Patrick Horan is a principal at Agilith Capital Inc. His focus is on North American equities.
Management has been converting employee options into shares (ultimately, investing capital). In general, this tends to be a positive indicator, especially in advance of the first test flight of the C Series. Long term, we think there is potential for multiple expansion with Bombardier, as a weaker Canadian dollar acts as a tailwind and more restrictive fuel efficiency standards become a catalyst for the adoption of new planes.
Martinrea International Inc.
Martinrea has exhibited decent margin growth over the past couple of quarters as it emerges from a large and expensive launch program with Ford Motor Co. We believe there is a lot more margin growth potential and that the backdrop for North American auto sales is quite positive, while there are early signs of the cycle bottoming in Europe. Also management has been buying stock and the stock is quite cheap – especially if margins are normalized.
*SHORT* Fortis Inc.
The company trades at a 2.5-point premium to U.S. utilities. In other words, the stock is expensive while the earnings growth is subpar and the dividend appears to be stretched. Over the past several years it has funded growth with the issue of expensive shares. We think access to capital could become considerably more expensive and impair future growth prospects.
Past picks: Jan. 8, 2013
Canaccord Financial Inc.
Total return: –13.71 per cent
IGM Financial Inc.
Total return: +15.66 per cent
Total return: +30.52 per cent
Total return average: +10.82 per cent
We believe that we have been in a secular bull market since 2009 that will likely be sustained for the next several years. We think the structure of the market is changing as inflation risk, for the first time since the bull market began, is becoming an investable theme. We like the industrial, financial and technology industries, which we believe are inexpensive (relatively speaking) and we are short defensive industries such as utilities and pipelines as a steeper yield curve will likely hurt the interest-sensitive sectors. We have a preference for U.S.-based stocks over Canadian as some of the excesses in the Canadian market unwind over the next couple of years.
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