Apr 26, 2017

Bruce Campbell's Top Picks: April 26, 2017

BNN Bloomberg

Bruce Campbell , BNN

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 Manufacturing and Service Indices continue to expand. As well, the ECRI leading economic indicators also continue to show improvements. These 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 top-down market technical indicators that we follow have also continued to improve. We do have to be aware that we are in the later stages of the bull market. Valuations are at levels only seen a few other times in history (1929, 2000 and 2007). Margin debt has rebounded from the low last year and is again approaching the all-time high level of April 2015. Confidence and sentiment have both been soaring lately, which is a good sign for the economy but also requires extra attention that exuberance is not creeping into the economy and markets — time to do some lift boat drills with your portfolio. 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 May 10, 2017 at 4:30pm ET. To register, contact info@stonecastlefunds.ca.

TOP PICKS

PATIENT HOME MONITORING (PHM.V)
PHM was a market darling a couple years ago while they were aggressively making acquisitions to roll up the health-care space 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 high-growth segment is providing respiratory service to chronically-ill patients in their homes. PHM reported earnings mid-February and the results were impressive with the first quarter in company history of positive cash flow. The company now has a strong organic growth rate and trades at a very attractive valuation for investors who can look beyond the past management’s acquisition spree. The last purchase was $0.25. Funds own, but none personally or family.

CIBT EDUCATION GROUP INC. (MBA.TO)
CIBT is one of largest owners of private language and career schools in Canada. CIBT uses their school programs to fill student-housing properties. They have relationships in 42 countries and over 100 partners who refer students to their programs. They have three sources of revenue: education revenue, rental revenue and property sale proceeds. They have been rapidly growing and currently have seven major student housing projects in development. Insiders own close to 40 per cent of the company. The stock isn’t followed by any analysts, but due to market capitalization it is starting to show up on many investors’ radar. The last purchase was $0.63. Funds own, but none personally or family.

VERESEN (VSN.TO)
The company is a leading natural gas and natural gas liquids company located in Western Canada, the U.S. Midwest and Pacific Northwest. The company’s three tenets are growth per share, a stable dividend and a strong balance sheet. The company has many capital projects under construction and is pursuing the Jordan Cove LNG project in the U.S. Pacific Northwest. Last purchase was $12.40. Funds own, but none personally or family.