Jordan Zinberg, president and CEO, Bedford Park Capital

FOCUS: Canadian small and mid-cap stocks 

MARKET OUTLOOK:

Investors are focused squarely on inflation, interest rates and recession fears. During the recently completed second quarter, equity multiples declined significantly, in many cases regardless of business quality.  

In addition to macro concerns, there is a developing narrative under which some market participants believe we will see significant earnings revisions as we move through the back half of 2022. Based on the discussions I have had with our portfolio company’s chief executive officers, demand for their products and services remains robust. Second-quarter results should provide some valuable clues with respect to earnings trends for the rest of the year.      

The recent market correction has resulted in ample opportunities for long-term investors. We are continuing to strategically add capital to our highest conviction ideas.   

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TOP PICKS:

Goeasy (GSY TSX)

Goeasy is a Canadian specialty lender that continues to demonstrate substantial growth in its loan book through expansion in its product offering. The company recently announced a minority investment in Canada Drives which should directly benefit their fast-growing auto lending business as well as a substantial increase in their credit facilities, which will fully fund their growth plan through 2025. Goeasy consistently produces annual returns on equity in excess of 20 per cent and currently trades at a mere 6x 2023 earnings.

Converge Technology Solutions (CTS TSX)

Converge is an IT services business focused on mid-market customers in North America and Europe. The company offers investors solid organic growth supplemented by a steady stream of accretive acquisitions. Management has been aggressively deploying capital in 2022 and I’m watching for additional acquisitions, margin improvement and a potential increase in their credit facilities. Converge is growing twice as fast as its peers yet it trades at half the valuation. 

Chesswood Group (CHW TSX)

Chesswood is a Toronto-based commercial finance company which was historically focused primarily on equipment leasing. Since joining in 2020, Chief Executive Officer Ryan Marr has done an outstanding job diversifying the business while adding new funding partners. Earlier this year, Chesswood acquired Rifco, a near-prime auto lender and more recently closed the acquisition of Waypoint Investment Partners. Growth has accelerated over the past few quarters, the stock trades at 5x 2023 EPS and has a four per cent dividend yield.