Michael Decter, president and CEO, LDIC Inc.

FOCUS: Canadian Large Caps

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MARKET OUTLOOK:

We expect volatility to continue in the second half of 2016 but also expect equity markets to continue in an upward trend. The issues that have heightened volatility, including uncertainty over the slowing of the Chinese economy, Brexit risk, the timing of U.S. interest rate increases, the direction of commodity prices and the threat of further terrorist acts against civilian populations. The U.S. election will also provide a source of uncertainty leading into the end of the year.

Beneath the surface we see a strengthening U.S. recovery, precipitated by an economy which has created sufficient jobs to lower the U.S. unemployment rate to 5 percent. Our expectations are for a positive Q2 and a positive balance of 2016. However, the path forward is still replete with risks.  An encouraging sign at the beginning of this quarter was the gain of 40,000 jobs in March in the Canadian economy.  If sustained, this resumption of job creation would be a powerful signal of economic recovery.

Top Picks:

AGT Food and Ingredients (AGT.TO)

AGT Food & Ingredients Inc. is one of the world’s largest suppliers of value-added pulses, staple foods and food ingredients. The company buys lentils, peas, beans and chick peas from farmers around their 40+ facilities located in key growing regions within Canada, US, Turkey, China, Australia and South Africa, and ship refined product to over 120 countries around the world. We believe there is a very compelling earnings growth story within the human food supply chain as consumers scrutinize the types of foods and ingredients they purchase. 

Boyd Group Income Fund (BYD’U.TO)

Boyd Group Income Fund is the largest operator of non-franchised collision repair centres in North America by a number of locations, and also has a growing auto glass business. The company has delivered on a commitment to grow both organically and through strategic acquisition since its IPO.

Clearwater Seafoods (CLR.TO)

Clearwater Seafoods Inc. is an owner and operator of assets and property relating to the harvesting, processing, distribution and marketing of seafood in countries including Canada, USA, Europe, Asia and Argentina.  We view this as a high barriers to entry company with patented “on-board” technology solutions, and higher than average quotas in the jurisdictions where they operate.  The share price appears rich at a 52-wk high and nearly 10x 2016 EV/EBITDA, but potential for accretive M&A and/or material cost saving initiatives support the valuation.

Past Picks: July 16, 2015

IMAX (IMAX.N)

Then: $37.93

Now: $32.89

Return: -13.29%

TR: -13.29%

JP Morgan (JPM.N)

Then: $69.56

Now: $65.52

Return: -5.81%

TR: -3.76%

Cineplex (CGX.TO)

Then: $48.62

Now: $51.87

Return: +6.68%

TR: +9.57%

Total Return Average: -2.49%