Jason Del Vicario, portfolio manager at Hillside Wealth Management
Focus: North American growth stocks

MARKET OUTLOOK

November saw equities rally strongly as the political situation in the U.S. stabilized to a certain degree and the prospect of effective COVID vaccines were positive developments. No matter what metric one uses, stocks are expensive but for interest rates; if rates stay this low for a long time, then one can convince themselves these prices make sense. We are skeptical enough to be diversified across cash, government bonds, gold (which has struggled of late) and a basket of stocks that sport consistently high returns on invested capital. These strong moat companies continue to dominate our holdings and we continue to add companies that meet our criteria, but are outside of North America. Valuations offshore are more reasonable and we feel the diversification across different currencies is warranted at this juncture as well.

Having said this, we do find that our top Canadian holdings are compelling at these levels. Constellation Software, Boyd, Couche-Tard and Dollarama all are reasonably valued and we would suggest that Couche-Tard represents particularly excellent value at these levels. We have no idea what lies ahead and favour a diversified approach. We should qualify “diversified,” as we are diversified across asset classes but we believe in running concentrated equity positions and hold 20 at this time.

TOP PICKS

Constellation Software (CSU TSX)

Our largest position appears to be breaking out technically. There’s not much more we can say about this company; they are hands down some of the top capital allocators on the planet. The stock is fairly valued and we expect it to make a run towards $2,000 a share.

MicroStrategy Incorporated (MSTR NASD)

This is how we are playing Bitcoin. The CEO of this company took $450 million of their $500 million in cash and bought Bitcoin in September. His thesis was that holding cash is akin to a melting ice cube given he feels central bank policy is going to debase the value of fiat currency. We agree with this and have held this view for some time now. We have followed Bitcoin for a few years now and are attracted to its scarcity (only 21 million can ever be produced) as well as its strong network effect.

MicroStrategy on its own is a successful business intelligence software company that generates good and predictable cash flow. If Bitcoin goes to zero, we feel that having exposure to the company will dampen the blow. We sized this as a 2 per cent position. It should be noted that subsequent to our purchase the company issued $650 million of 0.75 per cent paper to increase their Bitcoin exposure. Given this is a $3 billion company, having a levered Bitcoin position certainly increases the risk.

Alimentation Couche-Tard (ATD/B TSX)

Another large holding of ours and one I’ve featured repeatedly. I’m pounding the table here on the valuation. This is a high-quality company that has a dominant position in their industry, allocates capital very well  and yet trades at a valuation that makes no sense to us.

PAST PICKS: JAN. 20, 2020

Constellation Software (CSU TSX)

Owned since its inception, it’s our largest position.

• Then: $1,352.02
• Now: $1,668.22
• Return: +24%
• Total Return: +24%

Parex Resources (PXT TSX)

Parex stopped out last March, but if we had to hold an oil producer this would be the one.

• Then: $23.54
• Now: $18.18
• Return: -23%
• Total Return: -23%

Texas Pacific Land Trust (TPL NYSE)

This one also stopped out March 2020. They are having some corporate governance issues, but we would have no problems holding them again in the future.

• Then: $792.86
• Now: $726.00
• Return: -8%
• Total Return: -5%

Total Return Average: -1%