Peter Hodson, founder and head of research at 5i Research
Focus: Canadian small- and mid-cap stocks
As usual, there is something to worry about in the stock market. This time it is Trump's ineffectiveness or, you know, just the threat of nuclear war with North Korea. But if we have learned anything in the past 30 years, it is that there is always something to worry about. If you pay attention to the news, you might never invest a dime.
Instead of worrying, just watch what is important: corporate earnings and interest rates. Corporate earnings are fairly solid, and look to be improving. We are seeing companies report 40 per cent, 50 per cent, even 90 per cent earnings growth. All looks okay in that regard. On interest rates: yes, they are rising. But they are rising slowly, and investors seem fully prepared now for rates to move up, as the Fed discussed it for nine years prior to making any moves. It is the “surprise” interest rate hikes that are bad for investors, and with no inflation in sight (still), we are going to see only more slow and steady rate hikes while the economy ticks higher. The market can handle this. Stay with quality companies and stay diversified. Markets do not tend to do that badly when everyone “expects” a correction.
GOEASY LTD. (GSY.TO)
The company rents goods and appliances and provides short-term loans. It is growing its dividend nicely and is well managed, and insiders have been buying. Still, it trades at 8x earnings with a 2.8 per cent yield. Same-store growth was 16 per cent last quarter.
TREVALI MINING (TV.TO)
Just a call on metals, but also, TV has just purchased two mines from Glencore, giving it far more zinc leverage than any other mid-sized company. Last quarter, cash costs were $0.49/lb and selling prices were $1.20/lb. The acquisition closes very soon and TV should attract interest from metals sector investors. The balance sheet does get stretched a bit but the valuation is attractive at 9x earnings.
We have covered this company since it went public and have been following its ups and downs. Now, it finally seems to have figured out what it takes to be a public company. AVO makes security cameras as well as hardware and systems, and has now beaten earnings estimates in seven of eight quarters. The stock is acting much better and trades at 17x earnings. In the last quarter, earnings tripled and were 50 per cent higher than estimates. It also made more than $60 million in less than two years selling its office building.
PAST PICKS: NOVEMBER 2, 2016
SPIN MASTER (TOY.TO)
- Then: $34.12
- Now: $45.76
- Return: 34.11%
- Total return: 34.11%
PARKLAND FUEL (PKI.TO)
- Then: $30.71
- Now: $24.97
- Return: -18.69%
- Total return: -15.89%
GREAT CANADIAN GAMING (GC.TO)
- Then: $21.85
- Now: $31.50
- Return: 44.16%
- Total return: 44.16%
TOTAL RETURN AVERAGE: 20.79%
TOY and PKI are held in the 5i Research Inc Balanced Equity Model Portfolio
We still like all three. Spin Master reported exceptional results, and is doing far superior to the rest of the toy industry. Great Canadian recently secured a deal to add casinos in Ontario and is developing the Woodbine site with Brookfield. This helps diversify its business and sets it up for better growth.
FUND PROFILE: 5i RESEARCH BALANCED EQUITY PORTFOLIO
PERFORMANCE AS OF JULY 31, 2017:
- 1 month: Fund* -3.09%, Index** -0.3%
- 1 year: Fund* +13.13%, Index** +3.8%
- 3 years: Fund* +11.4%, Index** -0.3%
* Dividends included; there are no fees in the 5i Research portfolio
** Index: TSX Composite
TOP HOLDINGS AND WEIGHTINGS
- CCL Industries: 5.9%
- Constellation Software: 5.7%
- Savaria: 5.6%
- Premium Brands: 5.4%
- Magna International: 5.4%