Stephen Takacsy, president, CEO and chief investment officer at Lester Asset Management
Focus: Canadian equities

MARKET OUTLOOK

Equity markets have been strong in 2019 as fears of an impending recession faded and central banks cut interest rates, they’re now trending sideways as the U.S.-China trade war drags out and corporations start feeling the impact. Large caps have become very expensive as a result of passive ETF investing to the detriment of small- and mid-cap stocks, which have gotten even cheaper. Michael Burry of The Big Short fame recently called this phenomena a “bubble.” He’s investing heavily in small-cap value stocks around the world. We also see many good long-term opportunities in the neglected and mispriced Canadian small- and mid-cap sector at valuations well below private market values. IPOs such as Uber priced at ridiculously high valuations signaled a market top for money-losing tech stocks, which are now starting to deflate with WeWork’s failed IPO and valuation now a fraction of the last private equity round.

TOP PICKS

Stephen Takacsy's Top Picks

Stephen Takacsy, president, CEO and chief investment officer at Lester Asset Management, discusses his top picks: Mediagrif Interactive Technologies, Logistec Corp, Badger Daylighting.

MEDIAGRIF INTERACTIVE TECHNOLOGIES (MDF:CT)

This Quebec-based technology company has two business segments: business-to-business e-commerce platforms which are growing, and business-to-consumer websites which are declining (Jobboom and Reseau Contact). The stock collapsed this year when the company made huge write-offs in its business-to-consumer segment, which is being sold, and also eliminated its dividend since it wants to deploy cash to grow its other segment. Its new CEO, Luc Filiatrault, just announced his first large acquisition. Filiatrault has a very successful track record of creating shareholder value in the tech space, having sold businesses to large corporations such as OpenText. The business-to-business platforms generate high margin recurring revenues, and the company is worth at least $9 to $10 per share today based on a modest two times revenues.  It’s a great time to buy the stock as it is under tax-loss selling pressure and most investors have not bothered to understand the company’s new strategy. We recently purchased a block at $6.

LOGISTEC CORP (LGT/B:CT)

Logistec is a leading Montreal-based marine cargo handler and environmental services company. It owns marine terminals in over 30 ports in Eastern Canada and the U.S. The company’s environmental division provides site remediation and trenchless water pipe repairs using their AquaPipe proprietary technology. Logistec is an infrastructure play on two fronts: port facilities, which are currently commanding high valuations by pension funds, and the repair of aging North American drinking water systems, which will benefit from increased government stimulus spending. The stock came down on integration issues with the recently acquired Fer-Pal, their main water pipe contractor in Ontario, but results are improving. Environmental backlog is strong while the marine business is booming. We expect earnings to be up this year to between $2.10 and $2.40 per share, so the pull-back from the stock’s high of $55 represents an excellent buying opportunity. They increase dividend yearly and regularly buy back stock. Strong management. No analyst coverage. Recently topped-up below $38. 

BADGER DAYLIGHTING  (BAD:CT)

By far North America’s largest operator of hydrovac services (excavation by high water pressure trucks) used in the municipal, utilities and oil and gas sectors. Badger has been generating record results due to strong growth in the U.S. The company now generates 70 per cent of its business in the U.S., which is expected to double over the next three to five years since hydrovac services are still new in many parts of the country and infrastructure spending is growing. Shares have declined on weather-related issues and temporary enterprise reason planning expenses, and are now trading at a cheap valuation in relation to its growth rate. Badger has been aggressively buying back stock and insiders have been buying shares as well. We recently purchased more stock in the low $30s.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
INFY Y Y Y
JNJ Y Y Y
RDS/B N Y Y

 

PAST PICKS: JAN. 28, 2019

Stephen Takacsy's Past Picks

Stephen Takacsy, president, CEO and chief investment officer at Lester Asset Management, discusses his past picks: Velan, NFI Group, Sienna Senior Living.

VELAN, INC. (VLN:CT)

  • Then: $11.20
  • Now: $7.00
  • Return: -38%
  • Total return: -37%

NFI GROUP (NFI:CT)

  • Then: $33.65
  • Now: $26.08
  • Return: -22%
  • Total return: -19%

SIENNA SENIOR LIVING (SIA:CT)

  • Then: $17.24
  • Now: $18.42
  • Return: 3.8%
  • Total return: 12%

Total return average: -15%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ADP Y Y Y
ENB Y Y Y
SCVPF Y Y Y

 

FUND PROFILE

Lester Canadian Equity Fund
Performance as of: Nov. 30, 2019

  • 1 year: 9.2% fund, 13.2% index
  • 5 year: 37.0% fund, 34.4% index
  • 10 years: 198.1% fund,99.7% index

 TSX Composite Total Return.
 Fund returns include reinvested dividends and are net of all fees and expenses.

TOP 5 HOLDINGS

  1. Boralex: 4%
  2. Tecsys: 3.7%
  3. Algonquin Power & Utilities: 3.6%
  4. Pembina: 3.5%
  5. Logistec: 3.4%

WEBSITE: www.lesterasset.com