Jason Del Vicario's Top Picks: September 29, 2021

Jason Del Vicario, portfolio manager, Hillside Wealth Management, iA Private Wealth
FOCUS: North American growth stocks

MARKET OUTLOOK:

At Hillside we choose to focus on factors we can control while ignoring those we cannot. Factors we cannot control include: inflation, politics, interest rates and how the market decides to value our positions in the short term. Factors within our control: our investment sourcing, analyzing and valuation process, when we buy and when we sell.  

We are laser focused on owning high quality and predictable businesses. We define ‘high-quality’ as those companies that are able to generate above-average returns on invested capital (ROA, ROE, ROIC) using little to no debt and requiring little capital to grow. The very best also have excellent incremental return prospects on new capital deployed.  

For a company to be ‘predictable’ it needs to have demonstrated the ability to be high quality for a reasonable period of time (typically 5+ years). We own these in concentration (20-30 positions) and seek to invest only in those securities where the forward return expectation exceeds 20 per cent well into the future. 

We will own these securities for as long as their return metrics and our investment thesis remain intact; ideally for decades. While we are market direction agnostic, we believe that there remains few pockets of value with the majority of those outside of North America at this time. Japan and the UK, in particular, offer interesting prospects.

TOP PICKS:

Topicus (TOI TSXV)
We received shares of Topicus as a result of being shareholders of Constellation Software (CSU TSX) which is our largest equity position. We added to the position in the high-$70s during a recent swoon in May. In retrospect we should’ve added more as the stock has nearly doubled from this point.  

We expect Topicus to perform very well over the long term as they execute on their strategy to acquire and optimize small to medium software companies. Think CSU 2.0. Valuation is stretched but for the long-term minded investor, acquiring some shares now and adding on weakness would be a wise move.

Facebook (FB NASD) 
We realize this isn’t an earth shattering pick, however, Facebook has sold off recently and we find the security slightly undervalued trading at about 27 times forward earnings. The company generates gobs of free cash flow, is cash rich and requires fairly low amounts of capital to grow.  

Periodically, the stock sells off due to regulatory concerns but it remains a heavily-used application with tremendous advertising abilities. The two-sided network effect is strong and growing.

Kaspi.kz (KSPI LON) 
This is a well off the radar company based in Kazakhstan. Kaspi is a bank that pivoted into a tech platform and offers a super app that has taken the country by storm. Think Amazon, Paypal, and banking services wrapped into one app.  

For example, in one year Kaspi’s share of monthly processed volume has risen from 2 per cent to 66 per cent while Visa/MasterCard’s share has fallen from 96 per cent to 28 per cent! The following provides a nice overview of the business: https://www.picoliniecapital.com/post/kaspi-central-asian-super-app-in-the-making.  

We have initiated a small position and note that while the shares trade in London, Kazakhstan presents political and currency risk and thus recommend sizing any position appropriately. 

PAST PICKS: July 6, 2020

Alimentation Couche-Tard (ATD/B TSX) 

• Then: $43.37
• Now: $48.31
• Return: 11%
• Total Return: 13%

The a2 Milk Company (ACOPF OTC) 

• Then: $13.73
• Now: $4.35
• Return: -68%
• Total Return: -68%

Constellation Software (CSU TSX) 

• Then: $1,566.74
• Now: $2,095.81
• Return: 34%
• Total Return: 35%

Total Return Average: -7%