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Peter Hodson, Founder & CEO, 5I Research Inc.
As long as everyone is worried about a crash/correction, we doubt we’ll get one. With the Fed's help, the economy has successfully navigated its war out of crisis, and now we have what may be a typical recovery. The market has almost completely adjusted to the Fed tapering program, so now it is all about interest rates and earnings. Earnings are good. Employment is rising and companies are spending again. This is not the type of scenario where market problems usually occur. Investors know interest rates will rise one day… but if they are rising because the economy is strong, we think investors will take it in stride.
Thus, we would expect more of the same: decent earnings, lots of takeovers, higher dividends, and lots of worried investors--all conditions needed for a continuation of a bull market.
PLEASE NOTE: WE DO NOT MANAGE MONEY, BUT THESE PICKS ARE IN A MODEL PORTFOLIO FOR CLIENTS.
These were 'bought' for the model portfolio in March 2013 and are still held.
Contrans Group (CSS.TO)
This is a strange pick because it is the subject of a takeover by Transforce, but we want to highlight the conflicts of the investment industry here. All the brokerage houses have lathered themselves up saying how good the deal is for Transforce, but that by default makes it a bad deal for Contrans, which is getting bought just as the economy is picking up steam. Analysts, though, are sensing more corporate finance business down the road from Transforce, do not want to rock the boat and simply think it is a good deal. It is not. It is a horrible price for Contrans, at this point in the cycle. Contrans stock yields almost four percent, twice that of Transforce and the dividend has been growing nicely. Business is good. Selling the company now makes no sense and we think shareholders will reject this deal, even preferring status quo to this offer. A stock deal, so shareholders could participate in future growth, or $17 per share, might be more like it. At $15.25 you are risking just $0.25 at the chance for a deservedly higher bid.
Amaya Gaming (AYA.TO)
We started following Amaya in 2012 at $2.60 per share and the company management has done nothing but execute perfectly. With the acquisition of Rational Group, it becomes the largest public online gaming company in the world, with strong earnings power. Straddling both the technology and consumer sectors, we think it will become a new 'go to' name for large cap Canadian funds. It has done great acquisitions, and financed them well. Convertible preferred shares in the deal are already in the money, and the acquisition has not yet closed. Simply a great company with continued high potential.
FirstService doesn't get much attention, but it continues to grow nicely. A decent way to play residential real estate services in the U.S., at a reasonable valuation with a dividend that should grow over time. Revenue has almost tripled in the past eight years, with very good long term earnings growth.
Fiera Capital (FSZ.TO)
|Then: $10.60||Now: $12.77||+17.36%||TR: +21.06%|
K-Bro Linen (KBL.TO)
|Then: $33.21||Now: $38.47||+15.84%||TR: +20.16%|
Boyd Group Income Fund (BYD_u.TO)
|Then: $22.94||Now: $44.01||+91.85%||TR: +95.29%|
Total Return Average : +45.50%
5i Research Inc. Model Stock Portfolio
Performance as of: June 30, 2014
* Index: S&P/TSX Composite.
* Returns include reinvested dividends, no fees applicable. Portfolio was launched March 2013
Amaya Gaming - 7.00% (AYA.TO)
Enghouse Systems Ltd. - 5.40% (ESL.TO)
Contrans Group - 5.20% (CSS.TO)
Sun Life Financial - 5.10% (SLF.TO)
Magna International - 4.90% (MG.TO)