Peter Hodson.
Peter Hodson is head of research at 5i Research Inc. His focus is on Canadian small- and mid-cap stocks.
Top Picks:
Progressive Waste Solutions (BIN.TO)
Progressive Waste Solutions hiked its dividend by 6.3 per cent last week, and we like the reliability of revenue/earnings in most economic environments, the leverage to the economy and its U.S. revenue stream. Fuel savings should also kick in, improving operating margins. It's just a good, solid company overall.
Home Capital Group (HCG.TO)
We are taking the opposite view of the shorts here. Like 2013, we think the short sellers think Home Capital Group is a sub-prime lender, and it really is different from U.S. sub-prime lenders. Yes, some of its brokers caused some problems, but the issue has been dealt with, and it is still highly profitable. It grew earnings in 2008 and 2009, so we doubt this cycle is going to be a big problem for it. It has not issued stock since 2001 and the founder and CEO owns $100 million in stock. It has raised its dividend 13 times since 2008.
AirBoss of America (BOS.TO)
We have new research coverage on AirBoss, and it has many of the qualities we like. It has high insider ownership, a flat share count, good growth and good industry conditions. Its dividend is growing and its last quarter beat estimates handily.
Past Picks: July 29, 2014
Contrans Group (CSS.TO) *Acquired by TransForce (TFI.TO) on December 2, 2014*Then: $15.20; December 10, 2014: $14.56; -4.21%; Total return: -1.59%
Amaya (AYA.TO)
Then: $29.61; Now: $31.16; +5.23%; Total return: +5.23%
FirstService (FSV.TO) * Spun out Colliers International (CIG.TO)
May 27, 2015: $38.46; Now: $40.99; +45.05%; Total return: +45.59%
Total Return Average: +16.41%
Market Outlook
We are noticing that stocks are making larger moves on earnings (both up and down), and we view this as a positive sign. Effectively, it means that investors are now discounting the Fed, and have priced in an interest rate hike already, and it will be a non-event when it occurs. So, earnings become far more important, and 72 per cent of reporting S&P companies have beaten estimates so far in the second quarter. The U.S. economy continues to do well, and continues to be a global leader. This will result in more U.S. stock gains and more gains in the U.S. dollar. We highly encourage Canadians to have some U.S. exposure. In Canada, we are basically in a recession right now, and the two Bank of Canada rate reductions will help, but energy/metals continue to be a drag on the economy. Canadian earnings for the most part have been 'OK' but Canadian investors seem far more nervous than U.S. investors, and we do not think they need to be. The U.S. economy should drag Canada along until we can recover on our own.