Market Call for Tuesday, August 8, 2017
Lyle Stein, senior portfolio manager and managing director at Vestcap Investment Management
FOCUS: Canadian Equities
For Canadian investors, it remains a tale of two markets. U.S. indices hit new highs daily, with most market indices showing double-digit gains for the year. In Canada, the S&P/TSX languishes near break-even, held back by the significant resource and financial weights which make up the Canadian marketplace.
The divergence is sharp, and only recently has been somewhat corrected by the resurgent loonie. While fundamentals have improved with a successful Q2 earnings season, markets are increasingly being driven by liquidity flows. This is responsible for the expansion in multiples witnessed most recently since the U.S. election, but since the bottoming of interest rates a few years earlier.
Our view continues to be one of cautious optimism. While valuation warning signs abound, we are also finding opportunities in names where a short-term disappointment has created an opportunity. Our client mandates are to preserve and grow their assets. In today’s market, preservation is more important than ever.
OPEN TEXT (OTEX.TO)
Laggard in technology sector. Solid earnings growth – 10 per cent per annum over the next few years. Stable revenue/cash flow base. Proven acquisition model. Steady dividend growth and low multiple. Artifical intelligence focus provides upside. Last purchase at $41.
Disappointing Q2 results on shortfall in movie revenue and higher-than-expected repositioning costs. Transitioning away from movies into theatre-based entertainment has caused the multiple to contract over the short-term. We like the growth opportunity for a monopoly provider at the price. 3.8 per cent yield. Last purchase at $45.
THE J.M. SMUCKER COMPANY (SJM.N)
Laggard in U.S. consumer sector. Low-growth, but global-leading brands such as Smuckers Jams, JIF peanut butter, and Folgers coffee are not being recognized for their stability. Steady dividend grower and low multiple. Great way to diversify a Canadian portfolio into global consumer business. Last purchase at $116.
PAST PICKS: OCTOBER 3, 2016
- Then: $20.68
- Now: $15.91
- Return: -23.06%
- Total return: -22.73%
TRICON CAPITAL GROUP (TCN.TO)
- Then: $9.21
- Now: $10.23
- Return: 11.07%
- Total return: 13.13%
- Then: $162.07
- Now: $178.54
- Return: 10.16%
- Total return: 12.13%
TOTAL AVERAGE RETURN: 0.84%