Jason Del Vicario, portfolio manager, Hillside Wealth Management, iA Private Wealth

FOCUS: North American and global growth stocks 

MARKET OUTLOOK:

I have no idea what’s going to happen to the financial markets in the short-term. I came across a quote recently that I think investors should copy and post somewhere to be viewed frequently through this period.

“In all markets, price extremes are usually attended by a consensus that the trend, be it up or down, will continue; and by a peak of speculation in line with the trend. Hence the excruciating paradox of financial markets, that sentiment is most bullish at the peaks when prices have only one way to go which is down; and most bearish at troughs vice versa: at the top there’s no-one left to buy, and at the bottom no-one left to sell,” John Percival said in his book The Way of the Dollar.

The markets will bottom when investors have capitulated to the point where there are no more sellers left. The bottom will happen when maximum pessimism about the short-term future exists. Just like they don’t ring a bell at the top they most certainly don’t ring a bell at the bottom. I have no idea when this will happen but we are seeing excellent value in the markets for the types of businesses we own or would like to own for our clients. Buying when others are fearful has always served investors well and this is what we have been doing steadily through 2022.

We rank the recommended behaviour of the long-term equity-focused investor during bear markets:

1. Selectively buy or add to great businesses at attractive prices to the extent your capital base and income permits.
2. Do nothing and continue to hold great businesses knowing they will recover and reach new highs in time. This is part of the process.
3. Panic sell. 

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TOP PICKS:

Games Workshop (GAW LON)

We have admired this business from afar and were finally able to accumulate a position. It checks most of the factors we look for: market leader, high margins, high and consistent returns on capital, no debt and effective capital allocation (via dividends). It isn’t founder-run and owned but the current chief executive officer has been doing a fabulous job and has been groomed by the founders. This is a tabletop game and entertainment company based in the U.K. with a loyal and rabid fan base spanning generations. Excellent value at these levels. We expect to own this business for decades. The market overreacted to a recent profit update and we took the opportunity to add to our position at £65 a few weeks ago.

Fevertree Drinks (FEVR LON)

Similarly, we have watched FEVR for a number of years. Short-term supply chain and glass price issues have created an opportunity for us to accumulate shares at prices that make sense to us. It is a global market leader in an underpenetrated market (premium mixers), boast excellent margins, returns on invested capital, no debt and growing nicely. It is founder-run and owned and we hope to own this business for decades. We initiated and added to our position slightly below £9 most recently two weeks ago.

Evolution Gaming (EVO STO)

This is also a global leader in an underpenetrated market-based in Stockholm, namely, live online gambling. Casinos hire Evolution to provide the games and back-end so it doesn’t directly take bets but rather it takes a cut of all betting activities on its platform. It sports some of the best margins and operating metrics we have found and the chief executive officer recently bought more than $10 million worth of shares. Huge runway for growth and with the stock down more than 50 per cent from highs we were finally able to add to our position. We did so most recently at 860SEK a few weeks ago.

PAST PICKS: September 29, 2021

Topicus (TOI TSXV)

• Then: $129.75
• Now: $68.67
• Return: -47%
• Total Return: -47%

META (META NASD)

• Then: $339.61
• Now: $137.91
• Return: -59%
• Total Return: -59%

Kaspi.kz (KSPI LON)

• Then: $104.80
• Now: $59.10
• Return: -44%
• Total Return: -42%

Total Return Average: -49%