WHAT ARE WE LOOKING FOR?
Ideas from the pros.
We take a look at what money managers have been buying for their funds. You can find a list of the top holdings on their firm's website by checking monthly or quarterly.
The information is useful to research stocks, or as a way to check out a fund. Today, we look at EdgePoint Canadian Portfolio at edgepointwealth.com .
ABOUT THE FUND
The $106.1-million Canadian equity fund is co-managed by Geoff MacDonald and Tye Bousada of EdgePoint Investment Management Inc. The fund, started in late 2008, posted a 50.2-per-cent return last year compared with the S&P/TSX total return of 35.1 per cent.
The managers look for high-quality, undervalued businesses that can grow over time, and then hold them until the market recognizes their potential. "The price of your investment really does dictate the returns you are going to generate over time," Mr. MacDonald said. "So the price is very important."
WHAT DID WE FIND?
An eclectic mix of stocks - from financial and energy names to a doughnut chain.
While the stocks have risen sharply from their 52-week lows, they are off their highs - some more than others.
A top holding is Thomson Reuters Corp., a provider of financial data and business news as well as a seller of electronic information and services to the legal, financial and media markets.
With the merger of Thomson Corp. and Reuters Group PLC in 2008, the cost savings flowing to earnings from the integration of the two businesses will be roughly $1.5-billon (U.S.) over the next year and a half, he said.
The merged entity should trade at 11 to 12 times earnings after cost savings have been wrung out, Mr. MacDonald estimated. "I don't think the Street is currently paying attention to the cost savings flowing to their bottom line."
He said he differs from some investors on Tim Hortons Inc., which operates doughnut stores across Canada and the U.S. Many people see Tim Hortons as a mature Canadian company whose foray south of the border is not working, he said. "I would be willing to bet against that."
There is half the amount of stores in western Canada and Quebec as there are in Ontario, so "there is lots of opportunity" over the coming years, while the stores' changing menus should help increase same-store sales, he said. "We think the U.S. [operation]will be profitable this year."
Toromont Industries Ltd., a distributor of heavy construction equipment and a manufacturer of refrigeration and gas process systems, still has upside, Mr. MacDonald said.
With the acquisition of Enerflex Systems Income Fund, Toromont will have roughly two-thirds of the gas compression business that is in a "large secular growth trend," he said.
On top of that, there will be lots of cost savings and synergies by effectively merging the No. 1 (Toromont) and No. 2 (Enerflex) players in the sector, he said.