Peter Hodson, founder and head of research at 5i Research
Focus: Canadian small- and mid-cap stocks


MARKET OUTLOOK

Investors panicked in the fourth quarter on growth concerns and interest rate concerns. Now we see a giant two-month recovery in the market. What is one to do? Well, the first thing is not to panic. Key items to watch are interest rates and corporate earnings. Both are positive now for the market, with the Fed all but guaranteeing rates are going to peak this year. We have decent valuations, takeovers and dividend increases. Things look good, but we would caution on one thing: Markets are up 10 to 12 per cent already this year; it will not be a “straight up” exercise. Markets started strong in 2018 and look how that turned out. We think things are generally fine, but that it isn’t the time to leverage a portfolio or take excessive risks either. We’re encouraged by company comments and most companies are beating estimates. If Trump can actually get a China deal, then investors will likely turn on the buying taps even more.

TOP PICKS

Peter Hodson's Top Picks

Peter Hodson, founder and head of research at 5i Research, shares his top picks: Shopify, Constellation Software and Micron Technology.

SHOPIFY (SHOP.TO)

Shopify has been a past pick and it's continued to outperform. It now has $1.5 billion in cash, and it is one of those rare Canadian companies becoming a world leader. It is on its way to more than 1 million customers and earnings per share are set to double from 2019 to 2020. All the naysayers and short sellers continue to get this one wrong. We think management knows exactly what it is doing.

CONSTELLATION SOFTWARE (CSU.TO)

Every company should be run like Constellation Software. It hasn’t diluted shareholders in nearly two decades, continues to outperform, has a very strong balance sheet and doesn't spend money on frivolous press releases. It doesn't even do conference calls. The recent quarter was solid and a special $20 dividend was declared.

We like to use Constellation as an example of how time in the market works. We started covering it at $103 per share in 2012 when investors thought it was very expensive. Now it’s $1,100 per share, going up last week in a single day by $141 or more than its price at our original recommendation. All 5i Research members want to know what the next Constellation is. It just might be Constellation still. Management is excellent and senior executives must own shares in their own company.

MICRON TECHNOLOGY (MU.O)

We don't usually comment on U.S. stocks, but the CEO of Micron recently indicated that the worst is over for the memory market and that he expects a much better second half of 2019. There’s that, but there is also the fact that the stock trades at only five times earnings and currently has more than $4 billion in net cash versus $5 billion in net debt only two years ago. Micron is a cash machine, with nearly $19 billion in cash generated in the last 12 months. It has been a takeover target in the past, and with its cash and exceptionally cheap valuation, we just think it’s a decent tech play right now.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SHOP N N Y
CSU N N Y
MU Y N N

 

PAST PICKS: DEC. 15, 2017

Peter Hodson's Past Picks

Peter Hodson, founder and head of research at 5i Research, reviews his past picks: Kinaxis, ECN Capital and Shopify.

KINAXIS (KXS.TO)

Still in our model portfolios. Recent contract wins look good.

  • Then: $75.21
  • Now: $81.84
  • Return: 9%
  • Total return: 9%

ECN CAPITAL (ECN.TO)

ECN continues to buy back stock and the stock is finally getting noticed.

  • Then: $3.85
  • Now: $3.96
  • Return: 3%
  • Total return: 4%

SHOPIFY (SHOP.TO)

  • Then: $135.20
  • Now: $241.95
  • Return: 79%
  • Total return: 79%

Total return average: 31%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
KXS N N Y
ECN N N Y
SHOP N N Y

 

FUND PROFILE

5i Research Balanced Equity Portfolio
Performance as of: Jan. 31, 2019

  • 1 month: 8.7% fund, 8.7% index
  • 1 year: -6.9% fund, -2.5% index
  • 3 years: 10.9% fund, 6.5% index

INDEX: TSX.
Returns are net of fees, distributions and annualized.

TOP 5 HOLDINGS AND WEIGHTINGS

  1. Constellation Software: 6.4%
  2. Magna International: 5.9%
  3. CAE Inc: 4.7%
  4. WSP Global: 4.7%
  5. Sun Life Financial: 4.4%

WEBSITE: 5iresearch.ca
TWITTER: @5iresearchdotca