Stephen Takacsy on BNN=Bloomberg’s Market Call – June 16, 2020

Stephen Takacsy on BNN-Bloomberg’s Market Call – June 16,  2020

MARKET OUTLOOK

 

Following the crash in March from government-imposed lockdowns, stock markets have surprisingly rallied strongly. This is due to a combination of central banks compressing interest rates and massive government stimulus and the economy reopening with hopes for a quick recovery. It is also influenced by short covering, fears of missing out and faith a vaccine will be found soon. However, we’re entering a period of volatility as the market retraces some of its rapid gains and there will be a marked separation between winners and losers. Not all businesses will recover equally as governments maintain certain restrictions and a large swath of the population maintain a cautious behaviour while unemployment remains high.

 

Most companies have removed their guidance for the remainder of the year and beyond and upcoming Q2 results with be telling on how bad the damage is. A few companies are thriving and some are little affected, but most will continue to suffer such as the travel and leisure sector, live entertainment, restaurants, retail, real estate, financials and energy. Utilities, telecom, consumer staples, healthcare and certain technology and industrial companies will be the safer investments. The broad indexes will be a volatile place to be, so it should be a stock-pickers market. We are being prudent, holding 10 per cent in cash and sustainable dividend-paying stocks while trying to assess where the best investment opportunities lie and position our portfolio for strong long-term returns as government restrictions are loosened and the economy gradually begins to function more normally.

 

TOP PICKS

 

CENTRIC HEALTH (CHH TSX)

 

Centric is one of Canada’s largest medication providers for senior care facilities. The stock has performed really well and is up since the pandemic began for two reasons: Their business is unaffected by the lockdowns because seniors need their medication and the company made a large accretive acquisition, making them the no. 1 player in Canada. Having just raised funds at $0.20, Centric now has a strong balance sheet to consolidate this fragmented industry. The company is changing its name to CareRx and consolidating its share count. Stock is cheap and could double over 12 months. We now own around 5 per cent of the company.

 

MEDIAGRIF INTERACTIVE TECHNOLOGIES (MDF TSX)

 

Like Shopify, Mediagrif provides e-commerce solutions for businesses, though on a larger scale. They manage the online platform for Sobeys/IGA and also for Carrefour in Italy, the only company enabling online food orders during the peak of the crisis. It also owns platforms that enable suppliers to bid on government contracts, allowing corporations to exchange data with their suppliers and customers. This is one of the rare companies doing well and benefitting from businesses going digital. Whereas Shopify trades at over 40 times’ sales, Mediagrif trades at around 1 time. This is a new position. We now own 5 per cent of the company.

 

SIENNA SENIOR LIVING (SIA TSX)

Sienna owns over 100 long-term care facilities and retirement homes in Ontario and B.C. Due to media coverage of the pandemic and high death rate among seniors, the entire sector has been dramatically oversold. Vacancy rates at retirement residences have increased slightly, but this is transitory and will be absorbed by aging demographics. Sienna’s dividend is now yielding over 9 per cent and is entirely covered by government-guaranteed cash flows from its LTC facilities. Sienna has a solid balance sheet. While we expect operating costs to rise, we also expect governments to increase funding. We bought more shares at $9.

 

Stephen  Takacsy, CEO and chief investment officer, 
Lester Asset Management