Rob Tétrault, senior vice-president and portfolio manager at National Bank Financial
Focus: North American equities

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MARKET OUTLOOK

Although 2018 started off hot, February came and reminded us that volatility exists and is important for an efficient market. We expect volatility to continue to be a story for this year, although we don’t expect any serious market corrections (more than 20 per cent). We may very well have some more negative periods, but I don’t foresee a recession or a major economic downturn this year.

Our view with respect to asset allocation is to remain overweight equities and underweight fixed income. In the fixed income space, we’re overweight prefs, short duration and corporates. We just feel the global picture is too strong for a recession to hit in 2018. Now all of this can be thrown out the window if our neighbors to the south decide to start a real trade war, or if we have a global macro event on our hands. We’re keeping a close eye on those two factors while continuing to be fully invested for our clients.

TOP PICKS

BOYD GROUP INCOME FUND (BYD_u.TO)
Most recent purchase at approx. $91.

In a highly fractured industry, Boyd Group’s management has proven that nobody is better at consolidating than they are. For the past seven years, the company has been adding double-digits stores every year (most years significantly more than that) and has had strong same-store growth. The nature of their business makes them effectively recession-proof and a strong stock to own in a downturn. They should continue to excel at consolidating and the fact that they don’t need to issue shares in order to grow makes shareholders happy. Their strong balance sheet is also an important checkmark for them as they continue their aggressive expansion.

DISTINCT INFRASTRUCTURE GROUP (DUG.V)
Most recent purchase at $1.20.

The future of the telecommunication infrastructure sector is very bright. Distinct Infrastructure Group is a leader in this field and management has proven that they can grow while acquiring new businesses and enhancing shareholder value. The fact that the stock is trading on the venture likely explains why it’s trading at such a steep discount. We like the fact that margins are high, earnings per share will continue to grow, recent acquisitions are highly accretive, and that the firm has plans on more accretive acquisitions. Best-in-class technology when it comes to efficiency is also a huge bonus. The six-year compound annual revenue and EBITDA number is 50 per cent, and the market isn’t recognizing that growth in any way.

ARTIS REIT (AX_u.TO)
Most recent purchase at approx. $13.25.

Artis REIT is not a stock pick where I expect to make 50 per cent return. This is a defensive pick where I locate an underpriced stock that pays a very safe and tax-efficient dividend while expecting to get a small capital appreciation. When REITs start trading at funds from operations (FFO) multiples in the single digits or FFO yields in the double digits, that’s a screaming ”buy” signal to me. Artis has entered that territory, likely because of the perceived notion of them being an Alberta REIT. Management is strong, the dividend is safe, and due to the ownership structure and the steep discount to book, Artis is a potential take-out target.

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