Peter Hodson, Chief Investment Officer, i2i Capital Management
FOCUS: North American mid-caps
Top Picks: Sportradar, Eagle Materials, Genius Sports
MARKET OUTLOOK:
The problem with the market now is uncertainty. The U.S. government flip flops on policies have essentially brought business to a halt. We have gone from very strong gross domestic product (GDP) growth in the U.S. to a possible recession in a very short period. If inflation pops up, we could see a very rough scenario of stagflation, no growth and high prices.
Business owners do not know what will come next—so they stop expanding, stop hiring, and stop buying. Job cuts of course have a trickle-down impact to the economy. You can’t fire 2.6 million people at once. Any economics student knows this, and we don’t know why the government does not. Any first-year economics student knows tariffs do not work. So, things could get tough for a while. So far, it has been controlled and disciplined selling in the market. We have yet to see a big volatility spike like we have seen in other periods of crisis.
But it’s not all bad. There are companies still hitting new highs. Most corporations are in good financial shape. AI and automation are going to lower costs and improve profit margins. We are not quite there yet, but it is coming. Valuations of course have adjusted. We would be slow buyers right now. Let the stocks come to you. We would be more aggressive if the VIX Index were to spike above 30.
We would be big buyers above 40. This crisis will pass. So far, it is a normal correction brought about by uncertainty. If we get clarity, the market should settle in and work higher over the next 18 months. Small and mid-cap stocks still look good. They are cheap, offer growth, and many have pure-domestic business so can be less impacted by tariffs.
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TOP PICKS:
Sportradar (SRAD NASD)
A sports technology company offering data and analytics to sports federations, gambling sites, news media outlets and consumer platforms. Gambling is always a good go-to sector when markets are uncertain. The company has lots of cash, good cash flow and very strong growth expected. Earnings per share are expected to go from 17 cents last year to 29 cents this year. The stock has been doing very well in a bad market. The last quarter was good, and it recently secured the rights to distribute data from Wimbledon and the PGA Tour. In some countries, the company has such high market share that it is considered a monopoly, but it is not there yet in the U.S. Interestingly, Canada Pension owns 39 per cent of the company.
Eagle Materials (EXP NYSE)
Cheap at 16 times earnings, with a small 0.44 per cent dividend. It makes and distributes cement, gypsum wallboard, concrete, and aggregates. There is some economic risk here, with ties to the construction industry. But shares are up 227 per cent in the past ten years, and it is a quality company, and we are willing to take this risk. There is some leverage to the balance sheet, but earnings per share will have tripled from 2019 to this year. Free cash flow is good, and it could benefit from infrastructure and onshoring spending growth. Simply a well-managed construction material company.
Genius Sports (GENI NYSE)
It is a bit like SRAD and largely tied to sport and data. But it is smaller and less established and could be a takeover target as the industry develops further. Genius Sports is the official data, technology and broadcast partner that powers the global sports, betting, and media ecosystem. Its technology is used in over 150 countries worldwide, creating immersive products that enrich fan experiences across the entire sports industry. The stock is also hitting new highs. It has just turned cash flow positive and will see its first profit in 2025. Earnings per share is then expected to triple in 2026. It has no net debt and $110 million cash. Insiders own nine per cent. Sales are expected to grow 50 per cent in the next two years.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SRAD NASD | N | N | Y |
| EXP NYSE | N | N | Y |
| GENI NYSE | N | N | Y |
PAST PICKS: November 18, 2024
SHIFT4 PAYMENTS (FOUR NYSE)
- Then: US$100.62
- Now: US$84.94
- Return: -16%
- Total Return: -16%
CELLEBRITE (CLBT NASD)
- Then: US$17.47
- Now: US$19.40
- Return: 11%
- Total Return: 11%
CONSTRUCTION PARTNERS (ROAD NASD)
- Then: US$90.1
- Now: US$74.58
- Return: -17%
- Total Return: -17%
Total Return Average: -7%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| FOUR NYSE | N | N | Y |
| CLBT NASD | N | N | Y |
| ROAD NASD | N | N | Y |
