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Ryan Modesto is managing partner with 5I Research. His focus is Canadian small and mid-cap stocks.

Top Picks:

Airboss of America (BOS.TO)

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Airboss is a cyclical company that produces specialty rubbers. Investor interest has worn off since the IRT acquisition some time ago, but this defence business continues to have potential over the longer term and shares are cheap. Companies in the resource industry are a big piece of the revenue pie, and with the recent strength in commodities, we would expect demand for Airboss products to slowly increase over time and view it as a derived-demand type of play from a strengthening resource sector.

Exco Technologies (XTC.TO)

There is a lot to like about XTC. The company has high insider ownership, a great dividend growth track record and is one of the faster-growing companies amongst its peer group. At the current valuation, we think the downside risk is mitigated and investors have an opportunity to be rewarded through either earnings growth, dividend growth or expansion of the trading multiple.

Premium Brands Holdings (PBH.TO)

There are two factors that draw our attention to PBH. First, the consumer staples sector is quite thin in Canada and within the sector, many of the names are of the large, slow-growth type of companies. This makes PBH one of the few choices for Canadian investors looking for consumer staples investments and if they are looking for growth, PBH is one of the only options we believe. Second, being in the specialty food segment, the company does not compete on cost as much as others and is able to generate stronger margins.

Past Picks: March 3, 2016

Savaria (SIS.TO)

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Savaria has been busy these past few months with the purchase of the automotive division at Shoppers Home Health and a financing for growth initiatives. The company continues to serve a demographic with positive tailwinds (lifts for aging baby boomers) and has potential to grow through further acquisitions, as well as organically through a growing market.

Then: $6.15 Now: $8.00 +30.08% Total return: +30.87%

Andrew Peller (ADWa.TO)

Andrew Peller raised its dividend recently by 9 per cent and also broke ground on the Gretzky distillery project. We continue to like the stock for its exposure to a recession-resistant market and its strong market position. We think the news of Constellation Brands potentially doing a spin-off and Canadian IPO of the wine business has led to some profit-taking and positioning out of ADW, but this event does not change the fundamentals and prospects for Andrew Peller.

Then: $25.50 Now: $26.93 +5.61% Total return: +6.03%

Concordia Healthcare (CXR.TO)

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CXR has been a frustrating trader recently. Off of a solid quarterly earnings release, the story of a strategic review and two private equity bidders dropping out of the bidding process took over, but we think this is largely noise, and the focus here should be valuation. It is very tough to find companies with a global footprint, diversified revenues across geographies and products with positive cash flows trading at or below two times next years cash flow. Something to note is that if we compare it to Valeant (which we do not view as appropriate), CXR is actually cheaper on many metrics and, given all of the trouble Valeant faces, it is hard to see how CXR trading at a lower valuation is justified. We continue to like CXR, but investors need to approach it with eyes wide open and have at minimum a 12-month holding period on the stock.

Then: $39.45 Now: $27.80 -29.53% Total return: -29.31%

Total Return Average: +2.59%

Market outlook:

The result of Britain voting to leave the EU has blindsided just about everyone, and markets have reacted with some sharp declines. While events like this can be hard to stomach, we think it does provide an opportunity for investors to add to a portfolio at attractive prices and take advantage of the fear and uncertainty that takes over. In our view, for the Canadian investor, this result really should not have an overly material fundamental impact as companies in Canada do not have a whole lot of revenue exposure to the EU and Britain. Stock prices will move, but that does not mean profits of individual companies will drop with it. Some longer-term implications are that this will take U.S. interest rate increases off of the table for some time, and other members of the EU will begin examining the pros and cons of holding their own referendums.

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