TORONTO | Catherine (Kiki) Delaney has the brokerage business in her blood. Her dad founded his own firm in Winnipeg, and she got her start as a sales assistant at Merrill Lynch Canada in 1970. Throughout her career, she’s been a trailblazer for women on Bay Street, and her firm—Delaney Capital Management, started in 1992—is known for investing based on fundamentals, not hot trends. One of Delaney’s best moves was buying Constellation Software stock at $17. In January, it was trading at more than $800.
These aren’t normal markets. We’ve had ultralow rates for quite some time, and we face a lot of political uncertainty. Is it harder to make decisions today?
From a macro point of view, it is much tougher. You’ve got political forces that can change day by day and tweets that influence the market. It’s highly unpredictable.
Investors are also obsessed with growth. Uber loses billions of dollars a year, yet is widely praised. Is that frustrating for someone with your investment philosophy?
Growth stocks have been trouncing value stocks for a long time. Earnings growth hasn’t been all that forthcoming, so investors have chased expansion where they’ve seen it; they’re more willing to let value stocks go completely ignored. It can’t go on forever. If you go back to the late 1990s, before Nasdaq collapsed and Nortel began its nosedive, there were many companies trading at many, many times earnings.
What could make investors wake up this time?
If you get interest rates a little bit higher, it will start to correct.
Do you expect rates to change much?
We don’t see an enormous amount of movement. Growth is decelerating. The Fed has also increased rates nine times. Typically, there are only so many increases the market can tolerate before it starts to get jittery.
Is it harder to be a value investor in this kind of market?
This conversation would be different if we had had it in September. The sentiment on equities has shifted dramatically. The good thing about the sell-off is it’s now possible to find some value.
Without a doubt, the most unloved, and the most hated, area of the market is energy. Energy stocks are being crucified. But I have a very hard time believing that somewhere in there you aren’t going to make a tremendous amount of money buying a handful of well-capitalized Canadian oil stocks—as long as you have an appropriate time frame.
What else in the market piques your interest?
In the small- and mid-cap space, look at Stelco. The company’s currently trading at a price-to-earnings multiple in the mid-single digits, and it has no debt. That is classic value. There’s also Pinnacle Renewable Holdings, which is the second-largest producer of industrial wood pellets in North America. [Wood pellets are a renewable source of energy.] The company recently went public, but it has sold off since the end of September. It’s a very good business with very good growth prospects.
The sell-off has people spooked. Bond markets have also suggested a downturn could be coming. Are you worried?
There are a lot of people who remember 2008 to ’09 vividly, so they fear that a market pullback is more than a pullback. We are not of the view that there will be a recession next year.