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bnn market call

StoneCastle's Bruce Campbell

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

Top Picks:

GuestLogix (GXI.TO)

Last purchase was $0.84

Guestlogix provides payment processing for onboard transportation (airline and rail) purchases. They receive a percentage of the transaction value from all the purchases they process (food purchases to inflight entertainment). The company has fallen out of favour with investors as they have overpromised and underdelivered. In the last month, the CEO was replaced, and the successor is working on a restructuring plan to make the company more profitable. He acted quickly by cutting $6-million out of expenses in the first month, which will flow right to the bottom line. The stock is cheap on many different metrics and the management team has a strong desire to increase shareholder value. The company is hosting an investor day in early December to layout the full plan.

Inspira Financial (LND.V)

Last purchase at $0.175

Inspira provides alternative financing to doctors and health care providers across the U.S. Inspira offers lines of credit ranging from $250,000 to $5,000,000. The company has built a $60-million dollar loan book from a standing start 12 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 2-3 times loan book. With a $60-million loan book that equates to a $120- $180-million valuation, current market cap is less than their loan book. They will be reporting earnings in the next few weeks, and we will see the actual growth of the loan book.

Kinaxis (KXS.TO)

Last purchase was $36.92

The company provides cloud-based software that allows customers to control and analyze their supply chains in real time. The company has been growing organically at 23-per-cent per year and is now at an inflection point with several larger customers. They currently have 100 customers and an addressable market of 4,000 companies. Management has been revising guidance higher and is set to report earnings in the next few weeks.

Past Picks: October 22, 2014

Patient Home Monitoring (PHM.V)

Then: $0.43 Now: $0.46 +5.81% Total Return: +5.81%

Slyce (SLC.V)

Then: $0.71 Now: $0.25 -64.79% Total Return: -64.79%

Concordia HealthCare (CXR.TO)

Then: $39.48 Now: $30.50 -22.75% Total Return: -22.28%

Total Return Average: -27.09%

Market outlook:

In the last few appearances on BNN Market Call, we have asked the question "Is this the start of a new bear market or the middle of a correction?" Bear markets typically start as a result of a recession, whereas corrections are hard to predict and occur at any time when sentiment turns negative. Growth has been slowing, but the indicators we follow have not seen a major drop off that would forecast a recession. Several economic data points, i.e., housing starts, consumer sentiment, ISM Services and the yield curve have all remained in positive growth territory.

It appears from the data that at this point in time we have not entered a global recession. We have seen several positive market indicators that could show the worst is behind us. Sentiment is a contrarian indicator and negative sentiment was at extremes last seen in 2011 or 2009 on many market sentiment indicators in August and September. Market trend has also been improving and looks to be repairing itself, with the market making a higher low and recovering to a higher level so far in October. Seasonality is in favour of the markets as we move into the strongest season from November to May. Historically, this period has accounted for more than 95-per-cent of historical market profits since 1950.

Breadth is another important indicator showing improvement. We recently experienced a rare Zweig Breadth Thrust and also a rare Volume Thrust. A Volume Thrust is when the up volume to total volume is greater than 5:1. A cluster of three such thrusts in four days has only occurred 10 times since 1950. When it has occurred in the past, future returns looking out six months and one year have been very strong. The average six-month return is 17.03 per cent, and the average 12-month return is 24.65 per cent. A volume thrust occurred on October 5, 2015.

We have seen one of our key oscillator indicators move to positive from oversold levels. This moves us closer to being outright bullish on the markets. We continue to be in neutral with our portfolio positioning. We would like to see just a couple other indicators move back to positive before we get back fully invested.