Bruce Campbell, president and portfolio manager, StoneCastle Investment Management

FOCUS: Canadian stocks 

MARKET OUTLOOK:

2022 was a challenging and humbling year for most investors in small and mid-cap growth portfolios. In many cases, company fundamentals improved during the year while the share prices declined.   

During the fourth quarter of 2022, we began to see changes in the long-term indicators that we follow. The changes were showing selling pressure beginning to subside across many sectors and market capitalizations. This often happens months before the turn in stock prices. Tax loss selling continued to have a negative impact on share price declines during December. 

As we turn the calendar to 2023, we are seeing initial signs of price momentum starting to emerge. We see more companies from multiple sectors and market capitalizations where share prices are moving higher in a significant way. Companies with good news can have an outsized move as investors appear to be looking for new opportunities in 2023. We have also started to see more secondary financings in the last quarter of 2022 and the start of this year, which again indicates the risk profile of investors is changing. 

The overall markets still have a great deal of work to do to move back into an uptrend. Signs of this work have been appearing. Just last week we experienced a rare two-to-one advance decline signal that occurred over a 10-day period. These signals are rare and have produced positive results in the past. 

The projections for 2023 returns have a wide distribution. There seem to be a few analysts with extreme return expectations on the positive and negative end of the spectrum. A majority of investors continue to feel 2023 will be choppy with little overall return by the end of the year. Investors will continue to need careful stock selection and prudent risk to navigate market volatility.

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TOP PICKS:

Quipt Home Medical (QIPT CVE)

Last purchase was $5.43, funds own, none personally or none owned by my family.

Quipt Home Medical is a U.S.-based provider of respiratory care delivered to patients in their own homes. The company is the fifth largest home medical provider operating in 26 U.S. states. The company has been growing organically and via acquisition. QIPT has strong revenue and EBITDA growth and still trades at a discount to peers. Just closing the valuation discount would produce a significant return. 

Exro Technologies (EXRO TSX)

Last purchase was $1.19, funds own, none owned personally, and none owned by my family.

Exro Technologies is a clean tech company that has developed new power electronics to expand the capabilities of electric motors. Its coil drivers allow the same electric motor to have increased speed and torque over traditional coil drivers. The company is in the final stages of commercialization and scheduled for launch in the third quarter of 2023. It continues to announce agreements with OE manufacturers and we anticipate it will announce more agreements heading into commercialization.   

Element Fleet Management (EFN TSX)

Last purchase was $19.45, funds own, none owned personally, and none owned by my family. 

Element Fleet Management is the largest North American fleet leasing and management company that also has operations in Australia and New Zealand. The company has seen its EPS accelerate as it gains more customers and cross-sell those customers’ additional services.  

PAST PICKS: February 23, 2022

ProShares Short S&P500 ETF (SH NYSEARCA)

• Then: $15.22
• Now: $15.76
• Return: 4%
• Total Return: 4%

Lucero Energy (LOU CVE)

• Then: $0.88
• Now: $0.56
• Return: -36%
• Total Return: -36%

Just Kitchen Holdings (JK CVE)

• Then: $1.20
• Now: $0.10
• Return: -92%
• Total Return: -92%

Total Return Average: -41%