Bruce Campbell, president and portfolio manager, StoneCastle Investment Management

FOCUS: Canadian stocks

MARKET OUTLOOK:

Markets continue to be volatile with choppy trading on a daily basis. Multiple cross currents including inflation, central bank policy, earnings and geopolitical events are constantly on investors’ minds. 

A year ago, inflation was “transitory” but today investors are concerned and looking at every data point trying to get an edge on the future of inflation. The October CPI data, which will be released on Nov. 10, will be a key data point influencing investors. Some individual aspects of inflation are showing early signs of moderating but it will take more time before we know for sure how fast and when it will slow. While we wait, central banks around the world continue to be taking a tough stance on inflation by increasing interest rates. Investors are worried these interest rate increases push the economy into a deep recession rather than a soft landing.   

It doesn’t matter what sentiment indicator you look at, readings are at historical lows often seen close to market bottoms. The challenge with sentiment indicators is they can’t be used for exact market timing as they are simply a condition and not a signal for a reversal of a trend. Right now, market participants are as pessimistic as we can remember and from a contrarian standpoint that is a positive.   

We continue to watch the U.S. dollar as well as interest rates for signs of a trend change that could be the start of the next bull market. We are seeing interesting changes under the surface of the market in many areas. We just hosted our monthly indicator webinar. We reviewed some of the favourable changes in mid-and small-caps, utilities, consumer discretionary, technology and energy sectors that may be indicating a change in trend in the near future. 

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TOP PICKS:

Converge Technology Solutions (CTS TSX)

It’s a cloud software and IT provider delivering solutions to mid-market customers. CTS has been growing via acquisition and organically with compounded revenue growth of 49 per cent and compounded EBITDA growth of 79 per cent over the last three years. The company continues to expand to new areas via acquisition and trades at a reasonable multiple. 

Southern Energy (SOU TSXV)

Southern energy is an energy producer focused on developing and producing conventional natural gas in Mississippi. The company has had early drilling success and with the recent capital raise, can drill between 15-20 more wells. The drilling should take the company from the current 3,000 boe/d to 9,400 in 2023 and 15,000 in 2024.

Green Thumb Industries (GTII CSE)

A Chicago, based Cannabis multi-state operator (MSO) with 17 manufacturing facilities and 77 retail locations in 15 U.S. states. In the last quarter, the company reported revenue growth of five per cent and EBITDA growth of 17 per cent. GTII recently announced an agreement with Alimentation Couche Tard in Florida. 

PAST PICKS: November 19, 2021

Nurosene Health (MEND CSE)

• Then: $1.94
• Now: $0.24
• Return: -88%
• Total Return: -88%

Quipt Home Medical (QIPT TSXV)

• Then: $8.66
• Now: $5.59
• Return: -35%
• Total Return: -35%

Kinaxis (KXS TSX)

• Then: $229.10
• Now: $142.25
• Return: -38%
• Total Return: -38%

Total Return Average: -54%