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PAST TOP PICK
(A Top Pick Jul 12/21, Down 36%) They do IT outsourcing for small/medium business. CTS buys new companies and increase cross-selling by introducing new services, especially high-margin managed services rather than selling hardware. EBITDA margins should increase from 5% to 10% in the next few years. Still early days in its strategy.
Technology
BUY
Spun out of Tourmaline, a top nat gas company. They're consolidating a big land mass in western Canada with some of the best nat gas fields in the world. Topaz is the vehicle that allows TOU to offload production into a cash-flow vehicle to free capital and drill more wells. The energy patch is undervalued. Nat gas has very strong pricing now. This looks good for the next 6-12 months.
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BUY
The Russian war has driven up agricultural and fertilizer prices, but it's uncertain how this plays out. The spike in fertilizer prices has caused farmers to reduce their spend. The situation is in flux, but long term there will be demand more North American commodities instead of Russian. Trades at 11x only. Enjoy the cash flow. This should move higher.
agriculture
BUY
Best in class retailer that he's watching as it has pulled back. They just reported earnings which were healthy. Walmart and Target struggle with inventory while Gap has too much and are guiding down sales. LLL caters to middle/high-end consumers so there's no sales decline. Strong demand and growth outlook. A good long-term hold. He owns Nike instead.
clothing stores
DON'T BUY
Internet stocks have been crushed in the past year, lacking profits. These stocks are like catching a falling knife. The digital economy is still young. The CEO getting more voting power today is part of a trend of more CEO power. If you're buying SHOP, you're investing in the management. He's not.
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DON'T BUY
E-car sales are good in China, better than here. A high-grow company but lacks profit and cash flow, so the market struggles to put a value on this. He's also concerned about the long-term Chinese economy. China is no longer in the build build build phase, but is building its middle class. Too speculative for him.
Automotive
TOP PICK
Customers overlap with LULU. ATZ sells women's fashions but is starting to move into men's. They've had great success expanding into the US with 40 locations which will reach 100 in markets like Atlanta. Lots of runway. A US store generates $16 million revenue and this has been improving along with e-commerce sales. Boasts healthy gross margins and strong balance sheet. Top management. It will trades at 19x 2023 earnings which is not expensive. (Analysts’ price target is $67.45)
specialty stores
TOP PICK
Valuation is so cheap now and carries no debt. They're buying back stock. Trades at only 8-9x PE so there's lots of room to grow. They suffer chip and parts shortages, but these are starting to abate and shortages impact all companies anyway. Good managers. (Analysts’ price target is $76.00)
transportation equip & components
COMMENT
Travel is back including cross-border as Japan and China reopen. The next few years will be strong for travel. Boeing has too many issues, but not Airbus at all. Airbus planes are the best in the market and they get a kicker from their defence business. Good balance sheet. They have a 10-year backlog for their planes. (Analysts’ price target is $42.06)
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