Jason Del Vicario, portfolio manager at Hillside Wealth Management, iA Private Wealth

Focus: North American growth stocks

MARKET OUTLOOK:

The equity markets continue to show tremendous strength as we head into the new year. Investors have the speculative bit in their teeth and are bidding up assets/stocks with nice stories and large TAMs to levels we haven’t seen since the tech bubble of 1998-2000. In particular, stocks with no free cash flow or positive earnings seem to be the flavour du jour. When this ends we have no idea but this time is not different and valuations do matter in the long term. We continue to focus on companies that have a demonstrated history of achieving high returns on invested capital with little to no debt, and have achieved this through strong and weak economic conditions. We feel that investors, more than ever, need to focus on having a diversified portfolio geared towards their specific return requirements and time horizon. It is very easy in this type of market to get distracted and fall victim to FOMO (fear of missing out) mentality. We are keenly watching the tug of war between inflationary (money printing) and deflationary (technology, demographics, massive debt burdens) forces as this will have an impact on interest rates which in turn will affect risk asset prices. If rates rise, this is a headwind for asset prices while falling rates is a tailwind. The jury is still out and we would not want the job of central bankers at this juncture!

TOP PICKS:

Alimentation Couche-Tard (ATD/B TSX)

This is a core holding of ours and we recently added to our position at $37 when the stock tanked after they announced they desire to acquire Carrefour in France. This company has a sparkling history of allocating capital efficiently and they are excellent operators. We feel the market was spooked by them potentially stepping out of their historical focus. Our view was if the deal went through we have faith in Couche Tard’s management to acquire assets at attractive prices and if the deal fell apart the stock would likely move back towards the mid $40s. The deal did fall apart and the stock hasn’t moved back to the pre-deal announcement levels and represents a great entry point or level to add more. This company is extremely steady and well run; we thought it was cheap at $45 and are thrilled with the valuation at $38.

Pushpay Holdings (PPH ASX)

This is a small position we’ve initiated in a New Zealand based software company that operates in the faith sector. While based in New Zealand, the majority of their customers and revenues (over 95 per cent) are in the very large US market. Their product ChurchStaq is a fully integrated solution that allows their customers (churches) to grow generosity/giving (online giving is becoming more and more prevalent) and connect with their congregation online. There has been tremendous demand for their software during the pandemic and we feel this demand will continue in the post COVID world whenever that may be. The company has raised guidance three times in 2020 and have just hired a new CEO. Despite all this the stock is down 20 per cent from our initial purchase price and we feel the stock is cheap.

Kirkland Lake Gold (KL TSX)

This is the only gold company we own and in our opinion the highest quality gold producer in the world. It has sold off and we feel this represents excellent value. They generate consistent and growing free cash flow and have done this without piling on lots of debt. They operate in ‘safe’ jurisdictions of Canada and Australia. Extremely well run and we look forward to seeing how management allocates their $850M war chest to enhance shareholder value. We recently added to our position in the high $50s November 2020.

PAST PICKS: January 20, 2020

Constellation Software (CSU TSX)

• Then: $1,352.02
• Now: $1,612.75
• Return: +20%
• Total Return: +20%

Parex Resources (PXT TSX)

• Then: $23.54
• Now: $20.70
• Return: -12%
• Total Return: -12%

Texas Pacific Land Trust (TPL NYSE)

• Then: $792.86
• Now: $821.18
• Return: +4%
• Total Return: +7%

Total Return Average: +5%

Company Twitter Handle: @hillside_wealth

Personal Twitter Handle: @jasondelvicario

Company Website: www.hillsidewealth.ca

Blog: www.hillsidewealth.ca/blog/

Other: Jason Del Vicario (www.linkedin.com/in/jasondelvicario) or Hillside Wealth Management (www.linkedin.com/company/hillside-wealth-management)