% index
- 3 Years: 1.37% fund, 4.34% index
* Index: S&P TSX Composite
* Returns are net of fees. 3-year is representative of annualized returns.
TOP 5 HOLDINGS AND WEIGHTINGS
- LEUCROTTA EXPLORATION: 3.74%
- PAREX RESOURCES INC: 2.05%
- DELPHI ENERGY CORP 10% CEL NOTES: 2.00%
- CORBY SPIRIT AND WINE LTD: 1.99%
- BURFORD CAPITAL LTD: 1.74%
WEBSITE: curvaturehedge.com
