May 25, 2017

Peter Imhof's Top Picks: May 25, 2017

BNN Bloomberg

Peter Imhof , BNN

Peter Imhof, vice president and portfolio manager at AGF Investments

Focus: North American small caps
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MARKET OUTLOOK
We are presently somewhat cautious on the market as we are going into a seasonally weak period. Much of the market is already in a weak state as the majority of the U.S. performance has come from a few mega cap companies. Financials in Canada were leading but have come off over the past couple of months, and the oil-and-gas sector continues to be the laggard year-to-date. We are focusing the fund on companies that have reported exceptionally strong earnings over the past couple of quarters. The fund is carrying a little more cash than usual and deploying it as we see some weakness in some of our favourite names. A bright spot for the market has been mergers and acquisitions of small to medium capitalized companies. The majority of the companies have been taken out by U.S. corporations where they have been able to leverage their stronger U.S. dollar versus the weakening Canadian dollar. I believe this will continue as many of our small companies trade at a substantial discount to their peers in the U.S.

TOP PICKS

YANGARRA RESOURCES (YGR.TO) – Last purchased at the end of March at $2.34
Yangarra is an oil-and-gas producer in west-central Alberta. Its conservative management team has built a great company that will show exceptional growth in 2017.

During most of 2016 the company decided not to drill, as oil prices were low. It focused instead on acquiring lands and working on their drilling techniques. Yangarra produced approximately only 2,900 barrels of oil equivalent (BOE) last year and has steadily grown its production to 6000 BOE.

The last few wells they’ve drilled have come on very strong, and over the coming months we should hear about other wells that are going to be drilled soon. Yangarra’s cash flow and production should move up dramatically over the course of 2017 and will outpace that of any other junior oil-and-gas company in Canada. The market cap has steadily moved up but the valuation has still remained somewhat constant as the production and cash flow numbers have moved up. It is one that is hard to ignore as analyst numbers continue to be revised higher.

PHOTON CONTROL (PHO.V) – Last purchase in April at $1.58
Photon Control is a technology company that plays in the semiconductor market. Photon’s technology helps customers increase yield and efficiency on the semiconductor wafers they use. Photon is a very unknown story with only one analyst following it. The company has grown revenues by a compound annual growth rate of 23 per cent over the past six years. The company generates lots of free cash flow and has a pristine balance sheet with over $32 million in cash (25 per cent of the market cap). Their client list is strong and has been reporting record quarterly revenues and earnings for the past few quarters and have all given positive outlooks for their business, which should be a good indicator for Photon. The story will get on the radar screen of other managers as the earnings continue to come through.

PURE MULTI-FAMILY REIT (RUF_u.V) – Last purchased at $8.90 in early April on a deal
Pure owns and operates U.S. multi-family properties in the U.S. Sun Belt. The properties are located in some of the fastest growing areas in the U.S. The company has done a good job of growing its NAV since going public. It is the only remaining multi-family REIT that trades in Canada that owns all their assets in the U.S. and pays a U.S. distribution. Pure presently trades at a 5.4 per cent yield. Their properties are considered Class A and have an average age of 11 years. In the recent quarter, average rent per occupied unit went up 4.6 per cent.