Barry Schwartz, chief investment officer, Baskin Wealth Management

FOCUS: North American Large Caps

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MARKET OUTLOOK:

People always ask me about risk in investing. In my opinion, the biggest risk is not being in the market and not collecting dividends. For over twenty years, Baskin Wealth Management has kept its clients close to fully invested in stocks, bonds and preferred shares. For us, absent short-term liquidity needs, cash is not a suitable asset for anyone. This strategy has worked well for our clients and this is the strategy that we will continue to use for the next twenty years.

If you think you can outsmart the market, then good luck to you.  If it is true, you will be among the rarest of investors, the very few who know when to sell, what to sell, when to buy back, and what to buy back.  Maybe you can always get all that right; we know we cannot. Investing is hard. Removing unnecessary decisions from the process makes it easier. The fewer the transactions, the fewer the chances for bad mistakes.

As the Chief Investment Officer at Baskin Wealth Management, I have to wake up every day fully confident in our investment strategy for our clients: buy, hold and monitor. Stock prices may fluctuate, but if companies’ profits are improving and dividends are being paid (ideally even going up year after year), we stand pat. We only sell when we discover a better investment idea or if we find we have clearly made a mistake in our thinking about an investment.  We never sell due to movements in stock prices.  We sell when our view of the value of a stock has changed.

The past 17 months have been a challenge for most investors, including us. The S&P 500 has been flat and the S&P/TSX Composite Index has gone down. Over the last year and a half, simply not losing money was the best most could hope for. We accept the reality that markets are like that. We don’t know if tomorrow will be the start of a new bull run or a full-on bear market. Even if we did, our thinking would not change.  We continue to find great investment ideas to fill our clients’ portfolios, and we are confident in our strategy, which is to stay invested.

Top Picks:

Whistler Blackcomb (WB.TO)

Market Cap: $966m/0.75= $1.3b

EV/EBITDA: 9.7x

P/E: ~25x

Dividend Yield: 3.8%

Whistler finished up a very strong 2015-2016 ski season with over 20 percent increase in visitors and revenue, due to low CAD and good snow conditions. We think they have untapped pricing power, as a Whistler experience is unlike going to any other ski resort, similar to how going to Disney World is a different experience from going to any other theme park. Whistler has raised lift ticket prices every year since their IPO and we estimate that they can easily double ticket prices gradually over time. A longer term opportunity is that Whistler is investing heavily in summer time attractions which includes a new water-based resort and other attractions. At an 8 percent free cash flow yield, we think that the market is not fully appreciating the longer-term potential of Whistler. 

Note: The publicly traded entity owns 75 percent of Whistler, remainder is owned by Nippon Cable

Intertape Polymer (ITP.TO)

Market Cap: $1.2b

2016 EV/EBITDA: 8x

2016 P/E: 14x

Dividend Yield: 3.4%

Intertape Polymer Group is a producer of industrial tapes and films. They have undergone a successful turnaround over the last 5 years. The stock was flat in 2015/16 as results were impacted by flooding in their South Carolina plant. The lost production has since been successfully transitioned to a new facility which is expected to provide significant cost savings as it ramps up, and the lost revenue from the flooding should be covered by insurance.

With Intertape’s cost structure now being fixed, they currently have a strong pipeline of expansion projects, specifically in higher margin specialty products. The management is also committed to making accretive acquisitions, and with Intertape trading at a discount to other tape and packaging peers, we think there is good value here. 

Northview Apartments REIT (NVU_u.TO)

Market Cap: $1.1b

P/AFFO: 10.3x

Dividend Yield: 7.7%

Northview Apartments is the 3rd largest multi-family REIT in Canada. Northview was created in 2015 when its predecessor Northern Property merged with True North REIT. Northview’s stock fell 30% in 2015, before rebounding slightly in 2016, this is mostly because the old Northern Property REIT had 39 percent of their properties in resource towns such as Fort McMurray, and Lloydminster. This has changed with the True North merger, and the exposure to “oil towns” has more than halved. We think the market has not fully appreciated this as Northview is still trading at a significant discount to its peers using any metric.

We are buying all three at these levels.

Twitter: @BarrySchwartzBW

Website: www.baskinwealth.com