Stephen Takacsy, president, CEO and chief investment officer at Lester Asset Management

FOCUS: Canadian stocks

MARKET OUTLOOK:

As government restrictions from the pandemic are lifted, financial markets continue to benefit from the flood of liquidity by central banks, which caused many bubbles to form (cryptocurrencies, EV stocks, SPACs…). As reality sets in, some of these trades have started to unwind (Bitcoin, commodities, real estate…). However, momentum investing into the “reopening/reflation” trade has sucked money out of parts of the market that were doing well during the pandemic creating great buying opportunities in oversold sectors like renewable energy (Boralex, Innergex) and some technology stocks (MDF, Tecsys). We have been cautious, not wanting to be a hero by playing the “re-opening trade”, but rather holding more stable companies and a larger cash balance even at the risk of lagging the broader market on the upside.

TOP PICKS:

CloudMD Software (DOC TSXV) Digital health at a reasonable price

One of the fastest growing technology healthcare solutions providers to clinics, enterprises and patients. They are making a big push into EHS (Enterprise Health Solutions) by offering a centralized “whole patient” platform integrating primary care, mental health, eye and other specialty care for employers and insurance companies into a holistic “one stop shop” approach. This should help make it easier and quicker to deal with employee health issues and reduce absenteeism, which is a big problem. They made a flurry of acquisitions, which they are in the process of integrating. Pro-forma annualized revenue run-rate is expected to be around $120M with EBITDA between $5M and $10M. The stock has been weak as the market is waiting for two large acquisitions to close: Oncidium and VisionPros. This provides a great opportunity to invest in the sector at a reasonable price of under 3X revenues versus peers like Well Health and Dialogue trading at significantly higher multiples.

Guardian Capital (GCG/A TSX) Deep value and rapid growth

Fastest growing publicly traded investment manager and a distributor of life insurance/investment products. Has $48 billion in AUM (institutional portfolio management) and $29 billion in AUA (financial advisory). Growing organically and by acquisition as they diversify their asset management internationally. It’s also been the best performing stock in the asset management sector over the past 10 years (tripled), yet still trades at a huge 40 per cent to 50 per cent discount to its intrinsic value. Sum-of-the parts analysis indicates shares at worth over $50 versus the $30 current trading price. Company regularly buys back shares and increases their dividend.

Stella Jones (SJ TSX) High-quality earnings at a dirt-cheap price

Leading North American producer of railway ties and utility poles. Most of their sales are reoccurring from the replacement ties and poles market, although there is growth in utility poles from expanding the power grid and new fire-resistant poles. They also have a residential lumber business through Home Depot, which ended up booming during the pandemic as people stayed home and spend on home renovations. Balance sheet is strong allowing it to make more accretive acquisitions, buy-back share and really boost the dividend. The stock has really pulled back from the “unwinding of the COVID trade”. When the lumber business is “normalized”, the stock is dirt cheap now trading at around 12X earnings.

PAST PICKS: June 16, 2020

CareRx (CRRX TSX) formerly called Centric Health. Aging demographics, consolidation, telemedicine – a safe way to play healthcare

• Then: $4.70
• Now: $6.44
• Return: 37%
• Total Return: 37%

MDF Commerce (MDF TSX) formerly called Mediagriff. E-commerce growth on the cheap

• Then: $6.15
• Now: $10.55
• Return: 72%
• Total Return: 72%

SIENNA SENIOR LIVING (SIA TSX) a safe reopening stock

• Then: $10.00
• Now: $16.20
• Return: 62%
• Total Return: 75%

Total Return Average: 61%

Company Website: www.lesterasset.com