Brendan Caldwell, President and CEO of Caldwell Investment Management Ltd.

Focus: Canadian value stocks
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Market Outlook
We have performed very well for our investors and owe much of this to our focused investment strategy, which helps us avoid painful losses and participate in areas of strength. Looking forward, we see increasing value in a focused strategy, as slowing growth rates in almost every sector and geography in the world will make it very difficult to perform well using a passive market index or quasi-index strategy.

Top Picks

Sleep Country (ZZZ.TO) – Purchased on August 23, 2016 at $30.72 (gain of 3 per cent)
Sleep Country is a leading mattress retailer in Canada and the only specialty mattress retailer with a national footprint. Mattresses account for approximately 80 per cent of sales, with the remainder coming from mattress/bed accessories. We like Sleep Country for the following reasons:

• Increasing penetration of accessory sales: Sleep Country is in the early innings of rolling out higher-margin accessory products (sheets duvets, headboards, etc.). The traction here has been impressive and they continue to increase the focus on growing accessory sales.
• Store redesigns: The goal is to refresh 15 to 20 stores a year with more modern layouts that better highlight key products. The results have been very positive and are expected to continue to be a positive catalyst to sales.
• Competitive landscape: Sleep Country continues to take share from competitors through strong execution, and we expect this trend to continue. They have been able to take shares from several key competitors such as Sears Canada (struggles there have been well noted) and the Bay (they have done well on their turnaround effort but mattresses are not an area of focus for them), as well as smaller regional players.

AGT Food and Ingredients (AGT.TO) – Purchased on October 22, 2014 at $28 (gain of 34 per cent).
AGT processes and distributes pulses (beans and lentils) and other staple foods throughout North America and globally. AGT has been a long-time holding of our fund and we continue to like them for the following reasons:

• Food ingredient trends: AGT has benefitted greatly from the recent trend of incorporating pulses into cereals, breads, pastas and other foods as a source of protein and fiber. There is still considerable runway for growth here.
• Strong international demand: AGT has also benefitted from the strong demand from countries like Turkey and India, which incorporate pulses into their diet as a vegetarian source of protein. Such countries have, in recent years, seen detraction in their local production, which increases their reliance on imports from companies like AGT.
• Margin accretion: AGT has a margin growth profile for two main reasons: a) faster growth in their food-and-ingredients segment is margin-accretive as it is a higher-margin business than their commodity-processing segment; and b) overall top-line growth leads to operating leverage and thus, better margins.

Imvescor Restaurant Group (IRG.TO) – Purchased on February 2, 2016 at $2.46 (gain of 26 per cent).
Imvescor operates 227 restaurants, the bulk of which are franchised. They operate under the Baton Rouge, Pizza Delight, Scores, and Trattoria di Mikes brands mainly in Quebec, Ontario and Atlantic Canada. We like Imvescor for the following reasons:

• Turnaround story: A new CEO took over in 2014. He is a strong operator with considerable experience in the restaurant industry. He put a plan in place to return to growth by renovating franchises to create a better dining experience. While they are still in the early innings of this plan, it has been working very well, as renovated restaurants are seeing a big boost in sales.
• Strong franchise model: Imvescor is very selective in who they choose as franchisees and have incentives in place to encourage franchisees to renovate their restaurants. This typically leads to better franchise sales and profitability.
• Attractive valuation: Imvescor is an attractively valued name in the restaurant space and their recent return to growth should give them an opportunity for multiple expansions.
   

Past Picks: November 13, 2015

Clearwater Seafoods (CLR.TO)

• Then: $12.48
• Now: $14.28
• Return: +14.42%
• TR: +16.14%

Exchange Income Fund (EIF.TO)

• Then: $26.16
• Now: $34.61
• Return: +32.25%
• TR: +40.59%

Hardwoods Distribution (HWD.TO)

• Then: $16.48
• Now: $18.86
• Return: +14.44%
• TR: +15.57%

Total Return Average: +24.10%
 

Fund Profile: Caldwell Canadian Value Momentum Fund

Performance as of September 30, 2016:

• 1 month: Fund 1.4%, Index* 1.2%
• 1 year: Fund 24.1%, Index* 14.2%
• 3 year: Fund 10.9%, Index* 8.0%

* Index: S&P/TSX Composite Total Return Index

Top Holdings and Weightings

1. ZCL Composites: 7.6%
2. IBI Group: 6.7%
3. Tree Island Steel: 6.3%
4. Premium Brands: 6.1%
5. Hardwoods Distribution: 6.0%

Website: www.caldwellinvestment.ca

CORRECTION: Jerome Hass' Past Picks
BNN regrets the errors in the calculations of Jerome Hass’ Past Picks. For the updated returns on his pair trades, click here.