Colin Stewart, CEO and portfolio manager at JC Clark Limited

Focus: North American large caps and long/short strategies
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MARKET OUTLOOK
The results of the U.S. election are a potentially significant inflection point for U.S. economic policy and growth. While global uncertainties remain (Brexit, populist movements in several European nations, China’s growth outlook), and valuations are above historic norms, we believe the U.S. economic outlook has improved and, combined with policy action, could be a material driver of corporate profits. Data over recent months has been strengthening and new pro-growth policies will likely improve this trajectory. Rising inflation expectations have led to a significant sell-off in bonds and likely signal the end of the multi-decade bond bull market. Despite the recent price movement, we believe U.S. financials still represent compelling value. We continue to focus our efforts primarily on special situations, but are also evaluating opportunities in the depressed health-care and energy sectors. While we remain cautiously optimistic on the outlook for 2017, the strong market rally following the November U.S. election combined with policy implementation risks has caused us to modestly reduce exposure and add portfolio insurance.

TOP PICKS

CASCADES (CAS.TO) – No personal/family holdings, own in Fund, last purchase in last couple days at approximately $13.40/share

• Leading Canadian producer of containerboard and tissue products
• Containerboard business set to benefit from strong economy and secular shift to online shopping and related shipping needs
• Attractive valuation: 5.5x EV/EBITDA (versus 8x for peer group), 14 per cent free cash flow yield
• Valuable equity stakes in Boralex and Greenpac
• Until last few weeks, CAS share price has dramatically lagged peer group — they’re due to play catch up                              

TEMPLE HOTELS (TPH.TO) – Own personally, no family holdings, own in Fund, last purchase a month ago at approximately $0.75/share

• Canadian hotel owner and operator with approximately 4000 rooms in Canada
• Discounted valuation: trading at 7.5 per cent cap rate based on depressed NOI and a discount to NAV
• Leverage to improving oil prices
  • Approximately 50 per cent of their portfolio is in Alberta with 25 per cent in Fort McMurray — as oil improves, so should their Alberta hotel business
  • Fort McMurray: higher oil prices, talk of pipelines (Keystone, Trans Mountain and Line 3 expansion) and city rebuild should be positive
  • Discount to recently appraised values: $1.10 NAV (with full IFRS write-down) — likely a conservative estimate of value of properties
  • Morguard: they are the majority owner and have a management contract; shrewd investment track record and motivated to create value over time

IMVESCOR RESTAURANT GROUP (IRG.TO) – No personal/family holdings, own in Fund, last purchase a month ago at approximatley $3.30/share

• One of the largest Canadian restaurant franchisors with 223 locations mainly in Quebec and Atlantic Canada
• Approximately $400 million in system sales
• Brands include Pizza Delight, Baton Rouge, Mikes and Scores; recently announced acquisition of Ben and Florentine
• Business model attractive — franchise model, asset light
• Excellent management team lead by CEO Frank Hennessey
• Turnaround plan working — six straight quarters of positive SSS; plan is working and next leg of growth will be restaurant renovations
• Acquisitions will drive growth — Ben and Florentine acquisition should add growth to company; ability to expand Ben and Florentine in other provinces
• Valuation: 8.5x EBITDA is a discount to comps. Freshii just went public at approximately 20x 2017E EBITDA — IRG looks like a bargain
   

PAST PICKS: JANUARY 28, 2016

BRICK BREWING (BRB.TO)

• Then: $1.94
• Now: $2.72
• Return: +40.20%
• TR: +42.92%

POLLARD BANKNOTE (PBL.TO)

• Then: $7.45
• Now: $8.00
• Return: +7.38%
• TR: +9.00%

JPMORGAN CHASE (JPM.N)

• Then: $57.28
• Now: $90.50
• Return: +57.99%
• TR: +62.46%

TOTAL RETURN AVERAGE: +38.12%