FOCUS: Canadian Equities

Market Outlook:

Market volatility is expected to persist this year as policymakers in emerging and developed economies try to stabilize growth and inflation. Recent comments by the Federal Reserve have investors reducing their expectations of future rate hikes, prompting a further U.S. dollar decline and a rally in risker assets including commodities and high yield bonds.  Although weakness in the greenback and higher oil prices should take some of the downward pressure off earnings, profits still face headwinds from weak global economic activity.  While the inflection in sentiment is welcome, we believe investors should position themselves into high quality dividend payers in North America and Europe for the remainder of the year.  


Andrew Peller (ADWa.TO) 

Ontario-based leading Canadian-owned wine producer and marketer. Strong management. Has been successfully launching new products and reducing costs through efficiencies. Should earn over $1.60 per share in 2016, up from $1 per share a few years ago. Trading at a P/E of 16X which is a large discount to comparable companies such as Corby’s and Constellation Brands. New regulations in Ontario will allow wine to be sold in supermarkets, thus expanding distribution for local producers like Peller. Company owns over 100 retail outlets, which will gradually migrate in-store and sell 3rd party products. Also holds undervalued real estate in Port Moody, BC worth several $ per share. Increases dividend yearly. Company is worth $50 on a take-out at 2X sales (Vincor). No analyst coverage. CORE LONG TERM HOLDING.

Logistec (LGTb.TO)

Leading Montreal-based maritime cargo handler and environmental services company. Owns stevedoring infrastructure and marine terminals in over 30 ports in Eastern Canada and the US. Environmental division provides site remediation and trenchless water pipe repairs (Aquapipe). Strong management. Recently doubled capacity at its Montreal container terminal, so costs went up in 2015 without equivalent volume increase which should kick-in during 2016. Stock had risen 8 fold since we bought it 10 years ago, but pulled back to a reasonable P/E of 16X. Regularly increases dividend and buys back stock. No analyst coverage. CORE LONG TERM HOLDING.

Ten Peaks Coffee (TPK.TO)World’s only 3rd-party processor of 100% chemical-free, organic decaffeinated coffee, using the branded Swiss Water trademark, based in Burnaby, B.C. Also provides green coffee storage and handling logistics services. Processes for and sells to large chains like Tim Horton’s and McDonald’s (only has 20% of its US business), specialty roasters (Third Wave specialty coffee shops) and global importers. Current plant is running at near full capacity, so recently raised funds at $8.80 to build a second plant in the Vancouver area. Strong growth in the US and internationally where majority of the decaf market is still chemical-based (chemicals banned in Japan) We are expecting sales volumes to grow by at least 15% with EBITDA reaching $10M and EPS of $0.70 this year. The stock is cheap at 7.7X EBITDA for a high-barriers-to-entry, growing, global, free cash flow generating business. Purchase more shares last week at $8 on pull-back. Also pays a 3%+ dividend. NEW POSITION SINCE MID-2015.

Disclosure Personal Family Portfolio/Fund

Past Picks: Apr. 27, 2015

D-Box Technologies (DBO.TO)

Recommended at: Now at: Change Total Return
$0.31 $0.41 +32.26% +32.36%

New comments: Developer of motion systems for seats in movie theaters and industrial simulation. Early days as theater chains are just starting to upgrade seats to take advantage of D-BOX’s ability to "motion code" Hollywood action movies. Growing recurring revenue stream based on Box Office and maintenance fees.  Since we recommended D-Box, it has posted record financial results and announced several material agreements such as an initial roll-out of its motion systems in the US (80 screens in 40 theaters) with Cinemark (3rd largest theater chain) as well as its 3rd  expansion with Cineplex in Canada (23 more screens). D-Box has a huge backlog and should post another record year in 2016. We believe that all the major chains in the US will follow Cinemark's lead, and that Asian market, particularly China, will be even bigger than the US. Very cheap for a technology company with huge global growth potential, limited competition and a huge moat. Only one analyst covers D-BOX, but we expect more will in the future. Potential take-out at over $1. Purchased more shares in February at $0.30 and now own over 6% of company. CORE LONG TERM HOLDING

Velan (VLN.TO)

Recommended at: Now at: Change Total Return
$20.35 $17.00 -16.46% -14.54%

NEW COMMENTS: Global industrial valve manufacturer and world leader in nuclear valves based in Montreal. Benefiting from worldwide infrastructure spending and strong US$. Backlog has weakened due to slowdown in energy related projects, but company is very profitable, has $4 per share net cash, and trades at under Net Book Value per share and even under Tangible Net Book Value per share), plus has lots of undervalued real estate. Focussed now on improving production efficiency and margins, and implementing best practices. Family may be preparing to sell company, as founder is in his late 90's. Company is constantly buying back stock so good technical support. Dividend 2.3%+. Company could be worth up to $30 if sold to a larger industrial player. Bought more shares in January under $15, around time of earnings announcement. CORE LONG TERM HOLDING.

Corus Entertainment (CJRb.TO)

Recommended at: Now at: Change Total Return
$17.94 $11.42 -36.34% -30.83%

Largest pure-play media company in Canada. Stock was hit hard in 2015 due to softer TV ad revenues, under-performing radio stations and uncertainty caused by new CRTC rules. Since we recommended Corus, the company announced that it will acquire Shaw Media for $2.65 billion, a combination we had long advocated and anticipated. This deal will be hugely accretive as Corus should easily exceed $50M in cost savings  and also generate significant revenue synergies as it becomes a powerhouse in woman’s and children’s advertising. The new CRTC “Skinny Basic” and "Pick & Pay" rules should not affect Corus much as the company has most of top specialty channels in Canada, and cable and telco distributors are pricing TV packages accordingly. Generates strong free cash flow and 10% dividend is safe. Cheap valuation. We expect Corus to be one of the top performing stocks on TSX in the next 12 months. Recently purchased more shares in $9's. CORE LONG TERM HOLDING.


Total Return Average : -4.37%

Disclosure Personal Family Portfolio/Fund