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The Stock Pickers

Seeking small caps with accelerating profits Add to ...

Gerry Brockelsby is keeping his focus on small to mid-cap growth stocks.

His Marquest Equity Growth Fund produced a 55.4-per-cent decline in the grueling 12-months ended March 31, 2009. However, since inception in Oct., 1997, the fund has generated a 5.92-per-cent average annual compound return. That gain turned a $10,000 initial investment into $18,034 as of March 31. Mr. Brockelsby, the founding partner of Marquest Asset Management Inc. in Toronto, heads the $23.0-million fund with partner Andrew Cook.

"The focus of the fund is to identify stocks with strong growth potential," Mr. Brockelsby said. "We want to buy companies able to support growing cash flow and earnings. We look for companies with reasonable valuation and strong management. Our universe is companies with market caps between $100-million and $500-million. The fund is split between resource stocks and technology stocks. Resource stocks will have huge leverage on the improving economy, as will tech stocks. The tech sector is in sound shape and offers great value."

Constellation Software Inc. is a Toronto-based company that acquires software companies and integrates them into their business of developing and licensing enterprise software. Shares purchased at an average cost of $25.10 have recently traded at $33.49. The business of licensing and maintaining enterprise software generates high recurring revenues that constitute 56 per cent of the company's total sales, Mr. Brockelsby said. The businesses are well diversified and handled by offices in 30 countries around the world. Earnings for the year ended Dec. 31, 2010 should rise to $3.30 (U.S.) per share from $3.08 a year earlier and $2.57 for 2008, he added. Within 12 months, shares should advanced to $40 (Canadian), he suggested.

CYBERplex Inc. is a Toronto-based company that manages advertising and order-taking for client companies in defined internet communities. CYBERplex then gets a commission for each sale. Shares purchased at an average cost of $1.01 have recently traded at $1.80. The company's model, which charges only for sales, shows up in dramatically accelerating revenues that are expected to rise from $27-million for the year ended Dec. 31, 2008 to $82-million in 2009 and a projected $100-million in 2010, Mr. Brockelsby said. Incremental costs of additional sales are modest, so margins will expand dramatically, he added. Within 12 months, shares should hit $2.50, he forecast.

Theratechnologies Inc. is a Montreal-based company that develops drugs for conditions, such as abdominal fat accumulations, often associated with HIV treatments. Shares purchased at an average cost of $1.49 have recently traded at $2.47. The company will submit regulatory filings for new drugs in the near future. It expects to be selling them by early 2010 at which time, earnings should rise to 30 cents per share for the year ended Nov. 30, 2010 from a loss of 23 cents and an 85 cent loss for 2008, Mr. Brockelsby said. Within 12 months, share should rise to $6.50, he added.

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