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

MARKET OUTLOOK

Markets rebounded strongly this year from oversold conditions as fears of an impending recession faded, central banks stopped raising interest rates and the U.S.-China trade war was pushed out. We took some profits, raising 10 per cent cash as the stock market was getting expensive amid slowing global growth and trade war uncertainty. Now that a U.S.-China trade deal failed to materialize and tariffs are being imposed, we're even more cautious as corporations start getting impacted. Also, IPOs such as Uber priced at ridiculously high valuations signal a market top. Nevertheless, we still see many good long-term opportunities in the neglected and mispriced Canadian small- and mid-cap sector.

UPDATE

Grande West Transportation (bought at $1.66): sold 50 per cent of our position around $0.80 as new orders have been slower than anticipated.

TOP PICKS

David Cockfield's Top Picks

David Cockfield of Northland Wealth shares his top picks: the ZWU, the ZLB and the XSH.

SWISS WATER DECAF COFFEE (SWP.TO)

Burnaby, B.C.-based Swiss Water (formally called Ten Peaks) is the world’s only chemical-free processor of decaffeinated coffee. It also provides coffee storage and handling services. They sell to large chains like Tim Horton’s and McDonald’s and specialty roasters such Third Wave specialty coffee shops and global importers. International demand for chemical-free decaf is growing, so the company is building a new plant to double capacity which should be completed this fall. First-quarter results were very strong, showing continued double-digit volume growth and gross margin expansion. The stock is very cheap at roughly 10 times price-to-earnings and 8 times earnings before interest, tax, depreciation and amortization (EBITDA) for a high barriers to entry, global growth and cash-flow-generating business. Pays an attractive 4.4 per cent dividend.

POLLARD BANKNOTE (PBL.TO)

Pollard is the second largest supplier of printed instant lottery tickets in the world. North American ticket sales have been growing at a compound annual growth rate of 6 per cent for over 20 years. Barriers to entry are very  high with only three players licensed in North America. Scientific Games has 70 per cent market share while Pollard has around 22 per cent and IGT 8 per cent. Pollard has been gaining share with state lotteries by creating innovative content on tickets and also focusing on technology and lottery management. Pollard has also expanded into charitable gaming, iLottery and display merchandising. Pollard has been growing profits organically and by acquisition and plans on being even more acquisitive and increasing its public float, which should drive its stock price much higher over the next few years. We recently purchased more shares around $22.

BLACKBERRY (BB.TO)

Many investors don’t realize that BlackBerry is now a pure software company with a growing double-digit recurring revenue base from three streams: Enterprise security software for mobile communication, which the company is traditionally known for and it's transitioning into a software-as-a-service model; the QNX operating system, the gold standard for the automobile industry for infotaiment and advanced driver assistance systems and for which BlackBerry gets a royalty per car (120 million cars so far); and a large patent licensing business. BlackBerry also just acquired Cylance, a leading cybersecurity software firm that uses AI and machine learning technology to predict and prevent cyberattacks before they happen. The stock trades at only 3.5 times revenues. We expect BlackBerry to be acquired within a few years at 7 to 10 times revenue by the likes of Microsoft for $20 to $30 per share.

PAST PICKS: JUNE 14, 2018

David Cockfield's Past Picks

David Cockfield of Northland Wealth reviews his past picks: The XEG, Scotiabank and BCE.

GRANDE WEST TRANSPORTATION (BUS.V)

  • Then: $1.53
  • Now: $0.53
  • Return: -65%
  • Total return: -65%

ALTUS GROUP (AIF.TO)

  • Then: $29.39
  • Now: $29.70
  • Return: 1%
  • Total return: 3%

SOLIUM (SUM.TO)
Acquired by Morgan Stanley on May 2, 2019 for $19.15 per share.

  • Then: $12.05
  • Now: $19.15
  • Return: 59%
  • Total return: 59%

Total return average: -1%

LESTER CANADIAN EQUITY FUND
Annualized net returns as of April 30, 2019

  • Year-to-date: 13.4% fund, 13.4% index
  • 3 years: 7.3% fund, 7.6% index
  • 10 year: 12.4% fund, 7.6% index

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

TOP 5 HOLDINGS AND WEIGHTINGS

  1. Baylin Technologies: 3.8%
  2. CN Railway: 3.6%
  3. Pembina Pipeline: 3.6%
  4. Sienna Senior Living: 3.1%
  5. BCE: 3%

WEBSITE: https://lesterasset.com/