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


MARKET OUTLOOK

World stock markets continue to be complacent in the face of rich valuations and escalating U.S. trade wars which are starting to have an impact on corporate earnings. There are also increasing financial risks as interest rates rise to counter inflation, which is being fueled by wage growth from a tight labor market and now import inflation caused by the higher cost of foreign goods subject to Trump’s trade war tariffs. There are also signs of a market top as investors keep piling into U.S. ETFs led higher by a narrow group of tech stocks and various speculative manias such as cannabis stocks trading at nonsensical levels and cryptocurrencies, which have begun to crash in value. For this reason, we continue holding larger cash balances than usual. Nevertheless, we’re finding attractive opportunities in the less liquid and underfollowed Canadian small and mid-cap segment whose valuations have not been driven up by fund flows because they’re not part of any ETF basket of stocks. In fact, some companies are trading near the low end of their historic valuation range despite prospects never having been better. Also, some yield stocks have pulled back to attractive levels due to rising interest rates.

TOP PICKS

Stephen Takacsy's Top Picks

Stephen Takacsy, president and CEO of Lester Asset Management, shares his top picks: Centric Health, Grande West Transportation and Badger Daylighting.

CENTRIC HEALTH (CHH.TO)
New position. Last bought at $0.25.

Centric is one of Canada’s largest providers of medication and healthcare services to senior residences serving 31,000 beds. It also owns a network of surgical clinics. A new CEO from Cardinal Health has just been hired to increase profitability, which was recently impacted by regulatory drug price reforms in Ontario and Alberta, and aggressively grow the pharma business. Centric also just announced an agreement with Canopy Growth to supply it with medical cannabis; it’s one of the only companies in Canada who will be licensed to distribute cannabis to senior communities. It’s also launching a revolutionary automated drug delivery device for seniors living at home.  The stock has dropped to bargain levels and we expect a big turnaround to triple the stock over the next 18 months.

GRANDE WEST TRANSPORTATION (BUS.V)
New position. Last bought at $1.35.

B.C.-based developer of North America’s only single-frame heavy-duty medium-sized transit buses for public and private transit. The “Vicinity” bus was designed from scratch for the B.C. Transit Authority and is cheaper, lighter, more fuel efficient and sturdier than competing buses, which are made by cutting up larger ones. Business model is “capital-light,” with outsourced manufacturing and final assembly in Vancouver and Atlanta. The stock has declined due to delivery delays (not the company’s fault) and lack of recent orders although the RFP pipeline is very strong. Grande West recently reported strong profits and is now “Buy-America” compliant, allowing it to bid on public transit contracts in the U.S. such as in the state of Georgia where the “Vicity” bus was recently approved for purchase.  New bus orders in the U.S. should drive share price higher in next few months. We expect stock to double in the next 12 months.

BADGER DAYLIGHTING (BAD.TO)
Core holding.

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 this year 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 U.S. and infrastructure spending is growing. Stock is trading at around 15 times earnings and 7.3 times EBITDA for 2018. It’s never been cheaper, yet the company’s results and prospects have never been better. It should be a $40 stock.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
CHH Y Y Y
BUS Y Y Y
BAD Y Y Y

 

PAST PICKS: SEP. 25, 2017

Stephen Takacsy's Past Picks

Stephen Takacsy, president and CEO of Lester Asset Management, reviews his past picks: Goodfood Market, Pure Technologies and Rogers Sugar.

GOODFOOD MARKET (FOOD.TO)

Target is $5 to $6.

  • Then: $2.48
  • Now: $2.63
  • Return: 6%
  • Total return: 6%

PURE TECHNOLOGIES (PUR.TO)

Acquired by Xylem for $9.

  • Then: $5.37
  • Now: $9.00
  • Return: 68%
  • Total return: 68%

ROGERS SUGAR (RSI.TO)

Target is $10 within two years.

  • Then: $6.33
  • Now: $6.25
  • Return: -1%
  • Total return: 2%

Total return average: 25%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
FOOD Y Y Y
PUR Y Y Y
RSI Y Y Y

 

FUND PROFILE

Lester Canadian Equity Fund
Performance as of: Aug. 31, 2018

  • 1 Year: 6.7% fund, 11.7% index
  • 3 Years: 26.1% fund, 24.2% index
  • 10 Years: 161.6% fund, 62.8% 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. CN Railway: 3.7%
  2. Baylin Technologies: 3.6%
  3. Logistec: 3.4%
  4. Andrew Peller: 3.2%
  5. K-Bro Linen: 2.9%

WEBSITE: www.lesterasset.com