Rick Stuchberry, portfolio manager at Richardson GMP

Focus: Canadian large caps and international ADRs
_______________________________________________________________

MARKET OUTLOOK
We continue to believe we are in the midst of a secular bull market. This market is driven higher by many different factors, one key factor being low interest rates. This has caused many other asset classes to fail to provide a reasonable return, forcing capital into the stock market under the TINA Mandate (there is no alternative). Fundamentally, we are in an investment period with strong demographics, technological innovation causing deflation, and global middle-class growth. This creates the engine that drives the stock market and global economic growth.

TOP PICKS

DEUTSCHE BANK (DB.N)
A deep value investment for our team and an investment based on low interest rates. We have holdings in global banks in many jurisdictions, and this one is currently our most unique opportunity. Years ago, we bought Bank of America at approximately 60 to 70 per cent book value, and have done very well. Deutsche Bank gave us the opportunity to purchase at half book value. They raised €8 billion in equity in April and wrote off many bad loans in 2016, so we expect most of the pain to be behind them. Going forward, we see net interest margins increasing in Europe and believe we purchased close to a bottom.

TWILIO (TWLO.N)
Similar to Shopify, Twilio has a platform/software as a service model and are a technological interrupter. They have nearly $300 million in cash without a meaningful cash burn. Twilio uses software to make communications easier and cheaper for companies and they are growing their customers and revenue. In our view, at a certain point these software-as-a-service companies can operate on a virtually flat cost, meaning all revenue can go directly to margin expansion. They recently lost their largest customer Uber, a critical hit, but we don’t see the thesis breaking and consider it a buying opportunity for the long term. 

SPIN MASTER (TOY.TO)
Spin Master is a Toronto-based children’s toy and entertainment company. We believe global demographics give them a strong tailwind as the major population group begins to have children. Year-over-year revenue increases in the high double-digits, they have healthy gross margins, and can even grow via acquisition. We see a healthy balance sheet, which provides safety, and the rather low risk to earnings over the short- to mid-term gives us confidence.
 

PAST PICKS: JANUARY 6, 2016

ICICI BANK ADR (IBN.N)

• Then: $7.34
• Now: $9.87
• Return: 34.53%
• TR: 37.37%

HUDSON’S BAY COMPANY (HBC.TO)

• Then: $16.93
• Now: $8.62
• Return: -49.08%
• TR: -48.17%

BANK OF NOVA SCOTIA (BNS.TO)

• Then: $55.16
• Now: $78.57
• Return: 42.44%
• TR: 50.16%

TOTAL RETURN AVERAGE: 13.12%