Ryan Modesto, chief executive officer at 5i Research

Focus: Canadian small- and mid-cap stocks
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MARKET OUTLOOK

Markets have seen their first real bout of volatility in years now. While looking at why the markets dropped like they did in the past month, considering the context is important. Most of the decline on the U.S. side was simply giving back the run-up in prices that occurred in the new year. At the worst point, markets were down only three per cent on the year and still up 43 per cent over just two years. Downturns like this can be a good reality check. If an investor was losing sleep with these declines, it may be a sign that they hold too much risk in a portfolio.

The two primary things on investor minds now are interest rates and quarterly earnings. All eyes are on 10-year yields with concerns over higher rates leading to further selling of stocks as bonds become more attractive on a relative basis. There could be some risk here but the two things to remember are that rates continue to remain low compared to historical standards, and that the higher rates are coming from a good place. In other words, rates are going higher because the economy is strong and wages are seeing an increase. It is tough to paint this in a negative light, as long as it remains at a slow and steady pace.

Fortunately for investors, quarterly earnings continue to look strong, with 76 per cent of companies beating estimates in the U.S. and at least 60 per cent of companies beating estimates in Canada. Management outlooks remain positive and a lot of companies have been increasing dividends this quarter.

TOP PICKS

Ryan Modesto's Top Picks

Ryan Modesto of 5I Research shares his top picks: Western Forest, A&W Revenue Royalties and Rocky Mountain Dealerships.

WESTERN FOREST PRODUCTS (WEF.TO)
Shares are cheap on an absolute basis as well as relative to peers while offering a dividend greater than peers. WEF should continue to benefit from a strengthening global economy, a stronger U.S. dollar, and lumber prices hitting highs. NAFTA and tariffs are risks but WEF is able to shift product to Asian geographies to help offset this.

A&W REVENUE ROYALTIES (AW_u.TO)
Income stocks across the board have seen a selloff with interest-rate concerns. However, A&W now offers a yield in excess of five per cent and is one of the faster-growing restaurant-royalty companies in terms of same-store sales. The company is also able to grow the top line through increasing the number of locations, making it a solid option for income and growth investors.

ROCKY MOUNTAIN DEALERSHIPS (RME.TO)
This company checks a lot of the boxes that we like to see at 5i Research. Insiders own over 20 per cent of shares, the dividend has consistently grown over a five-year period, shares have good momentum, debt is declining, and management seems keen to begin looking at some strategic moves given their financial footing.
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
WEF N N N
AW_u N N N
RME N N N


PAST PICKS: APRIL 11, 2017 

CRIUS ENERGY TRUST (KWH_u.TO)

  • Then: $10.24
  • Now: $7.89
  • Return: -22.94%
  • Total return: -16.66%

ALTUS GROUP (AIF.TO)

  • Then: $30.26
  • Now: $31.48
  • Return: 4.03%
  • Total return: 5.51%

KNIGHT THERAPEUTICS (GUD.TO)

  • Then: $10.18
  • Now: $7.66
  • Return: -24.75%
  • Total return: -24.75%

TOTAL RETURN AVERAGE: -11.96%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
KWH_u N N N
AIF N N N
GUD N N N


FUND PROFILE: BALANCED EQUITY  MODEL PORTFOLIO

Ryan Modesto's Past Picks

Ryan Modesto of 5I Research reviews his past picks: Crius Energy Trust, Altus Group and Knight Therapeutics.

PERFORMANCE AS OF JAN. 31, 2018:

  • 1 month: Fund* 1.3%, Index** -1.4%
  • 1 year: Fund* 18.4%, Index** 6.7%
  • 3 years: Fund* 51.6%, Index** 18.8%

* Model portfolio so no fees are charged. All dividends are reinvested.
** Index: TSX Total Return


TOP HOLDINGS AND WEIGHTINGS

  1. Constellation Software (CSU): 6.02%
  2. Savaria Corp (SIS.TO): 5.89%
  3. Premium Brands Holdings (PBH.TO): 5.75%
  4. Magna International (MG.TO): 5.66%
  5. CCL Industries (CCLb.TO): 5.23%


TWITTER: @5iRyan
WEBSITE: 5iresearch.ca