Peter Hodson, CEO and head of research at 5i Research
Focus: Canadian small- and mid-cap stocks
We are generally bullish at 5i Research, and believe that a good company can still be a good company even in a “bad” market. We do not try to “predict” the market but instead strive to choose good companies. Earnings are okay; valuations are okay; balance sheets (corporate) are okay. Interest rates are okay, even though they are heading higher. There is no euphoria in the markets, so we are not at a “worrisome” point. That being said, we will have a new U.S. president this week, and he has proven already that he can and will be a loose cannon. We expect massive changes, and for the most part these will likely be “pro business” and good for the economy. We are concerned about trade wars, however, as nobody wins in a trade war. If U.S. corporations can repatriate cash and invest, though, investors will likely appreciate a return to growth in earnings. There are still good (and great) stocks out there, and we expect a continued asset allocation shift from bonds to stocks. We would, as usual, own all sectors for diversification, leaning towards high weightings in industrials, technology, consumer cyclicals and financials.
Note: 5i Research does not manage money nor trade Canadian securities. These stocks are in a representative model portfolio only, and have not been “bought.”
GOEASY LTD (GSY.TO): Very cheap at 10X earnings with a two per cent growing dividend. It leases furniture and provides consumer loans through easyfinancial. Earnings growth has been very consistent and solid. Earnings last year were impacted by a $5-million charge to earnings on a takeover bid that did not proceed, so year-over-year comparisons in 2017 will be much easier. Revenue grew at easyfinancial last quarter by 34 per cent.
HIGH ARTIC ENERGY SERVICES (HWO.TO) is in our Growth Portfolio right now. Generally we avoid resource-related companies, as they are not in charge of their own destiny. HWO, though, has managed the down cycle very well, maintaining a very solid balance sheet and its 3.7 per cent dividend. Now that the cycle may be turning, it should see good earnings and continued strong cash flow. It is just 8X earnings right now.
SHOPIFY INC (SHOP.TO) is in our Growth Portfolio. It was up more than 100 per cent last year, and we still think it has very good potential. We can't say it’s cheap, and it is still likely to lose money in 2017. But as Amazon destroys the retailing world, Shopify's association with Amazon will continue to benefit the company. It has $400 million cash, and revenues will double from 2014 to sales estimates this year. It should turn a profit in 2018. E-commerce, of course, will be here to stay, and Canada needs a new large cap technology name. Market cap is nearly $6 billion now.
PAST PICKS: JANUARY 15, 2016
ANDREW PELLER (ADWa.TO)
- Then: $20.64
- Now: $11.30
- Return: +64.24%
- TR: +66.84%
There was a 3-for-1 stock split for ADWa.TO in October 2016. These prices and returns account for the split.
- Then: $66.42
- Now: $84.18
- Return: +26.73%
- TR: +28.69%
CONSTELLATION SOFTWARE (CSU.TO)
- Then: $517.99
- Now: $602.00
- Return: +16.21%
- TR: +17.36%
TOTAL RETURN AVERAGE: +37.63%
FUND PROFILE: 5i RESEARCH BALANCED EQUITY MODEL PORTFOLIO
PERFORMANCE AS OF DECEMBER 31, 2016:
- 1 month: Fund +0.32%, Index* +2.04%
- 1 year: Fund +19.26%, Index* +21.08%
- 3 years: Fund +19.06%, Index* +7.00%
* Index: TSX Total Return Index
* Returns include reinvested dividends; no fees are applicable to the model portfolio so returns are net.
- Savaria: 5.8%
- Constellation Software: 5.4%
- CCL Industries: 5.4%
- Magna International: 5.4%
- Sun Life Financial: 5.2%