Portfolio manager Stephen Takacsy says it was part design, part luck that his Canadian equity fund was relatively “COVID proof” when the markets plummeted this year after the pandemic forced the widespread closing of businesses.
Some of his biggest positions were in sectors that surged amid the market uncertainty, including renewable energy and e-commerce.
“We had little pockets of weakness, but most of our portfolio was quite resilient,” said Mr. Takacsy, president and chief investment officer at Montreal-based Lester Asset Management Inc., which manages about $335-million in assets.
Mr. Takacsy also used the market drop in the spring to add more shares of beaten-down names such as Pembina Pipeline Corp., Gibson Energy Inc. and Badger Daylighting Ltd., for example, and to buy new names such as Canadian Apartment Properties REIT, Brookfield Infrastructure Corp., Altagas Ltd., Toronto-Dominion Bank and Morneau Shepell Inc.
The strategy has so far been profitable, with his Canadian Equity Fund up 11.2 per cent year-to-date, as of Dec. 11, versus a return of 6.1 per cent for the S&P/TSX Composite Index over the same period, based on total returns (which includes reinvested dividends).
Below are some of Mr. Takacsy’s picks across three sectors he favours now – technology, health care and consumer discretionary products:
His two picks are software company MDF Commerce Inc., up about 70 per cent over the past year, and supply chain management software company Tecsys Inc., up about 145 per cent over the same period.
“We’re looking for e-commerce exposure at a reasonable price,” Mr. Takacsy said.
His firm started buying MDF Commerce, formerly known as Mediagrif Interactive Technologies Inc., when it brought in new management last year and bought a large block at $3.50 a share in April from a mutual fund that was selling. The company, which provides software-as-a-service, or SaaS, and e-commerce platforms to enable transactions between buyers and sellers for large corporations and governments, has strong recurring revenue. Mr. Takacsy said the company is signing up large, recurring clients and is making money. “It’s really undervalued and it’s early days [for the company],” he said.
It’s a similar story with Tecsys, which offers retail order and complex distribution supply chain management software services. Mr. Takacsy bought the stock last year when it dropped upon its move to a SaaS model. He said the shift spooked some investors at first, because it means less revenue in the short term, but creates a longer-term recurring revenue stream. “The company’s backlog has exploded and profitability is way up,” he added.
In the health care space, Mr. Takacsy likes specialty pharmacy company CareRX Corp., and seniors’ housing and long-term care provider Sienna Senior Living Inc. While both are down by about 25 per cent over the past year, Mr. Takacsy believes they’re steady long-term companies that will do well in the years ahead as aging baby boomers require more health care services.
“We wanted to have exposure to this growing industry,” he said. “It’s a way to play health care and demographics at a reasonable price.”
He said CareRX is a leader in providing pharmacy services to seniors and is well-capitalized and focused on consolidation in the expanding industry.
Sienna Senior Living, which has been affected by the spread of COVID-19 in seniors’ homes, also has a strong dividend, currently yielding 7 per cent.
“The demographic trends are still there,” he said, adding he believes the “headline risk” from COVID-19 will help drive investment in long-term care facilities, including from governments.
Meal kit company Goodfood Market Corp. and gambling services provider Pollard Banknote Ltd. have both benefited from the stay-at-home trend during the pandemic and are companies Mr. Takacsy believes will continue to expand long term.
He said Pollard, which provides products and services for the lottery and charitable giving industries, is a well-managed company with strong free cash flow in a growing industry with high barriers to entry. Pollard is up by about 25 per cent over the past year.
“[Pollard is] only one of three licensed players and have been great at growing their market share by being very creative,” he said, citing examples such as instant scratch tickets and online lotteries. “It’s become a form of home entertainment.”
Goodfood is a fast-growing company that Mr. Takacsy was skeptical of, at first, until he learned more about the meal kit trend that first took off in Europe years ago.
“I was so impressed by management and decided to take a flier on it,” he said, buying the shares at $1.46 apiece in the summer of 2017, not long after it went public.
The bet paid off. Goodfood shares are now trading around $8.75 and are up about 180 per cent over the past year alone. “The company has executed flawlessly, which to me was the biggest risk,” he said. “And the pandemic has accelerated [its] path to profitability with the trend of ordering food at home.”
The stock has pulled back from a historic high of $10.49 in mid-October, which Mr. Takacsy believes provides a good entry point for interested investors.
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