Teal Linde, manager of Linde Equity Fund
Focus: North American mid and large caps


MARKET OUTLOOK

Focusing on companies that have the potential to grow their revenues and earnings is a key cornerstone of our investment approach. Such companies offer the greatest potential for strong long-term investment returns. However, acquiring these companies at a reasonable price is also a critical part of implementing this strategy. If too much is paid for the shares, strong return potential is diminished.

Over the last few years, many recently-launched companies have received a great deal of media attention due to their very high growth potential. They are typically touted as the next big thing (Beyond Meat, Uber, Lyft, Shopify and Canopy Growth among others).In many cases these companies are without profits and in some, there’s no plan yet in place to achieve profitability. Investors are left with the task of estimating what rapid and pronounced future sales growth might mean to future profitability. These companies may indeed have strong sales growth and some appear to be creating entirely new industries that are disrupting current ones, but do the stock prices justify the valuations the market is placing on them?

Growth stocks have beaten value stocks over the last decade, particularly in the last five years (78 per cent total return for the S&P 500 Growth Index versus 38 per cent for the Value Index since May 2014), but consequently, many growth stocks have become fully valued. Finding reasonably-valued growth stocks has become more challenging than it was a few years ago. Our strategy to deal with this changing market environment, however, is not to abandon growth stocks as we still believe over the long term these are the best companies to own. We plan to stay vigilant, continue to turn over stones in search of new opportunities and await chances to acquire higher-profile, expensive rapid growers upon a sizeable market correction as we did with Amazon in the fourth quarter (up 42 per cent since Dec. 24). Patience has its rewards.

TOP PICKS

AIR LEASE (AL.N)
Last purchased on Jan. 22, 2019 at $36.39.
Air Lease engages in the purchasing of commercial aircraft for lease to global airline customers. As one of the largest buyers of planes from Boeing and Airbus, it enjoys front of line and volume discount purchases, making it cheaper for most airlines to lease from them than to buy. The company recently said concerns over global trade and political tensions and fuel price and emerging market currency volatility have neither discernibly impacted global passenger traffic growth nor aircraft demand. Portfolio expansion on aircraft deliveries is expected to support continued strong revenue expansion and robust earnings growth ahead.

SQUARE (SQ.N)
Last purchased on April 15, 2019 at $74.39.
Square is a leading payments and point-of-sale provider launched by Twitter CEO Jack Dorsey and Jim McKelvey. The founders created a device and app to enable receiving credit card payments by anyone with a smartphone. Starting from there, they went on to build an entire suite of tools to help small businesses succeed, including software for inventory management, running payroll and financial reports. The company’s success has led to over a billion dollars in annual revenue and more than two million active merchants in just its first five years. The company continues to grow rapidly.

TIDEWATER MIDSTREAM & INFRASTRUCTURE (TWM.TO)
Last purchased on April 15, 2019 at $1.50.
Tidewater remains confident in its ability to execute its previously disclosed strategic plan where fourth quarter 2019 and fiscal year 2020 net income and adjusted EBITDA are expected to increase by over 50 per cent, compared to the same periods in 2018 once the Pipestone gas plant and the Pioneer pipeline are fully operational. The company announced on Friday that first gas flowed through Pioneer about four months ahead of schedule. Looking to 2020 and beyond, Tidewater is targeting its next $200 to $500 million of growth, through projects such as Pipestone phase 2, the Pipestone liquids hub and expansion at its Acheson facility and at other gas storage facilities. The company does not anticipate funding this second wave of growth with equity, which should support additional double-digit growth for shareholders.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
AL Y Y Y
SQ Y Y Y
TWM Y Y Y


PAST PICKS: DEC. 10, 2018



INTER PIPELINE (IPL.TO)
• Then: $20.50
• Now: $20.18
• Return: -2%
• Total return: 3%

TD BANK (TD.TO)
• Then: $69.55
• Now: $77.41
• Return: 11%
• Total return: 14%

AIR LEASE (AL.N)
• Then: $35.27
• Now: $40.39
• Return: 15%
• Total return: 16%

Total return average: 11%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
IPL Y Y Y
TD Y Y Y
AL Y Y Y

 

WEBSITE: lindeequity.com