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Stock Opinions by Stephen Takacsy, B. Eng, MBA

COMMENT

He thinks that central banks have contributed to inflation with rising shelter costs. They're pivoting now as inflation comes down naturally. The rate hikes are down, and rates will decline perhaps gradually to the 2% target. Small-caps have been neglected by the markets, but are cheap. Bonds are also a bargain as are dividend payers like telcos, utilities and pipelines (e.g. Enbridge, Boralex) and enjoy growth tailwinds.

Unknown
DON'T BUY

Doesn't follow it closely. Gross margins are 15% max. They were growing by acquisition until higher interest rates paused that. Organic growth is around 5% at best. It doesn't deserve a high valuation. They didn't attract a high enough offer to be bought out.

Technology
DON'T BUY

Doesn't follow it. The stock has gone nowhere in the past three years. Been a lot of turmoil in the company. The CEO left in a huff about compensation. They operate in a good business with EBITDA margins of 25%, but is volume- and price-driven. The business can be lumpy. They lost a client, but they recently growth good growth. Also, there's growing competition. Always trades at a premium, though. Take a profit or hold.

specialty stores
BUY
Quarterhill Inc

He was the lead activist investor. Since then, they have a brand new board and management board with serious experience. They're in a great space; huge infrastructure spending will happen in coming decades in intelligent transportation. They lead in electronic tolls in the US and lead in electronic weighing of vehicles. Insiders are buying a lot of stock in recent months, so they have a lot of confidence; this is rare and bodes well. Much upside ahead. 

electrical / electronic
PARTIAL BUY
Baylin Technologies

Things haven't worked out for them in recent years. They went on a spending binge, buying companies, then Covid hit and nobody could travel. Bottom line: they recently did a rights issue, cleaned up the balance sheet as the main shareholder remains supportive. The mobile antenna division was hurt the most as their major client (Samsung) suffered with a swing in cell phone sales, but the other three divisions are doing well. They should sell the antenna division, but debt is in good shape. Better days lie ahead. Average down if you're under water.

0
BUY ON WEAKNESS

An AI play with a search engine that understands the human language. The valuation is always high. Supposedly, they're close to break even. Could be an acquisition target down the road. Wait for a better entry point. If they turn a profit, shares will do well.

Technology
DON'T BUY
Fiera Capital Corp

Doesn't pay a high dividend and carries a lot of debt. They do debt-fuelled acquisitions. He doubts they can maintain their dividend.

Financial Services
HOLD

He remains a big shareholder. The pandemic hurt a lot of alcohol companies by cutting off their sales channels, and supply chain problems push costs through the roof.  They now have a big shareholder, a major player in North American juices, and he expects them to buy out DWS. DWS has divested some assets like real estate. They're putting the pieces in place for this sale, he suspects. Chances of shares rising are quite good.

0
DON'T BUY

He recommended this when shares were beaten up during Covid. The government wasn't going to let SIA fail. But he sold all shares around $14, because operating costs (labour) will forever will be higher. It's a tougher business now, though SIA is managed well and demand is huge from the aging population.

other services
PAST TOP PICK
Richelieu Hardware
(A Top Pick Jan 31/23, Up 10%)

Are tied to home renos and there was huge pent-up demand coming out Covid. So, RCH stocked up on inventory and gained market share. Was up 30% last year, but last week they reported lower margins that will persist given excess inventory (that will last a few quarters). So, he took some profits around $45, but will buy them back. A strong balance sheet and track record.

0
PAST TOP PICK
Pet Valu Holdings
(A Top Pick Jan 31/23, Down 22%)

Is the leading pet retailer in Canada as pet adoption continues to grow. This business is recession-proof. The valuation had to come in. Organic same-store sales growth has slowed a little, but management has delivered by expanding store count in underserved markets. The PE has fallen from 30x to 15x and now is 17-20x, which is reasonable considering growth potential and cash flow.

specialty stores
PAST TOP PICK
(A Top Pick Jan 31/23, Up 0.7%)

A pure-play manufactured home communities company with over 60 in the US midwest. Most of their residents own their own homes mortgage-free, so the base is solid. Low capex. A fragmented industry. Free cash flow is growing through rising rents and strong demand. They grow their dividend. The stock has performed well against REITs.

0
DON'T BUY

He bought this at the bottom of the pandemic, a great time to buy, and was fantastic for him. He sold it last July, because it got too expensive as interest rates rose. Then, the stock plunged 40%. It's trying to bounce back now.

Energy Infrastructure, Industrials & Utilities
BUY
WSP Global Inc.

He's been adding to this since the 2022 correction. Very well-managed. These companies benefit from massive global trends in infrastructure. Yes, these companies are expensive but enjoy huge growth tailwinds. They're growing in environmental services. Definitely hang on if you own, or buy.

INDUSTRIAL PRODUCTS
SELL

Tricky. He bought at $8 and sold at $17 because he didn't like their purchase of Kentucky Electric. Their business is part renewable energy, which is pretty good, and will benefit from strong tailwinds over time, but their assets are average. Their electric utility business brings some stability but little growth. They have major capex to convert utilities from coal. Also, they had debt issues, so they cut their dividend. Their crown jewel--water utility, isn't a huge business, but it's worth a lot and they might sell it. They need to reduce debt and decide whether they want to be about renewables (likely on the chopping block) or electric utility. But the latter has been depressed due to high interest rates in recent years. Take your loss and move on. Doesn't see much upside.

electrical utilities
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