Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: Precious metals and North American dividend stocks

MARKET OUTLOOK

I have been advising for some time participation in precious metals ahead of higher gold and silver prices driven by global market uncertainty. We also anticipate the eventual transition of the current currency reserve, as Marc Carney warned about at Jackson Hole in 2019. It is my speculation that once again history will repeat itself and gold will be at the core of said change, rewarding properly-positioned investors.

I manage two segregated portfolios: the Equity Income and Special Opportunities. One is designed to deliver dividend income and equity preservation, while the other is a stand-alone solution for family offices and high-net-worth individuals looking to gain exposure to precious metals. Both portfolios give exposure to the sector, with a 20-per-cent and 90-per-cent allocation respectively. Stock selection is based on whether companies are low-cost producers in geopolitically-safe areas with good management and high reserves on the ground. Canaccord’s gold team, both in research and banking, are constantly looking for opportunities in this still under-owned sector.

The core of my precious metal strategy is composed of low-cost producers and royalty companies that I began acquiring in 2015, like then-Top Pick Agnico. These producers have and will deliver levered earning increases as gold continues to rise, with the bonus of increasing value for their reserves on the ground. I suspect that the new dividends that have sprouted since 2018 are but the beginning of good things to come, as well as a great confirmation that history is repeating. 

Our next step was to take advantage of the great growth we’ve seen since 2015 from our producers with Agnico now sitting in the high $70s, as well as a few takeouts. This liquidity allowed us to add a few gold properties that had been mothballed since gold last stood above $1,500. Companies in this sector could be prime for an easy takeout, considering that on average we paid $5 per ounce on the ground and in 2012 these were trading above $150.

Lastly, I have been adding good-quality exploration plays in order to take advantage of the drought in global exploration resulting from low prices. As prices rebound, global exploration has once again roared to life, being led by some of the best geological teams and offering early entry points into some great prospects. Most of these picks have been brought to us by Canaccord’s capital markets team.

So far, the strategy I laid out four years ago is working, with the producers delivering equity growth to acquire new considerations. Furthermore, I speculate that this bull market is just getting going, as very few investors are currently participating. This is reflected in the fact that participation in the sector is still anemic among institutional and retail investors.

Going forward, I continue to advise caution due to the signals being given by the fixed income market, especially the repo market, which continues to signal that something is not right. In early 2008, repo rates signalled trouble ahead when rates jumped from 4 per cent to 6 per cent. This time, they jumped from 2 to 10 per cent, immediately forcing the Fed to restart monetizing their balance sheet. I think caution and some hedging are advised for 2020.

TOP PICKS

VERMILION ENERGY (VET TSX)

I like Vermilion’s current 13-per-cent yield and feel comfortable with the payout for the time being.

We have a $35 target for the company with a “buy” rating.

FORTUNA SILVER (FVI TSX)

Fortuna Silver is commissioning a new gold mine in Argentina which should go live by Q1/21. It offers a good entry point into silver with a gold option. We have a $7 target with a “buy” rating.

GIBSON ENERGY (GEI TSX)

We have recently raised our target for Gibson from $28 to $30. We feel confident about the accretive nature of their future capital expenditures. A good way to play a rebound in the Canadian oil patch.

PAST PICKS: MARCH 15, 2019

NORTH AMERICAN PALLADIUM (PDL TSX)
The company was taken out by Impala for $1 billion.

• Then: $17.51
• Now: $19.73
• Return: 13%
• Total return: 17%

KIRKLAND LAKE GOLD (KL TSX)
Kirkland has taken over Detour Gold and I feel good about the new entity they will be forming.

• Then: $44.54
• Now: $56.02
• Return: 26%
• Total return: 26%

VALENS GROWORKS (VLNS TSXV)
I continue to hold, but have taken profits above $4 since I recommended it.

• Then: $3.03
• Now: $3.75
• Return: 24%
• Total return: 24%

Total return average: 22%