Jason Del Vicario, portfolio manager at HollisWealth
Focus: North American growth stocks
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MARKET OUTLOOK

The North American equity markets have performed well in Q3. This is in large part attributable to generally favourable economic conditions and front running expected Trump tax cuts. While we believe our core stable of companies and other consistent return on equity (ROE) generators can outperform no matter the general market conditions, we are mindful that we are late cycle. We are now nine years removed from the last recession and bear market; I noted the other day that this is now the third longest bull market in history. This rally is certainly getting long in the tooth!

We’ve been keeping a keen eye on the yield curve as it’s the best predictor of an impending recession. While the curve is flattening (short end rising while long end not rising as much), we are still a good 3-4 rate rises away from it becoming inverted. An inverted yield curve generally leads an actual recession by around 12 months. Based on our calculations we are at least 18-24 months away from the next recession.

We feel the Fed/BoC and European central banks are playing catch-up. Where they should’ve been normalizing rates in 2013-2014, they didn’t and are now behind the curve. They claim to be data dependent - however both inflation and GDP growth figures are exceptional - yet they seem committed to raising rates. 

We remain cautiously optimistic and note relative strength in commodities and financials, which is typical of late cycle action. We also wouldn’t be surprised if the markets take off from here, putting in a ‘speculative blow off.’

TOP PICKS

LASSONDE INDUSTRIES (LASa.TO)
Lassonde Industries is very typical of the company we like to own. Their CEO and founder owns a lot of shares and has demonstrated exceptional shareholder wealth-creating ability. This company owns a lot of juice brands; not a sexy business at all. They are steady ROE generators and recently broke to new highs. Note: the stock doesn’t trade much volume and is way off Bay Street’s radar.

NEW FLYER INDUSTRIES (NFI.TO)
New Flyer is a Winnipeg-based bus manufacturer. They have steady organic growth which is supplemented by a steady stream of acquisition-fueled growth. They are leaders in their space and their ROE has been trending higher over the past few years. The stock is off from all-time highs. They also have a fairly generous dividend yield for a growth stock.

MTY FOOD GROUP (MTY.TO)
Much like Lassonde, MTY is run by a very capable CEO/founder, Stanley Ma. Mr. Ma has built a food court brand empire very quietly and efficiently. They are one of the top performing stocks on the TSX over the past 10+ years. They recently did yet another acquisition and the stock has finally broken out of a period of consolidation.

PAST PICKS: OCTOBER 20, 2016

CONSTELLATION SOFTWARE (CSU.TO)
Constellation Software and Dollarama remain our two largest holdings. We continue to hold CSU, adding to our position most recently in the $580 range in September 2016. This is a core holding and one that we expect to continue to trade higher as they re-up their acquisition strategy.

• Then: $590.37
• Now: $737.92
• Return: 24.99%
• Total return: 25.99%

STELLA-JONES (SJ.TO)
We continue to hold Stella-Jones and recently added to our position at ~$47 in September 2017.  They struggled in 2016 but remain a core holding of ours.  Their long term track record of creating shareholder wealth is exceptional.

• Then: $45.61
• Now: $49.96
• Return: 9.53%
• Total return: 10.85%

DATA COMMUNICATIONS (DCM.TO)
We continue to hold DCM and participated in their private placement in June 2017. This is a turnaround story which is taking longer than expected, but we have confidence in management that they will be able to execute a successful rescue. I expect them to do $20 to $25M in EBITDA in 2017. They currently trade at a market cap of around $25M. If they are able to show consistent improvements in top and bottom lines, we feel this company will trade much higher than current levels.

• Then: $4.55
• Now: $1.20
• Return: -73.62%
• Total return: -73.62%

TOTAL RETURN AVERAGE: -12.26%