Full episode: Market Call for Tuesday, May 15, 2018
James Hodgins, president and chief investment officer at Curvature Hedge Strategies
Focus: Market-neutral investing (small and mid-cap stocks)
The impact of higher short-term interest rates typically has a six to 12 month lag on both the economy and the stock market. But we’ve seen cracks emerging in the high-yield debt markets and expect significant volatility ahead for stocks. We believe that after the past 18 month blow-off rally, the market will again become much more favorable to shorting and market-neutral investing, as this volatility leads to economic and market weakness.
LEUCROTTA EXPLORATIONS (LXE.V)
After a few years of next to nothing, we think M&A is about to pick up dramatically over the next 12 to 18 months. Leucrotta is the most attractive acquisition target in the Western Canadian Sedimentary Basin. It has everything that large gassier names or LNG players need to add liquids without incurring the near-term AECO pricing challenges. We see upside on a takeout to $4.00 per share and note CEO Rob Zakresky owns directly over $5 million shares, but his compensation is also heavily tied to creating share value through a sale of the company.
Itafos has a savvy management team that’s quietly consolidated and restructured four phosphate assets to form a diversified phosphate pure play. The company recently leveraged the strategic geographic location of their Paris hills development project to purchase the Conda asset from Agrium. Agrium was a forced seller due to regulatory competition requirements with the Potash merger. The purchase was made at a very attractive 2-times trailing EBITDA (earnings before interest, taxes, depreciation and amortization) multiple. The company owns a top-tier growth pipeline and continues to be a natural industry consolidator moving forward. We see upside to $3.90 per share.
Huge news yesterday as the U.S. Supreme Court effectively legalized sports betting in the U.S. theScore is the second leading real-time info sports app, only behind ESPN. While its user base in North America is somewhat saturated, we believe the value of its current user base is at least 30 cents per share. Its usefulness for sports betting could easily double that.
PAST PICKS: MARCH 26, 2018
CIPHER PHARMACEUTICALS (CPH.TO)
- Then: $4.15
- Now: $3.50
- Return: -16%
- Total return: -16%
- Then: $5.60
- Now: $5.41
- Return: -3%
- Total return: -3%
LEUCROTTA EXPLORATION (LXE.V)
- Then: $1.60
- Now: $1.89
- Return: 18%
- Total return: 18%
Total return average: -0.33%
Curvature Fund LP
Performance as of April 30, 2018
- 1 Month: 0.03% fund, 1.57% index
- 1 Year: 1.69% fund, 0.14% index
- 3 Year: 2.31% fund, 0.83% index
* Index: S&P TSX Composite.
* Returns are net of fees. Three-year is representative of annualized returns.