Ryan Modesto's Top Picks: March 29, 2019

Ryan Modesto , BNN Bloomberg

BNN Bloomberg

Mar 29, 2019

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Ryan Modesto, chief executive officer at 5I Research
Focus: Canadian small and mid-cap stocks

MARKET OUTLOOK

All eyes are on the yield curve right now, with the three-month and 10-year yields inverting in the U.S. In the past, recessions have followed yield curve inversions, but there are a few things to keep in mind:

  1. It can take up to two years for a recession to actually happen.
  2. Markets have rallied on average 13 per cent after the inversion.
  3. The data points we have to work with are limited in terms of recession and inversions, so while it has been a good indicator, there are only a handful of data points to back this up.
  4. With everyone watching the yield curve so intently, we wonder if its predictive ability is weakened.
  5. Not every recession is a 2008 scenario. They can be mild and one doesn’t mean a portfolio needs to be turned upside-down.

It’s still something to keep an eye on, but the solution to concerns over yield curves and any other macro issues is simply ensuring an investor has a diversified portfolio that meets the individual’s needs. If you understand your timeframes and goals, any downturn should just be a part of the plan as they’re inevitable over time. If the idea of a 10 per cent pullback scares an investor, this may mean there’s too much risk in their portfolio to begin with and changes need to be made.

TOP PICKS

CAE (CAE.TO)

CAE provides flight simulators and training services. The company has great momentum and is a consistent performer in terms of fundamentals. 60 per cent of business is from services which tend to be recurring and they have a healthcare business which at the time is not overly material, but could be a contributor to organic growth over time.

GILDAN ACTIVEWEAR (GIL.TO)

Gildan is a slower growth name being involved in clothing production, but has partnerships with Amazon and is seeing success in the private label business and direct to consumer. They have increased capacity and are consolidating facilities which should drive margins higher.

PARK LAWN CORP (PLC .TO)

Park Lawn is involved in the operation of cemeteries and death care services. We view it as a defensive company that is able to grow with broad GDP growth. The company is growing by acquisition and has been seeing success with its expansion into the U.S., which is a much larger market.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
CAE  N N Y
GIL N N Y
PLC N N Y

 

PAST PICKS: MARCH 1, 2018

WESTERN FOREST PRODUCTS (WEF.TO)

  • Then: $2.71
  • Now: $1.86
  • Return: -31%
  • Total return: -28%

A&W REVENUE ROYALTIES (AW_u.TO)

  • Then: $32.00
  • Now: $38.69
  • Return: 21%
  • Total return: 28%

ROCKY MOUNTAIN DEALERSHIPS (RME.TO)

  • Then: $12.21
  • Now: $9.02
  • Return: -26%
  • Total return: -22%

Total return average: -7%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
WEF N N Y
AW_U N N N
RME N N N

 

FUND PROFILE

Balanced Equity Model Portfolio
Performance as of: Feb. 28, 2019

  • 1 month: 1.3% fund, 3.2% index
  • 1 year: -5.3% fund, 6.9% index
  • 3 years: 11.3% fund, 12.2% index

INDEX: TSX 300 Total Return.
Returns are net of fees, distributions and annualized.

TOP 5 WEIGHTINGS AND HOLDINGS

  1. Constellation Software: 7.2%
  2. Cash: 7.0%
  3. Magna International: 6.0%
  4. CCL Industries: 5.1%
  5. WSP Global: 4.8%

WEBSITE: 5iresearch.ca
TWITTER: @5iryan