James Telfser.
James Telfser is portfolio manager at Caldwell Investment Management. His focus is on Canadian equities.
Top Picks:
Essential Energy Services
This oil and gas services company has a very desirable deep coil tubing fleet which is well suited for the projected increase in activity as a result of the proposed liquefied natural gas (LNG) projects. They have also increased the size of their fleet with respect to steam-assisted gravity drainage (SAGD) projects, which should be very steady for them. The recent weakness in the shares was driven by poor utilization as a result of an incredibly wet and prolonged spring breakup which we believe will be reversed in the second half of 2013. The valuation is very compelling at below 7x 2014 EPS given the quality and nature of the services they provide.
Parkland Fuels
Parkland is the largest independent fuel distributor in Canada. This is a consolidation story as they have a goal of growing volumes to 7 billion litres, which would be 10 per cent of the Canadian downstream market. This will primarily be achieved through acquisitions (the integrates continue to sell downstream assets while the rest of the independent market is highly fragmented). This would increase volumes by 75 per cent (they did 4 billion litres last year) and double EBITDA. PKI trades at 7.5x EV/EBITDA on the 2014 trough EBITDA. While we don't expect the multiple to grow beyond that, their growth prospects are attractive, especially as they've been buying EBITDA at 5x.
Celestica
This is a great free cash flow generation story with a very attractive valuation. They have been working through the excess capacity since the loss of the BlackBerry business and have just recently started to show some decent margin expansion and revenue growth from both their communications and diversified business lines. They continue to expand into the diversified market (aerospace, health care, etc.) which has much lower outsourcing rates versus their traditional communication markets and provides a nice runway for future growth. In the most recent quarter, management stated that they are going to purchase 10 per cent of their shares outstanding over the next 12 months.
Past Picks: September 26, 2012
Horizon North Logistics
Then: $7.94
Now: $6.75
Total return: -12.57 per cent
TransForce
Then: $17.32
Now: $21.02
Total return: +23.68 per cent
Home Capital Group
Then: $50.76
Now: $62.51
Total return: +25.44 per cent
Total return average: +12.81 per cent
Market outlook:
The recent market volatility has provided some excellent entry points into companies that are significantly undervalued with many catalysts on the horizon. While we are carefully watching the global macroeconomic trends, we have not seen any data points that have caused us to hold back on equities. We continue to position our portfolio to gain exposure to areas of the market that are showing strength and remain undervalued which has led us to IT, consumer discretionary and industrials. Many of our holdings generate a significant portion of revenues from the U.S. which we believe will continue to outperform.