Michael Decter, CEO and chief investment officer at LDIC Inc.
Focus: Canadian large caps

MARKET OUTLOOK

Market remains jittery and sensitive to political/economic news on issues such as U.S.-China trade negotiations, Brexit, inflation and reactions of central banks.

On a global basis, there’s a slowing of economic activity and a decline in inflationary pressures. Central banks have cut interest rates and are running out of room to cut further.

The fourth quarter will determine whether Brexit is hard, soft or postponed. It will also determine whether an early U.S.-China trade deal is possible. The quarter will be shaped by a balancing of broader political/economic fears against third-quarter earnings reported by large U.S. corporations.

October is usually a very volatile month. Generally (but not always), there’s a negative impact of tax-loss selling. In the balance of Q4 there’s often a rebound (the so-called Santa Claus rally) as portfolio managers and retail investors look forward to what 2020 will bring.

TOP PICKS

Michael Decter's Top Picks

Michael Decter of LDIC shares his top picks: Boyd Group, Netflix and Medtronic.

BOYD INCOME FUND (BYD-U:CT)

Boyd operates in a fragmented industry with oligopolistic competition as there are currently only three main players in the space collectively making up roughly 15 per cent of market share. As a result, there’s a lot of runway for grow through acquisitions with the company’s scale being an attractive attribute to mom-and-pop shops. Boyd’s size allows for greater cost control and the ability to deploy cash prudently. The management team is well respected and has a great track record of acquisitions.

NETFLIX (NFLX:UW)

Netflix operates in 47 countries and has over 150 million subscribers, five times as many as its closest competitor. The stock is off over 20 per cent since its Q2 miss given the launch of competing streaming services. It is a high-valuation stock, so the share price could be either up or down 20 per cent when it reports its third-quarter earnings. This stock is only appropriate in a well-diversified portfolio.

Netflix is still not at break-even cash flow since they have a massive content spend. We believe that as subscriptions increase content spend can drop, producing positive free cash flow. Investors want to know if the Q2 subscriber miss was a blip tied to price increases in a long-term growth trajectory or the start of a topping out process. In the U.S., we believe households will have two or three streaming services with Netflix at the core. Internationally, we believe a proven U.S. model can be rolled out and that scale will allow Netflix to leverage content spend.

MEDTRONIC (MDT:UN)

Medical device growth is in a secular uptrend. One of our themes in a low-growth world is predictable growth with high visibility, and we forecast revenue growth of at least 4 per cent through 2022. Innovations will contribute approximately half of that growth and the balance will come from global expansion, especially in emerging markets. Approximately 40 per cent of emerging market revenues came from Greater China, 20 per cent from the Middle East and Africa and 20 per cent from Latin America.

As an example of upcoming innovations, Medtronic demonstrated robotics-assisted surgery at an analyst day on Sep. 25. The robot is expected to contribute to profits in 2022. Penetration of the addressable market for robotic surgery is very low and we forecast robust growth. Fewer than 2 per cent of all procedures performed today are done robotically. As a result, Medtronic could be the market leader in the space.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BYD-U Y Y Y
NFLX Y Y Y
MDT Y Y Y

 

PAST PICKS: OCT. 16, 2018

Michael Decter's Past Picks

Michael Decter of LDIC reviews his past picks: Boyd Income Fund, Netflix and Medtronic.

JP MORGAN (JPM:UN)

  • Then: $108.62
  • Now: $113.25
  • Return: 4%
  • Total return: 7%

PARKLAND FUEL (PKI:CT)

  • Then: $46.95
  • Now: $42.41
  • Return: -10%
  • Total return: -7%

ANALOG DEVICES (ADI:UW)

  • Then: $85.76
  • Now: $108.97
  • Return: 27%
  • Total return: 30%

Total return average: 10%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
JPM Y Y Y
PKI Y Y Y
ADI Y Y Y

 

FUND PROFILE

LDIC North American Small Business Fund

Performance as of: June 30, 2019

  • 1 month: -2.5% fund, 5.2% index
  • 1 year: -2.4% fund, -6.7% index
  • 3 years: 12.2% fund, 3.8% index

INDEX: 70% TSX Small Cap Index, 30% Russell 2000.
Returns are based on reinvested dividends, net of fees and annualized.

TOP HOLDINGS

  1. People Corp: 9.8%
  2. Park Lawn Corp: 9.4%
  3. StorageVault Canada: 9.4%
  4. Tucows: 5.7%
  5. Cargojet: 5.4%

TWITTER: @LDIC_Inc
WEBSITE: ldic.ca