Peter Imhof, vice-president and portfolio manager at AGF Investments
Focus: North American small caps

MARKET OUTLOOK

Presently I’m somewhat cautious on the overall Canadian market, but am bullish in pockets of the market where we’ve seen some very good earnings numbers from niche-oriented companies. It’s difficult to be extremely bullish on the Canadian market as we’ve not seen many of our financials produce strong earnings numbers and our energy sector acts as if every exploration company has no viable future. It’s surprising that the S&P/TSX Composite Index is up by as much as 13 per cent year-to-date, as the market tone definitely doesn’t feel that way. We’ve seen much of the money flowing into large-cap stocks with decent yields that managers can hide in. If you look at the valuations on many of those names, they’re at historic valuation gaps relative to other sectors. I believe this sets investors up for some strong returns in sectors that have been out of favor. Year-to-date, it has not paid to be in riskier assets, but this will change as asset values have come down dramatically over the past couple of months.

TOP PICKS

CORUS ENTERTAINMENT (CJRb.TO)
Recently bought more on the $6.25 deal as well as earlier this week at $6.50.

Corus is a diversified Canadian broadcaster, which operates many specialty channels such as W, YTV and Teletoon. The company is in turnaround mode and has been doing everything right over the past few quarters. Advertising revenue has started to pick back up and has been helping the bottom line. The stock is extremely inexpensive at five times EV/EBITDA and trades approximately at a 25 per cent free cash flow yield. Corus offers a 3.6 per cent dividend yield. I believe it is an ideal time to get involved, as Shaw’s botched secondary offering of Corus’ shares is a great entry point for those that were thinking of buying the stock.

BRP INC (DOO.TO)
Last purchase May 31at $40.

BRP had been severely punished this year as investors were jittery about what earnings would look like in the most recent quarter. Investors were worried about a late-cycle play in such a discretionary area. The company continues to take market share from its nearest competitors and trades at a very low multiple relative to its earnings growth rate over the past four years. Management seems to be extremely bullish on their stock as they just announced a substantial issuer bid for $300 million of their stock at between $44 and $52.

PRECISION DRILLING (PD.TO)
Recently purchase at $2.30.

Precision Drilling has been decimated over the past seven weeks with its stock down to $2.25 from $4. The stock had been acting well early on in the year as the management team continues to execute on paying down their debt at a rapid rate. The last few quarters have exceeded analysts’ expectations in terms of free cash flow generation and debt repayments. The stock is back to the price it was in late December when the world was ending. Precision trades at approximately 23 per cent free cash flow yield on this year’s numbers. I think the setup for outsized returns from this name is excellent over the medium and longer term.

PAST PICKS: JUNE 13, 2018

AG GROWTH INTERNATIONAL (AFN.TO)

• Then: $57.63
• Now: $53.60
• Return: -7%
• Total return: -3%

AECON (ARE.TO)

• Then: $15.38
• Now: $18.97
• Return: 23%
• Total Return: 27%

YANGARRA RESOURCES (YGR.TO)

• Then: $5.52
• Now: $2.22
• Return: -60%
• Total return: -60%

Total return average: -12%

WEBSITE: https://perspectives.agf.com