Jennifer Radman, head of investments and senior portfolio manager at Caldwell Investment Management
Focus: North American large-caps stocks

MARKET OUTLOOK

There’s been a wide range of outcomes within stock markets this year, with those companies positively impacted by COVID-19 performing very well and those negatively impacted performing poorly. In many cases, secular trends – both positive and negative – have been accelerated by the pandemic. The market did a good job of anticipating which stocks would perform well during Q2 earnings season, to the point where many of the companies with the strongest earnings results have since seen their share prices sell off and those that saw earnings pressure have started to perform better. Central banks and government stimulus have also been significant factors driving markets.

TOP PICKS

Richelieu Hardware (RCH TSX)

Richelieu is a leading North American importer, distributor and manufacturer of specialty hardware and related products. We own it in the Caldwell Canadian Value Momentum Fund, which aims to own stocks undergoing a positive rerating by the market. In this case, Richelieu is seeing strong end-market demand as consumers shift spending towards the home. They have an attractive business model and growth runway with innovation and acquisitions as key value drivers. About 50 per cent of its revenue growth comes from accretive acquisitions and the market remains very fragmented, while innovation helps them outpace underlying market growth. The company is also a strong free cash flow generator which allows them to internally fund their growth.

Maxar Technologies (MAXR TSX)

The company’s primary business is providing earth imagery to mainly government customers worldwide via its satellite system. We also own Maxar in the Caldwell Canadian Value Momentum Fund. The company is a turnaround story, with new management since 2019. The company has made great progress deleveraging its balance sheet and has positive book-to-bill metrics given solid demand for its products. Its space infrastructure business is coming off a cyclical bottom, which will drive margins higher, and free cash flow should start to inflect positively going forward as the company comes off of an investment cycle. We believe this will drive upward expansion in the valuation multiple, which is below historical and peer levels.

Tetra Tech (TTEK NASD)

The company is a leading provider of consulting and engineering services with a specific focus on water and environmental projects and higher margin work that’s less cyclical. We own Tetra Tech in the Caldwell U.S. Dividend Advantage Fund, which owns businesses that can compound in value over time with the added benefit of favorable dividends. Dividends grew over 20 per cent over the last year and the payout remains attractive at below 25 per cent. We believe the dividend can continue to grow as the company is seeing strong growth in its backlog. We expect continued momentum supported by government spending and compliance/regulatory-driven work from commercial customers. Acquisitions are also expected to add to growth.

PAST PICKS: JAN. 9, 2020

CGI (GIB/A TSX)

• Then: $112.72
• Now: $90.45
• Return: -20%
• Total Return: -20%

Motorola Solutions (MSI NYSE)

• Then: $168.69
• Now: $158.84
• Return: -6%
• Total Return: -4%

The Middleby Corporation (MIDD NASD)

• Then: $109.58
• Now: $98.18
• Return: -10%
• Total Return: -10%

Total Return Average: -11%