Bruce Campbell, President and Portfolio Manager, StoneCastle Investment Management
FOCUS: Canadian stocks
May was another volatile month for the markets, with the completion of a seven-week sell-off and a sharp jump from the bottom. Investors are now trying to determine whether it is a reflection of the bear market before the next downward movement or the beginning of a new bull market after the correction. In the end, only time will tell, but we can consider the evidence and determine the likely outcomes.
Much of investor uncertainty revolves around uncontrollable inflation and the steps central banks must take to curb inflation. Investors fear that central banks are behind the curve and will have to aggressively raise rates over time to slow inflation. Inflation data do not yet show any signs of decline. Given that the price of oil exceeds USD 110 per barrel and energy is a major component of inflation, we will most likely see high inflation in May. Will higher inflation and higher rates push the economy into a slowdown or recession? Higher inflation will mean that the debate on rates will not end soon and uncertainty in the market will continue.
On the other side of the argument is market sentiment. Basics are important, but so is sentiment. At the May lows, sentiment from multiple sources (CNN Fear and Greed, AAII, NAAIM, Smart Money Dumb Money index) all pointed to extreme levels of negative sentiment. No wonder the markets jumped with such pessimism. Has that pessimism fallen? The number of articles rejecting the rally as a bear market rally has recently reached a level twice the previous record in April 2020.
Last week, we saw a significant increase in purchases, with 80 percent of the volume on the NYSE flowing into rising stocks. In the three previous cases, where we saw an 80% increase in volume on the NYSE within five days of the 52-week low (1970, 2016 and 2020), the market grew by 100% two months, three months, six months and a year later.
The evidence is mixed, short-term technical tools have improved, while long-term tools still need further improvement. As a result, we approach the portfolio as a barbell. Hold more cash, keep some ideas with low volatility and have a higher growth share in the portfolio.
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Tidewater Midstream (TWM TSX)
Tidewater focuses on natural gas processing, liquid refining, storage and transportation in BC and Alberta. TWM also owns 69 percent of Tidewater Renewables, a green energy platform. Management grows organically and through acquisitions, has strong minimum volume contracts and pays dividends. My last purchase was $ 1.48, own funds, I don’t own them and my family doesn’t own them.
Viemed Healthcare (VMD TSX)
The company is an independent provider of non-invasive ventilation services in the field of home respiratory care. Since 2010, sales have increased to 40% CAGR. The shares are traded at a 50% discount compared to the sector average. Management owns 17 percent of the company and the company has regular repurchases. The last purchase was $ 6.81, I own it, I don’t own it personally and it is not owned by my family.
Lightspeed Commerce (LSPD TSX)
Lightspeed provides cloud sales systems for payment processing, accounting, reporting and analysis in restaurants and retail. The company achieved a 78 percent sales growth and aims to achieve breakthrough EBITDA in 2024. The return to personal shopping and dining should continue to accelerate the company’s sales. The last purchase was $ 32.94, own funds, no stepfathers in person and no stepfathers to my family.
LAST SELECTION: June 29, 2021
CloudMD Software (DOC TSXV)
- Pak: $ 2.19
- Now: $ 0.50
- Return: -77%
- Total return: -77%
Salona Global Medical Devices (SGMD TSXV)
- Pak: $ 1.15
- Now: $ 0.78
- Return: -32%
- Total return: -32%
GreenPower Motor Company (GPV TSXV)
- Pak: $ 25.79
- Now: $ 5.75
- Return: -78%
- Total return: -78%
Average total return: -62%
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