Peter Imhof, vice-president and portfolio manager at AGF Investments
Focus: North American small caps

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MARKET OUTLOOK

I’m presently cautious on the overall market, but seeing pockets of very good value in certain sectors. Volatility has increased dramatically over the past few months, which is in stark contrast to what we’ve seen over the past couple of years. The volatility presents investors with buying opportunities to pick away at well-managed companies that are on sale for short periods of time. Presently, we’re seeing some good opportunities in the oil and gas sector as well as in select financials. The oil and gas stocks have dramatically underperformed the oil price on a year-to-date basis (particularly the small capitalization stocks). The dramatic underperformance of Canada versus the U.S. continues despite the fact that we have higher commodity prices. Over the past seven years, Canada has compounded at an average rate of 4.25 per cent versus the U.S. at 12.7 per cent. I don’t believe the disparity in returns can continue at the rate they have over the past seven years. If you look at a 20-year time horizon, the U.S. and Canada have performed similarly.

TOP PICKS

BADGER DAYLIGHTNING (BAD.TO)

Badger is a provider of hydrovac trucks for excavating services. The stock had been an underperformer for the past few months despite fundamentals seemingly improving. The company just reported a very stronger quarter that beat most analyst expectations. Badger reacted very well following strong results, which alleviated concerns that the macro environment was not favorable to them. Management announced a raise in the dividend by 18 per cent following the quarterly results. The stock trades at approximately 14.2 times 2018 earnings despite improving fundamentals and good visibility.  We recently initiated a position at $23.50 before the earnings were released.

 PRECISION DRILLING (PD.TO)

The company is an oil and gas driller. The entire service space in the energy sector has been out of favor. This is a bit of a contrarian, play but I feel the risk reward is very enticing. The stock is close to a 10-year low despite the fact that their business is improving and the oil and gas prices are up substantially from their lows. Precision presently has lots of debt, but the management team has started to pay it down and will continue to do so over the next few years. The industry has almost become an oligopoly, with only rational players remaining in the industry. Day rates have been moving up nicely and the drillers seem to be gaining pricing power. As the company continues to pay down debt, the equity holders should be rewarded handsomely. Most recently purchased at $3.45 earlier this week. 

RELIQ HEALTH TECHNOLOGIES (RHT.V)

I recommended Reliq four months ago at much lower levels. It’s a software company in the health care sector that provides a virtual ward for patients that need to be taken care of in their home. They provide software that’s used over a virtual assistant device that enables family members and doctors to ensure the patient is taking their medication. It also gives reminders to patients in terms of what to eat or what not to eat depending on the medication they’re on. They’ve ben onboarding 2,000 patients per month and now have at least 12,000 enrolled as of their last press release. The revenue ramp up will be quite substantial and will provide strong recurring revenues. Presently, only one analyst follows it, but I would suspect that other will soon follow.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BAD N N Y
PD Y N Y
RHT Y N Y

 

PAST PICKS: MAY 25, 2017

 YANGARRA RESOURCES (YGR.TO)

  • Then: $3.31
  • Now: $4.91
  • Return: 48%
  • Total return: 48%

PHOTON CONTROL (PHO.V)

  • Then: $1.38
  • Now: $1.80
  • Return: 30%
  • Total return: 30%

PURE MULTI-FAMILY REIT (RUFu.V)

  • Then: $9.45
  • Now: $9.33
  • Return: -1%
  • Total return: +4%

Total return average: 27%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
YGR N N Y
PHO Y N Y
RUF_u Y N Y

 

FUND PROFILE

AGF Canadian Growth Equity Class
Performance as of: March 31, 2018

  • 1 Month: -0.6% fund, -1.2% index
  • 1 Year: -3.1% fund, -6.6% index
  • 3 Year: 2.1% fund, 4.5% index

* Index: S&P/TSX SmallCap

TOP 5 HOLDINGS AND WEIGHTINGS

  1. Royal Bank: 5.1%
  2. Parex Resources: 4.9%
  3. Bank of Nova Scotia: 4.1%
  4. Real Matters: 3.4%
  5. New Flyer Industries: 3.0%

WEBSITE: www.agf.com