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Consultant seeks growing companies with high return on equity

Patrick Racine

Occupation

Consulting services

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The portfolio

Largest positions include CGI Group Inc., Home Capital Group Inc., Valeant Pharmaceuticals International Inc., Concordia Healthcare Corp., Alimentation Couche-Tard Inc., Constellation Software Inc. and Gilead Sciences Inc.

The investor

Patrick Racine began investing during the crisis of 2008. Extensive reading of investment books and websites followed. Then he discovered Jason Donville of Donville Kent Asset Management. His investment letter, ROE Reporter, is "excellent," Mr. Racine says.

How he invests

His approach is mostly based on the teachings of Mr. Donville, hedge-fund manager Joel Greenblatt and now-retired Les Affaires financial columnist Bernard Mooney. The common thread is: Invest at a fair price in growing companies that have a high return on equity. A company that enjoys high returns on equity usually has a competitive edge and capital allocation skills that allow managers to grow earnings at a healthy rate. Just make sure the return on equity hasn't been boosted with gimmicks such as leverage or asset sales.

The market downturn that began mid-2015 presents investing opportunities for him. "When markets are weighed down by various worries like now, "we don't have to think a lot before buying," Mr. Racine says. "We just have to wait for our favourite shares to reach their bottom."

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One holding is CGI Group Inc., a provider of information technology services. It is a skillful allocator of capital, as highlighted by its many successful acquisitions over past years.

Best move

"Constellation Software is probably my best move. I bought the stock at $88 and it went to almost $600 in 2015. Thank you, Jason Donville."

Worse move

"My worst move was probably Yellow Pages, bought when I started investing in 2008. … Yellow Pages offered a generous dividend but it was poorly managed and the stock went down and down and down."

Advice

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"If you build a portfolio of 15 to 20 companies with high returns on equity, you'll probably do pretty well. … And don't pay too much attention to what the journalists are writing."

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