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StoneCastle's Bruce Campbell

Bruce Campbell is president and portfolio manager of StoneCastle Investment Management. His focus is Canadian equities.

Top Picks:

NYX Gaming (NYX.V)
Last purchased at $2.85
NYX is a digital gaming and software supplier that specializes in developing, manufacturing and distributing digital gaming content for online and land based casino operators. NYX is consolidating the highly fragmented gaming industry and recently announced the acquisition of the Amaya Gaming's Online Assets. The stock sold off more than 35 per cent following the equity issue to close the Amaya assets. The business produces high recurring revenues and high conversion to Free Cash Flow. We expect to see the company generate $30-million of EBITDA in 2016. At the current price, the stock trades at less than 4 times next years' EBITDA while comparable companies are trading at 10 times EBITDA. Management and the board are large shareholders owning over 40 per cent of the company.

Perk.com (PER.TO)
Last purchased at $6.25
Perk provides a rewards platform offering online rewards and gift cards for individual's everyday online activity. The company operates its own apps and websites and also provides a SDK for other online publishers. The company just reported their first quarter as a public company and had strong revenue and EBITDA. The stock trades at 15 times trailing EBITDA and eight times forward EBITDA while projected to grow at 50% over the next year.

Inspira Financial (LND.V)
Last purchased at $0.175
Inspira provides alternative financing to doctors and healthcare providers across the US. Inspria offers lines of credit ranging from $250,000 to $5,000,000. The company has built a $50-million dollar loan book from a standing start 10 months ago. They are operationally profitable and cash flow positive. We anticipate they will continue to grow organically and via acquisition. Successful lenders typically trade at three times loan book. With a $50-million loan book, that equates to a $150-million valuation.

Past Picks: August 27, 2014

GuestLogix (GXI.TO)
Then: $1.20; Now: $0.81; -32.50%; Total return: -32.50%

Petrowest (PRW.TO)
Then: $1.29; Now: $0.21; -83.72%; Total return: -83.72%

Pine Cliff Energy (PNE.V)
Then: $2.01; Now: $0.99; -50.75%; Total return: -50.75%

Total Return Average: -56.66%

Market outlook:
Bear markets typically start in anticipation of a recession. We monitor several different indicators to assess the likelihood of a recession in the near term. Three that we find particularly important are: the yield curve, LEI and oil prices.

An inverted yield curve (where short term rates are higher than long term rates) is a solid predictor of a recession. Currently the yield curve has a very positive spread between short (1 per cent) and longer term (2.5 per cent) interest rates. When the Leading Economic Indicator is above the 18 month moving average, the risk of a recession is diminished. Currently the LEI is comfortable above the 18-month moving average. The last indicator is the price of oil. As long as the price of oil hasn't increased by 80 percent or more over 12 months, the economy tends to stay strong. We would need to see oil in the $74 level in order for this negatively affects economic growth.

While we don't see the indicators flashing warning signals for a recession at this point in time, we are in neutral right now with our market positioning. We move to neutral anytime several of the market's internal indicators deteriorate. We do not try to anticipate whether we will see a shallow or deeper correction in the near term, but we move to a neutral positioning until those indicators improve.

We would like to see the S&P/TSX above its 200-day moving average, and both the S&P 500 and the S&P/TSX to see weekly and monthly momentum move positive. We would also like to see the largest institutional pools of capital take control of the markets after being on the sidelines since June. If we saw these improve, that would move us back to fully invested from the neutral positioning that we currently are in.