Colin Stewart, CEO and portfolio manager at JC Clark
FOCUS: North American large caps

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MARKET OUTLOOK

Economic activity in Canada — and particularly in the U.S. — remains strong. The recently enacted U.S. tax plan and an expected pickup in capital spending suggests 2018 should see reasonably robust economic growth in North America and globally. Corporate earnings remain solid with most market observers predicting accelerated growth in the year ahead. Consumer confidence, pending deregulation, and continued strength in the U.S. housing market are all positive factors.

The two primary caveats to this positive backdrop are valuation, and the fact that we are in the late stages of this economic/market cycle. Equity valuations are, by almost any traditional measure, at historically elevated levels (i.e., a lot of the good news is priced in). The S&P 500 now trades at a 23.4x P/E ratio (current), and as much as 18.5x forward earnings. This makes the current market the most expensive since the 1999 dot-com bubble, some 18 years ago. We are also in the midst of the third longest economic expansion on record and enjoying one of the longest bull markets in history. Needless to say, we are in the late innings of this ball game. 

TOP PICKS

Colin Stewart's Top Picks

Colin Stewart, CEO and portfolio manager at JC Clark, discusses his top picks: Liquor Stores, Trican Well Service and IBI Group.

LIQUOR STORES (LIQ.TO)

  • Largest liquor retailer in Alberta, company under new management and in the midst of a turnaround
  • Recently divested part of U.S. operations, will use cash proceeds to repay debt and re-invest in Alberta stores
  • Reasonable valuation (9.5x forward EBITDA), attractive dividend yield of 3.1 per cent
  • Potential opportunities in cannabis retailing
  • Most recent purchase in early January at approx. $10.85/share

TRICAN WELL SERVICE (TCW.TO)

  • Leading Canadian oil services (pressure pumping) company, benefiting from rising frac intensity per well
  • Strong market share with less competition than U.S. (Trican acquired Canyon last year)
  • Very healthy balance sheet, should be in net cash position by late 2018
  • Trading at discounted multiple of just over 3x EV/EBITDA
  • Will generate significant free cash flow in 2018, and using to repurchase shares
  • Most recent purchase in mid-January at approx. $4.11/share

IBI GROUP (IBG.TO)

  • Leading global architecture, engineering and technology firm with three businesses: intelligence, buildings and infrastructure
  • Trades at a discount to other engineering/construction firms (10x versus 11-12x for peers), also +7 per cent FCF Yield
  • Will benefit from Canadian/U.S. infrastructure spending
  • Valuable embedded technology business (15 per cent of revenue) not recognized by market
  • Large insider ownership (+30 per cent)
  • Balance sheet has been improving, convertibles now in $, will further reduce leverage when they convert to equity
  • Most recent purchase in December of last year at approx. $8/share

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
LIQ N N Y
TCW N N Y
IBG N N Y

PAST PICKS: DECEMBER 1, 2016

Colin Stewart's Past Picks

Colin Stewart, CEO and portfolio manager at JC Clark Limited, reviews his past picks: Fairfax Financial, Wells Fargo and StorageVault Canada.

FAIRFAX FINANCIAL (FFH.TO)

  • Then: $637.60
  • Now: $671.93
  • Return: 5.38%
  • Total return: 9.67%

WELLS FARGO (WFC.N)

  • Then: $54.34
  • Now: $64.80
  • Return: 19.24%
  • Total return: 22.61%

STORAGE VAULT (SVI.V)

  • Then: $1.18
  • Now: $2.41
  • Return: 104.66%
  • Total return: 105.88%

TOTAL RETURN AVERAGE: 46.05%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
FFH N N Y
WFC N N N
SVI N N N

FUND PROFILE
JC Clark Preservation Trust
Performance as of: December 2017

1 Year Annualized: 11.36% fund, 12.58% index
3 Year Annualized: 3.82% fund, 6.28% index
5 Year Annualized: 7.54% fund, 9.41% index

*Index: S&P 500, S&P/TSX

WEBSITE: www.jcclark.com