Ryan Modesto, CEO of 5i Research
Focus: Canadian small and mid-cap stocks

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MARKET OUTLOOK

Risk appetites seem to be on the rise again as trade tensions begin to ease and companies post yet another strong quarter. In the U.S., 79 per cent of companies have posted results beating earnings estimates. Based on revenues, 75 per cent of companies have beaten estimates. This is an impressive feat, especially considering that expectations on these same companies have been so high and this is on top of strong numbers in previous years.

In Canada, while the quarterly numbers haven't been quite as strong, companies have still reported good results. Roughly 57 per cent of companies have matched or exceeded earnings estimates, while 59 per cent have been above revenue estimates.

While an investor may be able to see some cracks in the Canadian earnings, we think some tailwinds are forming in Canadian markets. With oil prices and energy companies coming back into favour, the Canadian economy and companies that benefit from the energy sector should see a boost. Meanwhile, the Canadian dollar remains weak even with stronger oil prices, which could lead to a further, or at least sustained, boost in demand for Canadian goods all while the energy sector sees improvement. This is an interesting trend, as in the past higher oil prices have typically led to a stronger loonie. This is not playing out currently.

TOP PICKS

TRANSCOTINENTAL (TCLa.TO)

After dabbling for years in the packaging space, Transcontinental has finally made a large dive into the industry with the $1.7 billion purchase of Coveris. The transaction sets TCL up as a top-ten flexible packaging manufacturer in North America. While the company shifts its business to a new industry, it is still largely being valued as a traditional printing business while looking more and more like a packaging company.

GREAT CANADIAN GAMING (GC.TO)

Great Canadian has served our model portfolio at 5i Research well and recently blew past analyst estimates, beating revenue estimates by 56 per cent. This was helped by a recent gaming bundle win in Ontario starting to be included in results, but the these didn't even amount to a full quarter from this new business. On top of this, the company has another gaming bundle that will soon be included in results. What’s most interesting to us is that these contracts have 20-year terms and the company hasn't had a chance to begin even optimizing and renovating any facilities.

ALIMENTATION COUCHE-TARD (ATDb.TO)

The recent quarter was weak with the help of some volatility from rising gas prices, but shares have been this cheap for nearly five years now all while earnings per share (EPS) is expected to grow by double digits in each of the next three years. Typically, higher gas prices also help with margins for Couche-Tard over time and we view this as an opportunity for an investor with a longer-term outlook.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TCL N N N
GC N N N
ATD N N N

 

PAST PICKS: AUG. 2, 2017

THE STARS GROUP (TSGI.TO)

  • Then: $22.56
  • Now: $46.39
  • Return: 106%
  • Total return: 106%

NFI GROUP (NFI.TO)

  • Then: $50.95
  • Now: $54.75
  • Return: 7%
  • Total return: 9%

PHOTON CONTROL (PHO.V)

  • Then: $1.37
  • Now: $2.28
  • Return: 66%
  • Total return: 66%

Total return average: 60%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TSGI N N N
NFI N N N
PHO N N N

 

FUND PROFILE

Balanced Equity Model Portfolio
Performance as of: April 30, 2018

  • 1 Month: 1.44% fund, 1.82% index
  • 1 Year: 11.51% fund, 3.11% index
  • 3 Year: 43.21% fund, 12.05% index

* Index: S&P/TSX Composite Total return
* Dividends reinvested, model portfolio so no fees are charged. 

TOP 5 HOLDINS AND WEIGHTINGS

  1. Constellation Software (CSU): 6.84%
  2. Magna International (MG): 6.02%
  3. Cash: 5.96%
  4. CCL Industries (CCLb): 5.45%
  5. Premium Brands Holdings (PBH): 5.39% 

COMPANY TWITTER: @5iresearchdotca
PERSONAL TWITTER: @5iryan
WEBSITE: www.5iresearch.ca