StoneCastle's Bruce Campbell
Bruce Campbell is president and portfolio manager of StoneCastle Investment Management. His focus is Canadian equities.
Top Picks:
Concordia Healthcare (CXR-TSX)
Concordia is a growth-by-acquisition story – they recently announced their largest to-date and last acquisition a few weeks back. With all the activity in the pharma sector, they have many, many more opportunities for acquisitions. They have a run rate of $70-$75 million in EDITDA, pay a nice dividend and have a favourable tax structure.
Sensio Technologies (SIO-TSX-V)
The company has patent protected 3D TV technologies. They specialize in 3D image processing that stands to benefit from increases in 3D TV shipments. They have agreements with Dreamworks, Universal, Disney, and Paramount which validates their technology. Their 3DGO on demand 3D movie service is seeing rapid growth in registered users and movie rentals since its inception in early 2013 (77-per-cent average monthly registered user increase). Management's middle-range guidance for 2014 revenue is an increase of 350 per cent over the trailing 3-year average revenue.
AutoCanada (ACQ-TSX)
The company operates 33 auto dealerships representing 16 brands. AutoCanada continues its acquisition strategy guiding for 10-12 acquisitions in the next 24 months. Revenue and net income continue to grow by acquisitions but also organically. Same store sales increased 17 per cent last year and gross profit also increased by 17 per cent. With 3,400 auto dealerships in Canada, ACQ has plenty of room for continued acquisition.
Past Picks: Oct. 16, 2013
AutoCanada (ACQ TSX)
Then: $38.68; Now: $62.02 +60.38%; Total return: +61.98%
Alimentation Couche-Tard (ATD.B-TSX)
Then: $69.36; Now: $30.73 +32.92%; Total return: +33.23%
Air Canada (AC.B-TSX)
Then: $4.99; Now: $7.70 +54.31%; Total return: +54.31%
Total return average: +49.84%
Market outlook:
We continue to be constructive on the markets. The top down indicators that we use are positive and continue to improve.
Supply and demand is the first lesson of Economics 101. On occasion we see one side far outweigh the other side. For those who know what is important to pay attention to, the supply and demand factors leave solid clues, like reading tomorrow's newspaper today. On Feb. 18, 2014, there were almost twice as many advancing stocks as declining stocks on average for ten consecutive days (the exact ratio was 1.96 to 1). This most recent 2-1 advance-to-decline buy signal suggests markets have started another move to the upside that could last for many months. Past signals were the fall of 1982 as the 1982-2000 bull market was starting, January 1987, March 2009, July 2009 and September 2009. Now the most recent signal in February. To achieve this 2-1 buying power uses up a lot of short-term energy and often requires the market to consolidate before the move resumes. We are experiencing that short-term consolidation now, which gives us a chance to get fully invested before the markets move higher.
We are starting to see some sector rotation occur in the Canadian markets. Energy, materials, income trust/REITs are gaining relative strength, while, industrials, technology, and consumer staples are showing weakness.