Jason Del Vicario, portfolio manager at Hillside Wealth Management | iA Private WealthFOCUS: Canadian stocks
FOCUS: North American, global stocks
Top Picks: Evolution AB, Paycom, Estee Lauder
MARKET OUTLOOK:
Our thoughts never waver regardless of the macro backdrop; if anything, we favour challenging economic periods as this is when deals are most readily available. We seek to buy high-quality companies at favourable prices. Our key defining factor of a “high quality” business is one that consistently generates strong returns on invested capital. We run a concentrated portfolio of 26 global businesses that meet our strict quality criteria. Our top 10 positions represent 73 per cent of our equity weighting. We view multiple currency exposure as a strength (no hedging). We think and behave with a long-term mindset. When one’s investment time frame is decades and not months or weeks, short-term factors beyond our control such as interest rates, inflation and geopolitics become irrelevant, as we assume we’ll encounter all sorts of macro regimes over time. We own a collection of businesses that we feel can compound shareholder wealth strongly over decades.
We have added three new positions in 2024 while eliminating 2 but have generally been inactive year to date.
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
- Listen to the Market Call podcast on iHeart, or wherever you get your podcasts
TOP PICKS:
Evolution AB (EVO SWE)
Evolution is the world’s largest casino you’ve probably never heard of. The reason being its focus is business to business not business to consumer. It dominates the online casino space and white-label offerings for both land-based and online casino operators. It has a dominant market share, excellent margins and returns on capital and sports a debt-free balance sheet. There are also many areas of the world where it can grow its operations such as the U.S. and Asia leading to a potentially long growth runway. We most recently added to our position in early August and feel that the current profit multiple of 17 is attractive.
Paycom (PAYC NYSE)
Paycom is a new position for us. We like the fact that Paycom is founder-run and owned, has no debt and offers a product that is mission-critical for its customers who generally, if happy, don’t switch providers very often. Shares are off dramatically from its October 2021 highs. We think this is due to a combination of valuations coming back down to earth but also we’ve seen its heady growth wobble a bit of late. We feel the company can continue to win market share from the larger/slower-to-move incumbents (ADP and Paychex). We initiated a position in the $140s and will look to add on weakness as our investment thesis and conviction evolve.
Estee Lauder (EL NYSE)
Estee Lauder is another new position for us in 2024. Like Paycom, it is also off a lot from its recent all-time highs (Jan 2022); a valuation correction but in EL’s case we’ve seen its profits hit in the short term. We believe that most of the issues are self-inflicted and don’t think the value of its well-established brands has been negatively affected but acknowledge, as always, that we could be wrong in our assessment. In a “normal” environment we feel that EL should generate around $2 billion in annual profits which means that the current valuation of the business can represent an attractive entry point. We started to accumulate shares in the low $100s and have added incrementally most recently in August at $91.The business is primarily owned by the Lauder family who also hold board positions. We may add to the position on further weakness and we’d like to see evidence of a profit turnaround before doing so.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| EVO SWE | Y | Y | Y |
| PAYC NYSE | Y | Y | Y |
| EL NYSE | Y | Y | Y |
PAST PICKS: MAY 26, 2023
Kakaku.com (2371 TYO)
- Then: 2061.00 ¥
- Now: 2513.50 ¥
- Return:22%
- Total Return: 25%
Credit Acceptance (CACC NASD)
- Then: US$445.47
- Now: US$456.03
- Return:2%
- Total Return: 2%
Calnex Solutions PLC (CLX LON)
- Then: £108.00
- Now: £53.00
- Return:-51%
- Total Return: -50%
Total Return Average: -8%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| 2371 TYO | Y | Y | Y |
| CACC NASD | Y | Y | Y |
| CLX | Y | Y | Y |