(A Top Pick Feb 28’17, Down 13.75%) It has been coming off quite a bit and he is not sure exactly why. He still owns it. He likes it. They just signed a new deal for their first sales in Quebec. Their backlog is about 270 busses. We will continually see them ramping up. We need to see their margins increase a little. They are almost cash flow positive.
He started purchasing about 2.5 months ago. It is a mini ATD.B-T. It had come off for no apparent reason. They have some very good growth ahead of them and he started buying it early. It is not cheap but they have very good growth over the next few years. They will probably raise the dividend. People are unsure of the impact of a refinery that they had to take over. Will they be able to get it up and running? They are going to use most of the people that used to run it, so it should go okay.
Circuit boards for airplanes. Earnings have been quite volatile. It is a bit lumpy. They made acquisitions and are trying to get the synergies from them. You have to hold on. The visibility is quite good. There have been quite a few takeouts in that sector. He likes the space and the management team.
He exited the story and has not gotten back in. He felt it had had quite a run up and then there was a sell-through issue. He did not know how many sterilizers actually went into hospitals for sterilization. With FDA approval it should put lights and fire under the stock. It is not cheap especially when you don’t have revenue metrics.
Small Caps. These have lagged 6 of the past 7 years, and some of the numbers are quite staggering in terms of how much the US has outperformed Canada. Canada has compounded at about 6.5%, while the US has compounded about 14.5%. However, over the last 20-25 years or so, they’ve had close to similar returns. The compound annual growth rate returns on Canadian small caps for the last 7 years is only about 1.4%. From 2000 to about 2007, Canada actually outperformed by a tremendous amount. He is hoping for a reversion to the mean.
Over the last number of years, they’ve been making a lot of acquisitions and raising the amount of their debt. The cash flows from these acquisitions hasn't really come through as had been expected. Debt is very, very high and they need to figure out how to get more cash in their cash flow, so may have to sell off some assets. He would stay away.
Market. Long Island Ice Tea is contemplating a switch into block chain. It seems people will buy anything with the ‘B’ word in it. (LTEA-Q). The stock shot up. If there is no substance behind it then people will sell the stock down. With the .com bubble people understood what was going on. Valuations went crazy but there were price-to-sales figures. These companies do not have revenue from block chain. It is a gambling casino. Eventually governments will realize they are missing out on taxes. Small caps have lagged 6 of the 7 years. The TSX has been a terrible laggard these last 7 years. Small caps were only about 1.4% compound growth on the TSX. Oil prices have stabilized and copper prices are breaking out and this bodes well for Canada. It should outperform over the next couple of years.