Ryan Modesto's Top Picks: Sept. 13, 2018

Ryan Modesto appears on Market call Sept. 13, 2018 , BNN Market Call - Ryan Modesto

BNN Bloomberg

Sep 13, 2018

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MARKET OUTLOOK

The current environment for stocks feels a bit like there are the U.S. markets and then everything else. Stocks in the U.S. continue to remain strong performers, up over 8 per cent over the year-to-date period as measured by the S&P 500 while the TSX continues to struggle to remain above water and Emerging Markets are facing performance issues of their own. This is frustrating for a Canadian investor, especially in the context of an economy that is looking like it is on fine footing. While maybe not firing on all cylinders it is also difficult to pick on the Canadian economy too much. The TSX remains dominated by financials and energy and to have an overly positive outlook on the performance of the TSX, you need to have a positive outlook on these two areas. Fortunately, if you are not a big believer in the growth potential behind financials and energy, nothing says you have to own ‘the TSX’.

Outside of these dominant industries are numerous Canadian companies that have been stellar value creators over the long-term and many are companies you rarely hear about, if ever. These are the areas where we think an investor needs to look if they want to get a bit more growth from the Canadian side of the portfolio. These are also the areas that are vastly underrepresented in the TSX. Areas like technology, healthcare and the consumer sectors combine to only amount to 15 per cent of the TSX but these are the spaces where an investor is more likely to find quality growth companies for a portfolio. The companies are out there but in order to find them, an investor might need to venture off of the TSX benchmark a little.

TOP PICKS

TFI INTERNATIONAL (TFII.TO)
Don’t be scared away by the high returns that TFII has provided, the shares remain cheap on most counts. The company recently posted a good quarter and has been beating earnings estimates by a wide margin consistently. The economic backdrop supports demand for services from TFII and shipping rates are moving higher, helping margins. This is also a way to gain exposure to the ‘last mile’ for home delivery trends.

CAE INC (CAE.TO)
CAE provides training simulators to pilots in the civil aviation and defense sectors and is also trying to expand into the medical fields as well. It’s just a well-run company overall. Has recurring revenues and operates in a market that is hard to compete in while holding a high market share in some spaces. Offers a unique way to track the plane manufacturers, as more planes and new models sold should mean more training needed. They are also partnering with the Hololens from Microsoft for healthcare solutions.

THE STARS GROUP (TSGI.TO)
They released a quarter recently and had to guide earnings lower than what the market expected and the shares are getting punished because of it but we think it has fallen too far too fast at this point. The company is going through a $4.7 billion acquisition of Sky Betting and Gaming. TSGI holds some of the best brands in the space and is doing a good job of cross selling services and creating customer loyalty. Meanwhile, TSGI trades at 10 times earnings and 8 times cash flows.

Disclosure Personal  Family Portfolio/Fund
 TFII N N N
CAE N N N
TSGI N N N

 PAST PICKS

GLUSKIN SHEFF (GS.TO)

  • Then: $15.48
  • Now: $16.20
  • Return: 5%
  • Total Return: 14%

AVIGILON (AVO.TO)

  • Then: $19.84
  • Now: 27.00
  • Return: 36%
  • Total Return: 36%

KINAXIS (KXS.TO)

  • Then: $70.85
  • Now: $94.75
  • Return: 34%
  • Total Return: 34%

Total average return: 28%

Disclosure Personal Family Portfolio/Fund
 GS N N N
AVO N N N
KXS N N N

 

FUND PROFILE

Balanced Equity Model Portfolio

Performance as of: Aug. 31, 2018

  • 1 Month: -0.8% Fund, -0.8% Index*
  • 1 Year: 15.1% Fund, 10.0% Index*
  • 3 Year: 47.4% Fund, 28.3% Index *

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

5b. Include the top 5 holdings and weightings.

  1. Constellation Software (CSU TSX)       6.5%
  2. Magna International (MG TSX)             5.5%
  3. CCL Industries (CCL/B TSX)                5.4%
  4. Savaria (SIS TSX)                                4.9%
  5. Methanex (MX TSX)                             4.7% 

Company Twitter Handle: @5iresearchdotca

Personal Twitter Handle: @5iryan

Company Website: www.5iresearch.ca

Blog: https://www.5iresearch.ca/blog