It’s been an amazing year in Canadian markets in terms of volatility, with the index first shedding 1,500 points and then tacking on 2,000 in a V-shaped recovery. In a way, the start of this year has captured the spirit of the Canadian stock market over the past 10 years – huge volatility, only to end very marginally over the period. The TSX is +5% YTD, similar to the 4% annual total return of the TSX over the last 10 years, but with huge swings in returns. This had made it very hard for anyone to “keep their composure” and stay fully invested the entire time.

Why has this volatility occurred, and continues to climb? Global economic markets have become addicted to monetary stimulus and free money, and the prospects of withdrawing or extending that stimulus lead to extreme fear-based and greed-based behavior, alternatively.

Where do the markets go from here? I can confidently say I have absolutely no idea. What I can say is that those who participate in the stock market need to have a strategy to take advantage of volatility, and the irrationality of how some individual stocks trade during these times.

While I’m agnostic on the market, I’m perhaps the most bullish on individual stock-picking that I’ve ever been. Now is a great time to be doing homework on potential investments. In Canada, the stock market is actually becoming less efficient. Money is flowing to ETFs, not mutual funds. Sell-side firms, particularly boutiques, are cutting back research staff and coverage. 75% of millennials don’t trust the stock market. If you are willing to spend time and learn about individual companies, you are being contrarian just by doing that, and the market will likely give you a great entry point into your chosen names at some point in the future. 

TOP PICKS:

Gamehost (GH.TO)

$250 million market cap consumer discretionary name, owns 3 hotels & casinos in Alberta. Stock has been punished for Alberta exposure, falling from $17 to a low of $8, now $10. With a 9% dividend, a very strong balance sheet at 0.3x Debt/EBITDA, and 37% management ownership, it can come back a long way if oil keeps moving up.

Clarke Inc (CKI.TO)

$150 million market cap investment company. Has grown from $5 to $12 in the last 5 years by buying and selling both public and private investments. Stock is at 52-week lows of $9.20, but owns a basket of $110 million of energy-exposed stocks. Still has $3/share of net cash and a 4.5% dividend. Management has done two buybacks at $10.00 and $9.50 in the last two years, so buying the stock under that seems like a bargain.

Information Services Corp (ISV.TO)

$250 million Saskatchewan land registry. Makes money when land titles change hands, so lower potash and oil prices have slowed down their business. Still, this is a monopoly asset, and you get paid to wait for the rebound, whenever it comes. Stock has a 5.4% dividend yield and a net cash position of ~$0.75/share.

Past Picks: This is Mr. Rife's first appearance on Market Call. He has no prior picks.