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James Telfser is portfolio manager at Caldwell Investment Management. His focus is on Canadian equities.

Top Picks:

Open Text

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Recently made an accretive acquisition with GXS which provides some B2B integration services from the cloud. Investors have been waiting for some additional growth through acquisition as organic license growth has been flat. This deal coupled with the recent product refresh (Project Red Oxygen) provides good support going into 2014. We believe the valuation discount versus peers will begin to narrow as it is trading a 14x 2014 projected EPS versus peers at 19-20x.

COM DEV International

This technology company builds and supplies parts for satellites all over the world and are currently used in 80 per cent of all commercial satellites launched. They just achieved a milestone of positive EBITDA in their high margin exactEarth business (Data Services). Their recent quarter was soft in what is typically a very lumpy revenue business, but we continue to be encouraged by the margin growth. They recently announced their largest commercial contract ever awarded ($65-million) and we expect the recent satellite award announcements to be positive for their backlog in the coming quarters. We believe that the stock is very attractive at less than 13x 2014 projected EPS.

CCL Industries

This is a global label making company that is going through a major transformation after their acquisition of Avery. They recently reported their first quarter as a combined company and significantly outperformed expectations. This is a very stable business in a highly fragmented industry which provides great opportunities on the acquisition front, but also organically. This is a great anchor stock for your portfolio and you do not have to pay up for it as it is trading at 15x 2014 projected EPS.

Past Picks: December 17, 2012

Cott Corp.
Then: $8.03
Now: $8.92
Total return: +13.33 per cent

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Martinrea Int'l
Then: $7.84
Now: $8.67
Total return: +11.17 per cent

CGI Group Inc.
Then: $23.26
Now: $40.02
Total return: +72.06 per cent

Total Return Average: +32.19 per cent

Market outlook:

We continue to find great businesses in Canada that are trading at discount valuations. The Caldwell CDN Value Momentum Fund currently has an expected Price-to-Earnings ratio of 11.4x versus the S&P/TSX composite at 14.6x and also compares favourably on growth/profitability metrics. 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. With low interest rates, tame inflation and reasonable valuations, we believe that equity markets will grind higher. We continue to position our portfolio to gain exposure to areas of the market that are showing strength and remain undervalued such as Information Technology, Consumer Discretionary and Industrials.

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