James Telfser is portfolio manager at Caldwell Investment Management. His focus is on Canadian equities.
This steel construction product and service company has been showing a steady increase in gross margins along with a steady increase in their backlog (up 17 per cent quarter-over-quarter) and bookings. They are trading at a discount to their historical average multiples.
We believe the recent Logica acquisition in the U.K. provides an excellent launch pad for CGI to become a global leader in IT and business process services. There are many synergies to be realized from this type of acquisition, particularly with their CGI's expertise and business model. The recent weakness in the shares provides a great entry point at a discount to their historic average multiples.
This auto parts producer has seen its fair share of volatility over the past year as they have launched a number of new programs. Many of these launches were a drag on margins and earnings, but now that these high costs have been realized they can focus on profitability at these plants. They will also benefit from continued positive North American vehicle production. They are trading at a discount to their peers and we believe they will benefit from multiple expansion and positive earnings surprises in the coming quarters.
Past Picks: September 26, 2012
Horizon North Logistics Inc.
Total return: -19.16 per cent
Total return: +20.74 per cent
Home Capital Group Inc.
TR: +9.95 per cent
Total return average: +3.84 per cent
The recent market volatility brought on by expectations that central banks will begin scaling back their quantitative easing has created some excellent buying opportunities. While the Canadian market in general has pulled off as of late from being "fairly valued", we strongly believe that stock picking will be crucial in the next leg up for the market. Many significant sectors in Canada are at risk of further multiple compressions (capital loss) with the expectation and recent reality that interest rates will move higher. These sectors include REITs, Utilities and Pipelines as they are trading at historically high earnings multiples. We continue to find excellent opportunities in Canadian sectors whose businesses are showing positive momentum and remain undervalued. These sectors include Health Care, Information Technology, Industrials and Consumer Discretionary.