Jason Del Vicario, portfolio manager at HollisWealth

Focus: North American growth stocks
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MARKET OUTLOOK
The North American equity markets for the most part have been trading sideways to down since the post-Trump election rally. While we believe our core stable of companies and other consistent return on equity (ROE) generators can outperform no matter the general market conditions, we are mindful that we are late cycle. We are now nine years removed from the last recession and bear market. This rally is certainly getting long in the tooth.

We feel the Fed, Bank of Canada and European Central Bank are playing catch up. They should’ve been normalizing rates in 2013-14 but they didn’t, and they are now behind the curve. They claim to be data dependent. However, both inflation and GDP growth figures are not exceptional, yet they seem committed to raising rates. One must pay very close attention to the yield curve. If we get an inverted yield curve (we are headed that way) then this almost guarantees a recession. We will look to be scaling back risk as the central banks raise rates. I suspect we’ll get a short-term pop as we go through the seasonally strong July and Q2 earnings season. Beyond the summer, we remain cautious on general market valuations and direction.

TOP PICKS

DOLLARAMA (DOL.TO)
Dollarama remains one of the very best retail companies in North America. They benefit from growth of same-store sales, growth of store count and exceptional capital management. Their last quarterly results were excellent and they guided higher both in terms of margins but also their “store opening runway.” In addition, they are starting to gain traction in Central America where they are piggy backing some dollar stores in the region to test their model. They are exhaustive testers of every aspect of their business and we are happy to have them again as a top pick.

ISHARES 20 PLUS YEAR TREASURY BOND ETF (TLT.OQ)
Our view is that we are in a lower-for-longer ride with respect to interest rates. We have a three-headed monster of demographics, dropping productivity and growth inhibited by too much debt, which lead us to conclude that while in the short term rates may rise, we can’t see them going materially higher for a long while (think decades). Furthermore, we must be closer to the next recession than we are removed from the last one. We see rates going back to zero per cent and likely even negative during the next recession. This will be very positive for TLT, especially for Canadian investors as the CAD is also likely to drop during the next recession. TLT sold off hard after the Trump election but our favourite hedging tool recently flashed a buy signal.

ROSS STORES (ROST.O)
We have held Ross Stores from inception and along with Facebook they are one of our top U.S. positions. This may be boring, but ROST is very similar to DOL in that they are a very well-run name in the discount retail space. They are very consistent ROE generators, growing their store count and buying back shares. Their shares have sold off in the wake of the announcement that Amazon is set to acquire Whole Foods. While we see pain for grocery retailers, ROST is one of the few retailers that continues to thrive in an Amazon-dominated retail space. ROST buys off excess inventory for the likes of Saks, Nordstroms and other department stores and sells it at discounted prices. Their inventory is ever changing and consumers are happy to go to their stores in search of bargains. We see them doing well in strong and weak economies and it’s worth noting that they were the only stock in the S&P 500 to post a positive share price gain in 2008.
 

PAST PICKS: JULY 4, 2016

BIOSYENT (RX.V)
We’ve held this stock since inception and have been happy to do so. We believe they are on the cusp of another growth spurt with new products coming online and existing products selling well. We note the stock price has perked up of late, too.

• Then: $8.20
• Now: $8.55
• Return: +4.26%
• TR: +4.26%

CEAPRO (CZO.V)
We own this only in our small-cap portfolio. They have sold off heavily after a few lackluster quarters. I suspect this is as a result of a less-than-smooth transition to their new facility. The fact remains that management hasn’t done a great job of communicating with shareholders. I would rate this as a hold if you own it. I would wait for more clarity and/or operating results to turn before adding, if you don’t own.

• Then: $1.53
• Now: $0.88
• Return: -42.48%
• TR: -42.48%

DOLLARAMA (DOL.TO)
This, along with CSU, is our largest equity position. They continue to execute extremely well and we are happy to continue to hold.

• Then: $90.95
• Now: $122.03
• Return: +34.17%
• TR: +34.83%

TOTAL RETURN AVERAGE: -1.13%