Veeral Khatri, partner and portfolio manager at JC Clark
FOCUS: North American large caps
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MARKET OUTLOOK

We are cautiously optimistic on North American equities for 2018. Although equity valuations are getting more expensive, the general economic backdrop is positive and interest rates, although rising, are still at historically low levels, which generally bodes well for equities. We are comfortable being exposed to some of the more cyclical areas of the market, but we are gravitating towards higher quality, larger cap names to reflect our more cautious stance. We don't think it's appropriate to be outright bearish at this time; however, investors need to keep in mind that equity markets can grind sideways for long periods of time and as a result they should be getting more selective with their investments and focusing on stock specific attributes to drive returns, as opposed to relying on the market to go up every year.  

TOP PICKS

WESTSHORE TERMINALS (WTE.TO)

  • They operate one of the largest coal-loading terminals in North America located off the coast of B.C.
  • Very good business — they earn a fixed fee for every ton of coal they load onto a ship, regardless of what the actual coal price is. All of their major customers are under long-term, "take-or-pay" contracts
  • Have been putting capital towards a significant capacity expansion project over the last several years. The project is expected to be completed by the end of 2018, at which point their free cash flow is going to increase significantly and they will be in a great position to increase the dividend
  • Valuation is attractive at 9x EBITDA; we have seen private transactions for similar port or infrastructure assets at multiples of 15x and higher

CARGOJET (CJT.TO)

  • Cargojet serves over 90 per cent of the overnight time-sensitive cargo market in Canada
  • Excellent business with dominant market share, high barriers to entry, but gets valued like a traditional transportation business that lacks those traits
  • Have two major customers representing 60 per cent of the market locked up under long term contracts until 2025
  • CJT is a great way to play the growing e-commerce trend as a significant portion of their volumes are tied to online shopping
  • Free cash flow is going to increase significantly in 2018 as they've just completed a major re-fleeting project

BROOKFIELD ASSET MANAGEMENT (BAMa.TO)

  • Global alternative asset manager with an investment focus on real estate, renewable power, infrastructure and private equity
  • By owning BAM, you are investing alongside an incredibly competent team, with a great long-term track record and significant operational expertise
  • There is a huge opportunity to grow their fee bearing capital over time, as large pension funds and sovereign wealth funds continue to deploy capital into "real" assets
  • Shares are currently trading at only a slight premium to NAV, which is inexpensive in our view

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
WTE Y Y Y
CJT N N Y
BAMa N N Y

PAST PICKS: JUNE 19, 2017

PEMBINA PIPELINE (PPL.TO)

  • Then: $43.63
  • Now: $45.28
  • Return: 3.78%
  • Total return: 6.36%

WESTAIM (WED.V)

  • Then: $3.19
  • Now: $3.03
  • Return: -5.01%
  • Total return: -5.01%

ALPHABET (GOOG.O)

  • Then: $957.37
  • Now: $1,035.70
  • Return: 8.18%
  • Total return: 8.18%

TOTAL RETURN AVERAGE: 3.17%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
PPL N N Y
WED N N Y
GOOG Y N Y

WEBSITE: www.jcclark.com