James Hodgins, president and chief investment officer at Curvature Hedge Strategies

Focus: Small- and mid-cap stocks, market-neutral investing
_______________________________________________________________

MARKET OUTLOOK
Both bond and equity markets have been dominated by a sharp change in outlook following the U.S. election. Defensive, interest-sensitive equities are now out of favour while pro-cyclical equities and small caps have moved sharply higher. While there will be bumps in the road for the new president's agenda, these trend changes are likely to continue in the intermediate term, in our view.   

TOP PICKS

MERUS LABS (MSL.TO)
A former top pick that has been unfairly hit alongside Concordia and Valeant, despite virtually all of Merus' revenues originating from Europe, compounded by tax-loss selling. GMP has the stock trading at 3x free cash flow in Fiscal 2018 when the company will realize the full benefit of the tech transfer of its Sintrom drug manufacturing from the U.S. to Europe. Merus' closest peer, Alliance Pharma (APH.LN), trades closer to 10x free cash flow. Merus has a solid balance sheet and a very low cost of debt, roughly 3.75 per cent, to pursue its organic growth strategy. We have also seen a recent increase in insider buying of the stock. Our one-year target is $2.00 while our three-to-five-year target is $5.00, assuming they execute on growth.

THESCORE (SCR.V)
theScore is another stock hit by tax-loss selling with significant insider buying from Chairman and CEO John Levy. Excluding cash and tax assets, the enterprise value is only $55 million or 1.6x sales for 2017, despite growth of more than 50 per cent. Similarly-sized U.S.-based app/software companies trade at closer to 5x sales. Our one-year target is 50 cents, but we believe the company is worth more than $1.00 as a takeover target for a company wanting a dominant sports app/news platform with strong ties to Facebook.

GREENSPACE BRANDS (JTR.V)
Greenspace is a very under-owned emerging growth stock in Canada as they execute on their plan of developing a fast-growing and strategic platform for organic food brands. The company has a management team with strong relationships to major grocery retailers, which has resulted in growing shelf space at Loblaw, Metro and Starbucks. Our one-year target $1.75, although we can see $4 to $5 per share in three to five years if they continue to execute on their growth plan.
 

PAST PICKS: DECEMBER 23, 2015

NEVSUN RESOURCES (NSU.TO)

• Then: $3.66
• Now: $4.25
• Return: +16.26%
• TR: +22.39%

INNOVA GAMING GROUP (IGG.TO)

• Then: $1.62
• Now: $1.70
• Return: +4.94%
• TR: +4.94%

TERAGO (TGO.TO)

• Then: $5.10
• Now: $4.50
• Return: -11.76%
• TR: -11.76%

TOTAL RETURN AVERAGE: +5.19%