Aug 16, 2021
Jordan Zinberg's Top Picks: August 16, 2021
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Jordan Zinberg's Top Picks
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Jordan Zinberg, president and CEO, Bedford Park Capital
FOCUS: Canadian stocks
MARKET OUTLOOK
As the economic recovery matures, earnings growth remains strong. Most of the companies we follow have now reported their second quarter financial results, and aside from some headwinds due to the strength in the Canadian dollar, results were largely better than expected.
Equities have staged an impressive rally off the lows of last year, and valuations have expanded. Despite more robust valuations, we are constructive on Canadian equities and expect the positive trend in earnings growth to persist.
At Bedford Park Capital, we specialize in small and mid-cap Canadian equities. Within that segment of the market, we continue find companies that offer investors attractive growth rates while trading at reasonable valuations.
TOP PICKS
Converge Technology Solutions (CTS TSX)
Converge is an IT solutions provider that is growing rapidly both organically and through acquisition. The company recently announced its first acquisition outside of North America, with the purchase of 75 per cent of Rednet AG based in Germany. Converge is one of the fastest growing companies that we follow, and their expansion into Europe combined with continued growth in North America should provide investors with excellent returns going forward.
Goeasy is a Canadian specialty lender that originates loans through over 400 branch locations, online, and through various channel partners. Notably, loan receivables have grown from $30 million to $1.8 billion over the past decade and management recently set a target of $3 billion by the end of 2023. The company has outstanding financial metrics, consistently achieving a high return on equity combined with expanding margins and a reasonable valuation.
Sangoma Technologies (STC TSX Venture)
Over the past 10 years, Sangoma has grown from a single product company with $10 million in revenue to a global communications solution provider with revenue that should exceed $250 million in fiscal 2022. In March of this year, Sangoma closed a transformational acquisition with the purchase of Star2Star which increased their scale, margins, and recurring revenue. Unified Communications is a large addressable market and despite Sangoma’s strong historical execution, the stock trades well below its peer group. We are watching for updated guidance in the fall as well as a Nasdaq listing later this year/early next year.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CTS TSX | Y | N | Y |
| GSY TSX | Y | N | Y |
| STC TSX VENTURE | Y | N | Y |
INVESTING STRATEGY
Focus on small and mid-cap Canadian stocks
- We focus on high quality Canadian small and mid-cap stocks as we believe it is a more inefficient portion of the market as opposed to large caps. There are fewer investors paying attention to this segment of the market, the companies grow faster, and there is better access to management. As a smaller fund we are able to purchase stocks that may be too small or too illiquid for larger funds and ETFs
Growth stocks at a reasonable price
- The foundation of our strategy is to look for high growth companies that we can buy at a reasonable valuation. Once we find a company that meets our criteria, we aim to own it for a long period of time and augment our returns through trading strategies.
Concentrated Portfolio
- We run a concentrated portfolio in which our top ten positions typically make up 70 per cent of our fund, and we believe that our investors prefer that we place the majority of our available capital in our best ideas. It is difficult to outperform the market over time without concentration. It is up to each investor to decide what the right number of stocks is for their portfolio however I believe many investors over diversify and own too many stocks.
