MARKET OUTLOOK:

Geopolitical tension has escalated, which coupled with concerns around inflation, interest rates and supply chain constraints, has resulted in a tough start for equities so far in 2022.   

Notably, fourth-quarter earnings have been very solid and the share price declines we are seeing are largely due to risk reduction and contractions in valuation multiples as opposed to company-specific developments.  

Small and mid-cap equities have fallen harder than their large-cap peers and are presenting some of the best buying opportunities that we have seen since the March 2020 COVID lows. Investors should be looking to take advantage of increased volatility to “high grade” their portfolios — shifting capital to their higher conviction ideas at levels they feel comfortable stepping in.  

TOP PICKS:

Softchoice Corp (SFTC TSX)
Softchoice is an IT solutions provider that helps customers implement and manage cloud-based services, software, and hardware. The company offers investors exposure to several fast-growing segments of the IT services market and has an above-average organic growth profile. We are expecting meaningful improvements in profitability going forward and believe the stock is undervalued at current levels.

Mainstreet Equity Corp (MEQ TSX)
Mainstreet is a real estate company which specializes in acquiring and managing mid-market rental apartment buildings in Western Canada. Mainstreet focuses on acquiring smaller buildings at attractive prices, in a segment of the market in which there is little competition from REITs and large institutional investors. Founder and CEO Bob Dhillon is highly aligned with shareholders and has assembled a 15,000-unit portfolio over the past 25 years with minimal equity dilution.

Propel Holdings (PRL TSX)
Propel is an online lender that provides U.S. consumers with fast access to small loans and lines of credit. The company is growing extremely quickly, targeting a 100 per cent annual increase in their loan portfolio and has very high returns on capital. Propel is quite rare in that it is a profitable growth stock trading on a single digit P/E multiple, which also pays a dividend in excess of 4 per cent. 

 
PAST PICKS: August 16, 2021

Converge Technology Solutions (CTS TSX)

• Then: $10.49
• Now: $9.45
• Return: -10%
• Total Return: -10%

Goeasy (GSY TSX)

• Then: $182.83
• Now: $150.99
• Return: -17%
• Total Return: -17%

Sangoma Technologies (STC TSX)

• Then: $3.15
• Now: $16.00
• Return: -27%
• Total Return: -27%

Total Return Average: -18%