What three money managers are buying right now

Share

Globe Unlimited's Inside the Market is continually canvassing the buy side on their latest stock trades. Here are three Canadian money managers on their recent transactions.

The pro: Stephen Takacsy, chief investment officer, Lester Asset Management

The buy: Corus Entertainment Inc. (CJR.B)

Amid an abundance of challenges for Corus, a material piece of good news went largely unheeded by investors.

In April, the company announced an agreement to launch the Disney Channel in Canada, securing the rights to coveted children's programming previously licensed to competitor DHX Media Ltd.

"I thought it would gap up the next day," Mr. Takacsy said. "This is big positive news that the market hasn't really even reacted to."

The announcement found the specialty television and radio broadcasting company in a weakened state. The company has struggled with a challenging advertising market in its broadcast operations. Additionally, the market deemed Corus to be a potential big loser as a result of the announcement in March that cable subscribers will soon be able to pay for only the channels they want. The announcement sparked an 11 per cent one-day decline in Corus's share price. Then there is the company's tendency to miss earnings estimates. Earnings have come up short of analysts' expectations in eight of the last nine quarters.

Mr. Takacsy said he expects to see more conservative earnings guidance under the leadership of CEO Doug Murphy, who took over in March.

Meanwhile, the deal with Disney helps to firm up the company's appeal, which should position Corus well under a more consumer-friendly cable model. "This really makes them the 800-pound category killer. It's going to add a huge amount to the bottom line, it will also make them stronger when negotiating for advertising dollars."

Trading at about 10.3 times forward earnings, the stock is cheap compared to its peers, he said. So when the stock failed to react to the Disney deal, Mr. Takacsy added to the position he's held for years. "We loaded up the truck in the $17s."

The pro: John O'Connell is chairman and CEO, Davis Rea Ltd.

The buy: Tourmaline Oil Corp. (TOU)

Few in the oil patch were spared the full effect of the energy selloff, and Tourmaline was no exception, its share price having dropped by 45 per cent from peak to trough.

But as oil prices have rallied of late, investors have largely missed one of the better positioned energy names in Tourmaline, Mr. O'Connell said.

The company entered the downturn well situated, with a decent amount of its 2015 production hedged, Mr. O'Connell said. That, combined with a strong balance sheet, allowed the company to hunt for deals as misfortune befell the sector. In March, the company said it would pay $257-million in stock to buy its partner's share of a central Alberta natural gas property. "We like this opportunistic approach in this environment to take advantage of others' weakness to build large inventories," Mr. O'Connell said.

Tourmaline's management has a strong track record of increasing production, and its first-quarter earnings report reaffirmed a 2015 expected production increase of nearly 50 per cent over last year. The company currently trades in line with its competitors, "despite its top tier growth profile and strong balance sheet," Mr. O'Connell said. "We believe a premium is warranted given its attractive asset base and history of execution." He topped up his position in the stock in mid-April at about the $40-mark, when some of Tourmaline's peers were advancing.

Tourmaline is primarily exposed to natural gas, which has not rebounded in tandem with oil. That could soon change, Mr. O'Connell said.

"What people aren't paying attention to is how much natural gas production is likely to start decreasing along with oil production as drilling dries up. A lot of that incremental gas production that came online the last three years was associated gas from oil wells. As that drilling slows down, we may have short-term pricing issues, but I think the long-term outlook is pretty bullish."

The pro: Mason Granger, portfolio manager at Sentry Investments

The buy: PrairieSky Royalty Ltd. (PSK)

With lower costs than its competitors, PrairieSky was also in a position to capitalize on the turmoil in the energy patch.

"In that environment, we felt that owning a company with that top-line, royalty nature, with a very strong balance sheet, that was the place to be," Mr. Granger said.

As a royalty business spun off from Encana Corp., PrairieSky has no capital expenditures and little in the way of operating expenses.

Its royalties are vulnerable to a slowdown in drilling activity on its leased land, but that's partially hedged by well commitments as well as the growth secured by PrairieSky's $699-million acquisition of Range Royalty LP, announced last November.

"We also believe that many acquisition opportunities are likely to develop for PrairieSky over the year as conventional oil and gas companies look to bolster their balance sheets with royalty interest divestitures," Mr. Granger said.

Still, PrairieSky's stock was traded down by nearly half over the commodity selloff and fears over a potential dividend cut.

Mr. Granger said he thinks the company is unlikely to cut the dividend, even if the current energy price environment persists through next year.

Through February, Mr. Granger accumulated a position in PrairieSky at a cost base of $28.05 a share.