Bruce Campbell, president and portfolio manager at StoneCastle Investment Management

Focus: Canadian equities and cannabis stocks
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MARKET OUTLOOK
The economic indicators that we follow continue to be strong. ISM’s manufacturing and service indices continue to show a growing economy. As well, the ECRI leading economic indicators also continue to indicate the economy is growing. These economic indicators give us comfort that the probability of a recession in the next six months is low based the history of the indicators at these levels. The Citi Group Economic Surprise Index is at lows not seen in years and we know this index runs in cycles that last approximately six to nine months. The next move up should start soon for this shorter-term economic indicator.     

The top-down market technical indicators that we follow have had us in neutral positioning for a couple months now. We have built up a cash position and are watching the indicators closely for changes. If they start to regain momentum, then we would position back to fully-invested. If the indicators continue to deteriorate, we would move to a more defensive position. Monitor your holdings and reduce any underperforming positions that aren’t doing what you expect. Keep a careful eye on the key indicators to assess the continued strength of the markets.

We continuously monitor top-down indicators for any signs of weakness that could be the start of a bear market. If economic and market indicators change, investors will want to adjust their portfolios to build a more defensive posture.

We host a regular monthly webinar where we update investors on the indicators and whether we are on offence or defence. The next webinar is July 5, 2017 at 4:30 p.m. ET. To register, contact info@stonecastlefunds.ca.

TOP PICKS

PATIENT HOME MONITORING (PHM.V)
PHM was a market darling a couple years ago but then became one of the most hated stocks in Canada. The new management team has been working hard to restructure and right-side the company after the acquisition spree. The company has reported their second quarter of positive cash flow on the back of 30 per cent organic revenue growth. The company has strong macro tailwinds of an aging population and trades a very reasonable valuation, especially considering their organic growth rate. Last purchase was $0.43.

GRANDE WEST TRANSPORTATION (BUS.V)   
Grande West really came on the scene a year ago when they began to ramp up their Canadian Vicinity bus orders. Over the last year, they have continued to see repeat orders many multiples of the original orders. The U.S. side of their business has the potential to be many times larger than the Canadian side and appears to be a year behind the Canadian side in respect to the evolution of orders. The last quarter was a slower quarter for production, but management has implemented several new initiatives to get production up to deliver 200 buses in 2017. Last purchase was $2.44.

WESTPORT FUEL SYSTEMS (WPRT.TO)
Following the 2016 merger of Fuel Systems and Westport Innovations, the management team has been focused on the sale of non-core assets and improving the balance sheet. Through their three divisions they are starting to see sales increase as customers look for cleaner and more carbon-efficient fuel solutions. Following the merger, they’ve been delivering multiple components for LNG, CNG and hydrogen vehicles. In addition, they have a profitable joint venture with Cummins that pays dividends to WPRT. Management is guiding investors that they will be EBITDA positive in 2018. As they move closer to this milestone, investors will become more interested. Last purchase was $3.10.
 

PAST PICKS: JUNE 30, 2016

CRH MEDICAL (CRH.TO)

• Then: $5.03
• Now: $7.64
• Return: 51.88%
• TR: 51.88%

PACIFIC INSIGHT ELECTRONICS (PIH.TO)

• Then: $10.92
• Now: $8.74
• Return: -19.96%
• TR: -19.96%

SLEEP COUNTRY CANADA (ZZZ.TO)

• Then: $23.82
• Now: $40.80
• Return: 71.28%
• TR: 74.65%

TOTAL RETURN AVERAGE: 35.52%