Full episode: Market Call for Thursday, October 19, 2017
Peter Hodson, head of research at 5i Research
FOCUS: Canadian small and mid-cap stocks
Today marks the 30th anniversary of the 1987 stock market crash, which I lived through as a young stock broker. While it was no doubt extremely scary for someone buying stocks (on margin even!), going through the Crash was by far the best investment lesson I have had in my career. I learned more about investor psychology that month than any course could have ever taught me. Fear, greed, fear and more fear resulted in many investors doing all the wrong things. Investors were selling 'because others were selling.' They were not selling on anything based in fundamentals. Royal Bank stock fell to less than $3.60 per share that day. Today, it is $100 and its DIVIDEND is $3.64 annually.
Why bring this up? Well, if you are an average investor, say, aged 45, then you still have an investment horizon of 30+ years. If the recovery from the worst crash ever worked out so well, perhaps you don't need to worry so much about the market. Everyone is worried about a market correction right now, and it has been a long time since we had one. But, corrections don't often occur when everyone is looking for one. Also, the two main drivers of stocks - earnings and interest rates - remain positive. Even stodgy old IBM reported good numbers with a resultant stock surge. Keep your (long-term) investment horizon in mind, and things should be OK regardless.
Has been buying back stock, but a couple of earnings misses has brought valuation down to below 10 times earnings. Decent earnings growth is expected into 2019, and the company is sitting on more than $300 million cash. As the tech cycle continues, business should pick up at the company. The share count has declined by about 90 million shares (to 125 million) in the last decade.
ABSOLUTE SOFTWARE (ABT.TO)
After the Equifax breaches, more focus is on security and ABT offers some very robust solutions. It offers a 3.9 per cent dividend which has grown, a debt-free balance sheet and good earnings prospects. Insiders own 33 per cent, and three large funds own a total of 39 per cent, so the stock is becoming very tightly held. We think it could be a takeover or privatization candidate.
PHOTON CONTROL (PHO.V)
One of the only ways for Canadian investors to participate in the strong semi-conductor sector. Also debt-free with lots of cash, the stock has done very well and recently broke out to historic highs. Revenue and earnings growth look solid, and its market cap is approaching $200 million which could attract new interest.
PAST PICKS: JANUARY 18, 2017
- Then: $26.01
- Now: $29.03
- Return: 13.91%
- Total return: 16.02%
HIGH ARCTIC ENERGY SERVICES (HWO.TO)
- Then: $5.54
- Now: $4.14
- Return: -25.93%
- Total return: -23.55%
- Then: $66.17
- Now: $122.30
- Return: 84.82%
- Total return: 84.82%
TOTAL RETURN AVERAGE: 25.76%
5i Research Model Balanced Equity Portfolio
Performance as of: September 30, 2017
1 Month: 1.74% fund, 2.7% index
1 Year: 14.69% fund, 6.2% index
3 Year: 12.11% fund, 1.7% index
*Index: TS300 Index
** Performance includes dividends. There are no fees applicable to the 5i Research Model Portfolio
TOP HOLDINGS AND WEIGHTINGS
- CCL Industries: 5.8%
- Magna International: 5.8%
- Premium Brands Holdings: 5.8%
- Constellation Software: 5.6%
- Savaria Corp.: 5.1%