Oct 26, 2016

Bruce Campbell's Top Picks: October 26, 2016

BNN Bloomberg

Bruce Campbell , BNN Staff

Bruce Campbell, president and portfolio manager at StoneCastle Investment Management

Focus: Canadian equities
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MARKET OUTLOOK
We continue to be constructive on the markets. During the year we have seen the top-down economic and market indicators that we follow continue to improve. We entered the year on defence and then moved to offence in March. Since moving to offence, we have seen the participation in the markets broaden out. We now see that many of the traditional growth areas are once again beginning to outperform as investors are more optimistic about earnings growth and at the same time focusing more on growth over value.

During the most recent short term, we have experienced the markets go through a period of consolidation where there was not much price performance, positive or negative. We are heading into the strongest period historically from November to May. Investors should monitor the top-down market and economic indicators. If they continue to stay positive, remain on offence. The shorter term has improved, and we are watching for the longer-term indicators to show reacceleration.

One item for investors to watch is the result of the U.S. election. Historically, post-election years have had an unpleasant statistic. Nine of 14 economic recessions began in the years following a U.S. election. While you cannot invest based on this historically, it does require you to be on higher alert when following the top-down indicators.

We will continue to monitor the top-down indicators for any changes. As of right now, we are on offence with our portfolios. If those 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 whether the indicators are on offence or defence. The next webinar is November 23, 2016 at 4:30pm ET. To register contact info@stonecastlefunds.ca.

BRUCE CAMPBELL’S CATALYSTS TO WATCH

Economic indicators: Citi Economic Surprise Index in conjunction with the ISM Manufacturing and Services Index
Market indicators: Breadth, momentum and positive crossovers
Earnings season: Watch for earnings but also signs of accelerating revenue and management’s guidance
Investor sentiment and margin debt
Trends in the USD

TOP PICKS

GRANDE WEST TRANSPORTATION (BUS.V)
The company designs, builds and sells buses for mass transit in the mid-size category. The buses they manufacture are heavy-duty, reliable and more efficient for the operators. The company is just on the cusp of turning cash flow and earnings positive. Company management has released scenario analysis that sees a range of EPS for 2017 of $0.04 to $0.24 per share. The last purchase was $0.98. Funds own, but none personally or family.

GOEASY LTD (GSY.TO)
The company provides alternative financial solutions through two divisions: their financial and their leasing side. The high-growth side of the business is the financial side where they provide consumer loans from $1,500 to $15,000 in value. The company has been growing net income at over 20 per cent compounded per year since 2001. The last purchase was $24.25. Funds own, but none personally or family.

TIDEWATER MIDSTREAM AND INFRASTRUCTURE (TWM.V)
The company provides natural gas liquids storage, processing, transportation and sales services. They focus on three core areas: the Deep Basin, Montney and Edmonton. The company’s goal is to be a high-growth midstream company while providing stable cash flows. The stock currently trade at half the value of peer companies. The last purchase was $1.50. Funds own, but none personally or family.