Peter Imhof, vice president & portfolio manager, AGF Investments

FOCUS: North American Small Caps

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MARKET OUTLOOK:

I am somewhat cautious over the shorter term for the Canadian stock market. We have had a strong recovery from the January lows and would expect a pullback. I am still bullish for the year on the Canadian markets as we have underperformed the US market for the past five years. I am even more bullish on small caps in Canada vs. the larger caps. Small cap stocks have underperformed the large caps within Canada for the past 5 years. Year to date the Small Cap Index is up over 20 percent vs. 6 percent for the TSX Composite. The fact that the small cap market is 50 percent exposed directly to resources should prove beneficial this year. The market has seen a huge rebound in the precious metals sector year to date as well as in small cap energy sector. Recent financings have gone extremely well as many managers are underweight the sectors and are now chasing performance in sectors that have outperformed year to date.

Top Picks:

Parex Resources (PXT.TO)

Colombian oil producer. Low cost operator. They have done a great job of growing production via exploration. Good visibility to growing production from 28 000 to 50 000 BOE. Consistently under promises and over delivers. Recently bought more at $12.50.

Firan Technology Group (FTG.TO)

Very inexpensive valuation relative to what their growth should be over the next couple of years. Trades at a large discount to peers because it is not well known. Recent acquisition should fill their plant capacity and dramatically increase their margins. Bought a month ago at $2.20.

Espial Group (ESP.TO)

Extreme value play with 66 percent of the market cap in cash. Has been a disappointment over the past year but now the risk reward is too enticing not to own it. Recently announced that they will be rolling out their software with a client in Europe during the second quarter. I would expect them to roll out another near the end of the year. Many investors have gotten impatient with the story but the downside would be limited to 50-60 cents while the upside is greater than an additional $2 per share.