MARKET OUTLOOK:

Volatility has increased significantly in equity markets due to a confluence of factors, not least is the recent invasion of Ukraine by Putin. 

Markets were already muddled by the ongoing effects of the pandemic, central banks increasing interest rates to fight high inflation fueled by supply demand imbalances, supply chain disruptions and labour shortages. 

Markets have been driven by easy money from historically low interest rates and momentum investing, with little regard for valuation, led by a narrow group of overbought large cap technology stocks. 

The bubble that was forming in technology stocks has been deflated, which is healthy since there was much froth in the market, however much risk remains in new asset classes like cryptocurrencies. 

Money has been sucked out of other sectors, creating great investment opportunities at compelling valuations such as in renewable energy, certain industrials, healthcare, and non-resource small cap stocks. 

We expect market volatility to continue due to the geopolitical situation, however, central banks will take a more measured approach to normalizing interest rates as the rate of inflation eases from comparisons with low pandemic prices, and supply/demand gets back into balance post pandemic.   

TOP PICKS:

LOGISTEC (LGT.B TSX)
Logistec’s main business is providing marine cargo handling services in over 54 ports across North America including the largest container terminal in Montreal. Business is booming given what we are hearing about supply chain issues in ports, and Logistec is the only publicly-listed company on the TSX that you can invest in to gain exposure to the marine cargo handling business. They also have a fast growing environmental division that’s involved in water infrastructure repairs and soil remediation. We expect record results to be reported in March, yet the stock has barely moved over the past year. We estimate the shares are trading at a P/E of around 12X earnings and are worth as much as $70 per share.

VELAN (VLN TSX)
Velan is a world leader in nuclear and complex industrial valves. The company released excellent results in January with significantly improved profit margins following a very successful turnaround plan. They also have a strong backlog of orders which is expected to grow as their big end markets like energy and nuclear power strengthen. The stock is also one of the cheapest on the TSX, trading at less than 50 per cent of net book value of $17, and just over 3X EBITDA. We expect the company to aggressively start buying back shares which would be highly accretive. We also expect the company to eventually be sold to a strategic buyer and that based on prior M&A, the shares are worth over $20 per share.

TVA GROUP INC (TVA.B TSX)
TVA is North America’s largest French language conventional and specialty TV broadcaster with a 39 per cent market share in Quebec. It is also the largest French language magazine publisher and owns MEL’s film production studios. The company is a cash machine generating $80M in EBITDA and over $0.80/share in earnings. At its current share price of $3.40, TVA trades at only 2X EBITDA and a P/E of only 4X earnings, making it one of the cheapest stocks on the TSX. TVA is controlled by Quebecor Media which own 68 per cent of the equity, and we expect that the company will be privatized one day for at least 6X EBITDA which equates to over $10 per share.

PAST PICKS: March 22, 2021

ANDREW PELLER (ADW/A TSX)

• Then: $11.04
• Now: $7.05
• Return: -36%
• Total Return: -34%

BAYLIN TECHNOLOGIES (BYL TSX)

• Then: $1.42
• Now: $0.86
• Return: -39%
• Total Return: -39%

THINK RESEARCH (THNK TSXV)

• Then: $4.10
• Now: $1.04
• Return: -75%
• Total Return: -75%

Total Return Average: -49%