Colin Stewart, CEO & Portfolio Manager, JC Clark
Focus: North American equities
Top Picks: Pollard Banknote, Information Services Corp., Brookfield Business Partners
MARKET OUTLOOK:
While we believe the Canadian equity market offers good relative value and a solid mid-term outlook, we are generally more cautious on equities and in particular the U.S. market. U.S. equity valuations are nearing extremes, closing in on levels only seen during the 1999/2000 internet bubble. Optimism around artificial intelligence, global capital inflows, and broad confidence surrounding the Donald Trump administration appear to be the driving forces.
Speculative activity has become a pervasive force – single stock levered ETFs (a risky vehicle for investors to “double” or “triple down” on one stock) are attracting huge capital inflows, bitcoin is rallying at a breathtaking pace and put option protection is extremely cheap (i.e. nobody is worried about buying portfolio insurance). Meme stocks like GameStop are rising from the ashes, and one of the best performing stocks in the entire market is MicroStrategy (MSTR) – a company that is borrowing billions of dollars and purchasing bitcoin with those borrowed funds.
As always, it is difficult to know when the music stops, but the growing level of speculative activity could indicate choppier waters ahead, and at the very least should be interpreted as a warning sign for rational investors.
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TOP PICKS:
Pollard Banknote (PBL TSX)
As a leading provider of instant scratch lottery tickets, it operates three main segments: lottery products, charitable gaming and gaming systems.
Attractive industry: Long-term stable industry growth of 6% CAGR since 1995, resilient to economic downturns
High barriers to entry: Oligopoly industry structure with high barriers to entry (PBL is the second largest of three key global players), long-term customer relationships
New growth opportunities: iLottery is a fast-growing new segment of the market where Pollard is a leader
Margin upside: Re-pricing of contracts is creating margin expansion
Deeply discounted valuation: 6x EV/EBITDA (2025E) – largest player in the industry (Scientific Games) was acquired by Brookfield for 13x EBITDA a few years ago
Information Services Corp. (ISC TSX)
It provides registry and information management services to governments, law firms, and corporations in Canada and globally, and holds exclusive rights to operate the Saskatchewan land registry until 2053.
High quality business: Infrastructure type asset, recurring revenue, high barriers to entry, significant FCF generation
Powerful secular trends driving growth: Governments privatizing assets, increased outsourcing, heightened regulatory/compliance requirements
Recent extension of Saskatchewan Registry Contract: In July 2023, ISC announced a 30-year extension to Saskatchewan contract – solidifies monopoly position in this market
Potential catalysts: Strengthening Saskatchewan real estate market, more M&A, additional contract wins
Attractive valuation: 8x EV/EBITDA (2025E), 11%-12% FCF Yield, 3.5% dividend yield
Brookfield Business Partners (BBU-UN TSX)
It’s the private equity arm of Brookfield Asset Management, and owns a portfolio of assets across three key sectors: business services, infrastructure services and industrials.
Strong track record: Gross IRR of 27% over last 20+ years
High quality investments: Portfolio companies are industry leaders, generate strong profitability and FCF (2 examples: Sagen – largest private residential mortgage insurer in Canada, and Clarios – world’s largest manufacturer of low-voltage automotive batteries)
Continuous operational improvement: BBU takes an active role to improve the businesses they own and unlock value
Large discount to intrinsic value: Trading at 30% discount to net asset value
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| PBL TSX | Y | Y | Y |
| ISC TSX | Y | Y | Y |
| BBU-UN TSX | Y | N | Y |
PAST PICKS: Oct. 26, 2021
Logistec (LGT/B TSX) – acquired by Blue Wolf Capital Partners on January 10, 2024
Then: $45.15
Jan. 10, 2024: $66.95
Return: 48%
Total Return: 51%
Sylogist (SYZ TSX)
Then: $11.70
Now: $9.54
Return: -18%
Total Return: -13%
Lassonde Industries (LAS/A TSX)
Then: $175.85
Now: $191.92
Return: 9%
Total Return: 15%
Total Return Average: 18%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LGT/B TSX | N | N | N |
| SYZ TSX | N | N | Y |
| LAS/A TSX | N | N | N |
