Jason Donville is president and CEO of Donville Kent Asset Management. His focus is growth stocks.
Concordia Healthcare (CXR.TO)
Toronto based CXR trades on five times 2016 cash earnings and 1.1 times P/Book value. While the company is a bit over-levered, its cash flows are strong and debt is being paid down rapidly. The company is well diversified and to the best of my knowledge is not being investigated by anyone.
Freehold Royalties (FRU.TO)
Freehold is the most cost-efficient and conservatively managed royalty play in Western Canada. The company has a strong balance sheet and adjusted its pay out in August to take into account low oil and gas prices.
CRH Medical (CRH.TO)
Vancouver based CRH operates GI Clinics throughout the U.S. The stock trades on 8.9 times 2016 earnings while sporting a 33-per-cent ROE. We think management is extremely underrated and is executing a relative straightforward growth plan.
Past Picks: December 24, 2014
Then: $10.25 Now: $7.01 -31.61% Total return: -31.61%
Patient Home Monitoring (PHM.V)
Then: $0.73 Now: $0.65 -10.96% Total return: -10.96%
CRH Medical (CRH.TO)
Then: $1.70 Now: $3.05 +126.47% Total return: +126.47%
Total Return Average: +27.97%
I expect the TSX to outperform most western equity markets, including the major indexes in the U.S., in 2016.
My optimism stems from two sources. First, the correction in Canadian equity markets in 2015 has created a great deal of value, with a large number of growth stocks now trading on less than 10 times 2016 earnings. Second, we doubt that $35 (U.S.) oil is sustainable and expect that some kind of recovery in the price of crude in 2016 will give Canada and its stock market a boost. In the context of the Canadian market, we think the best value at a sector level is in health care, energy and financial services. We continue to hold many tech/software companies but in strictly valuation terms, most are well priced. On the other hand, health care stocks are unbelievably cheap in valuation terms and performing very well in technical terms. The largest in market cap terms, namely Valeant and Concordia, are not without their controversy but are cheap and moving up fast. Valeant in particular still has a big impact on the index, and institutional investors will need to own it if the stock keeps moving higher.
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