FOCUS: Growth Stocks

Market Outlook:

The TSX last peaked in the Autumn of 2014 and has been in correction mode ever since. The Canadian market has been weaker than most of other countries because of its high weighting in natural resource stocks and the affect that the price of oil has had on the Canadian Dollar. As such, while the TSX has rebounded nicely over the past month, we still consider it to be an oversold market.

Looking ahead, it is hard to see economic growth anywhere in the world given low demographic growth in virtually all western countries and many emerging markets. However, pockets of growth exist everywhere including Canada. The healthcare sector stands out as a sector that offers compelling growth and valuation opportunities and the technology, consumer and financial sectors also offer some bargains.

For investors in Canadian equities, the past six months have been particularly volatile and reminds us that trying to rapidly trade stocks through a volatile market is both stressful and costly. Investors should focus on companies that have enduring competitive advantages and be prepared to hold these stocks through choppy waters. High ROE stocks, which is our area of focus offer both growth and a certain measure of protection that comes from their competitive positions and is reflected in their margins. 

TOP PICKS:

Concordia Healthcare (CXR.TO)

Concordia is an international pharma company that trades at 4.0x 2016 earnings and below its projected year end book value. Concordia has not been plagued by pricing or accounting issues but it is highly levered and this explains its discount valuation. However, as the company moves through 2016 and pays down its debt, we think Concordia will re-rate significantly. (Own it in the fund and personally).

MTY Food Group (MTY.TO)

Montreal based MTY has consistently earned an ROE in excess of 20% over the past decade. MTY operates a number of fast food restaurant chains in Canada and with the stock having been in consolidation mode for the past year and a half, now trades on 12.5x 2016 earnings, which we think is very reasonable for a steady growth company with an unlevered balance sheet. (Own it in the fund and personally)

CGI Group (GIBa.TO)

CGI Group is a Montreal based IT services company with a global reach. CGI is a consistent 20% grower and a superb allocator of capital. The Company is in the midst of buying back a large block of stock from the CDP and this will ensure another year of strong EPS growth and above market ROE. CGI trades on 12.8x 2016 earnings. (Own it personally and in the fund).

Past Picks: Feb. 5, 2015

Valeant Pharmaceuticals (VRX.TO)

Constellation Software (CSU.TO)

CGI Group (GIBa.TO)

Total Return Average : -1.33%