Bruce Campbell, president and portfolio manager, StoneCastle Investment Management

FOCUS: Canadian stocks

MARKET OUTLOOK:

2023 was a year that surpassed the expectations of most economists and market strategists. Presently, economic conditions pose a challenge for investors grappling with the uncertainty of a potential recession in 2024. The current economic data paints a mixed picture, offering support for both bearish and bullish narratives, making it challenging for investors who are relying on economic indicators for decision-making. 

In our approach, we strive to provide a more comprehensive understanding by integrating both economic and market data. Following the correction from August to October, notable shifts in market characteristics have become evident, presenting new opportunities in various sectors and market capitalizations.

The movement of the U.S. dollar will continue to hold significance in the current scenario. A continued drop in its value could serve as a tailwind for equity markets. Long-term buy signals persist in multiple market indicators we closely track, signalling a broadening of market performance. Emerging sectors are displaying leadership, accompanied by a notable shift in market capitalization.  

The market has adhered closely to the presidential cycle in this iteration. Historically, seasonal patterns suggest a potentially choppy first quarter, followed by robust markets into September. September and October may see some turbulence before concluding the year on a strong note. 

Technology continues to be a leader, while diversification of market performance is evident with the rise of real estate, financials and industrials. Our attention is also on materials as we monitor the potential transformation of volatile fluctuations into a sustained uptrend this year. 

In the U.S. market, small and mid-caps have led since the October bottom, prompting us to monitor the Canadian market for signs of a sustained boarding out of small and mid-cap companies.

Remaining vigilant, we closely monitor long-term indicators and predefined thresholds to gauge the overall health of the market. By incorporating both market and economic data, our aim is to navigate the current market landscape with enhanced insight and adaptability.  

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TOP PICKS:

Rekor Systems (REKR NASD)

Rekor Systems is an AI driven Technology Company in the public safety, urban mobility and transportation sector. Rekor physically collects the data and then uses AI and machine learning to make the information more useful to customers which can include transportation, law enforcement and private businesses. Last purchase was $3.36.

Payfare (PAY TSX)

Payfare is a global fintech company offering digital Banking, payment and loyalty reward solutions for the gig economy. Clients include Uber, Lyft and DoorDash. The company has cash on the balance sheet and no debt. Its growth initiatives can be funded with internally generated cash flow. Valuation is attractive at 5.5 times EBITDA vs peers in the 14-21 times range. Last purchase was $6.16.

Goeasy (GSY TSX)

Goeasy is a non-prime consumer lender. The company has a strong track record of growing revenue at 17.7 per cent and net income at 28.9 per cent compounded since 2012 when it realigned its business. The company has recently been expanding in the Auto Financing business with a goal of becoming the leading non-prime auto lender in Canada. The company continues to focus on payment performance to improve company metrics. Last purchase was $129.39.