Market and Model Portfolio Updates - December 20, 2022

Barkha Rani Dec 20, 2022
Headline image for Market and Model Portfolio Updates - December 20, 2022

Happy Holidays!

We wanted to wish all members a safe, healthy, and happy holiday season and New Year! The financial markets have been difficult to navigate this past year, to say the least, but just as time waits for no one and the seasons continuously change, so too will the markets. As always, don’t forget to take some time to catch your breath, step back from the markets, and surround yourself with family and friends. 

This is a reminder that we will be answering questions that are time-sensitive only (ie. corporate news, takeovers) and will be operating on reduced staff for the period between December 23rd to January 2nd. We will be back in full force on January 3rd. 

Model Portfolio Changes

 

Balanced Equity Model Portfolio

Increase Magna International (MG) to a 4.5% Weighting
Trade Rationale – Magna has been witnessing a lot of structural, macroeconomic, and geopolitical setbacks this year and this has stifled growth and profits for the company. Management lowered its production outlook for North America and Europe, and there certainly is no shortage of bad news for the company. Although, it is a fundamentally strong company that has shown resilience over the past couple of years, is becoming cheaper on a valuation basis, and when economic activity does indeed reignite, Magna will be there to benefit. The company recently announced its plans to acquire Veoneer’s active safety business for $1.53 billion, and this demonstrates to us its continued acquisitive nature and ability to inorganically grow. We think adding to this position on weakness makes sense for the long term.
 
Trim Aritzia (ATZ) to a 5.0% Weighting
Trade Rationale – Aritzia has posted strong numbers throughout the year, which is particularly impressive being a cyclical retail name. The business model is what intrigues us the most about Aritzia, and it has navigated physical and digital retail stores well over the past few years. We continue to like the company and its long-term prospects, but the stock reached a high weighting in the portfolio, and we feel that trimming and increasing the weight of other positions makes sense.
 
 
Income Model Portfolio

Increase iShares US High Yield Bond ETF (XHY) to a 6.0% Weighting
Trade Rationale – XHY is distributing an attractive yield at 5.6% and largely the market consensus is that peak interest rates are near. We feel that 2023 will see a long period of stagnant interest rates, where yields may drift lower and bond prices float higher. We feel that this offers an interesting dynamic where the current yields are appealing, peak interest rates should put a floor on bond prices, and if yields begin to decline the ETF will benefit from capital appreciation.

 
Growth Model Portfolio

Trim ATS Corp (ATS) to a 6.0% Weighting
Trade Rationale – While we continue to like ATS for its strong growth rates, growing EBITDA and expanding ROE, it has become a high weight in the Growth Portfolio and we are looking to trim it to a more modest weight.
 
Trim Dollarama (DOL) to a 6.0% Weighting
Trade Rationale – Dollarama is a name that performs well in inflationary and recessionary environments, as well as periods of robust economic activity. It has held up better than most names this year and we continue to think that the stock is attractive. It has become a relatively larger weight in the portfolio, however, and we think it is appropriate to trim to a slightly lower weighting.
 
Increase Nuvei Corp. (NVEI) to a 2.5% Weighting
Trade Rationale – Nuvei has not had a great year and the name has dropped to a low weight in the portfolio. There are concerns regarding a strong competitive environment for NVEI and a short report earlier in the year has been weighing on the name. Regardless, the company operates in the technology sector which has seen broader weakness this year, and can benefit from peak interest rates. It continues to grow at a fast rate, is expected to grow into next year, is profitable, and has a healthy cash balance that it can use for organic or acquisitive growth. We feel that this represents a good opportunity to increase our weight in this name.
 
Increase Telus International (TIXT) to a 4.0% Weighting
Trade Rationale – TIXT is another name that is down substantially this year, but it consistently beats earnings estimates and is trading at an attractive valuation. Shareholder yield is strong, and EBITDA, free cash flows, and margins have all been expanding.  Its fundamentals are strong and its valuation is now at levels that we feel represent a good long-term opportunity. We feel that increasing the weighting makes sense going into 2023.
 
Initiate a 1.5% Position in Tecsys (TCS)
Trade Rationale – Tecsys operates in the supply chain management software industry and is a small-cap name that has shown promise in its niche of the healthcare supply chain network. It does encounter bouts of volatility and is improving its margins, but it has been in operations for years and management has done a good job of growing its network and adding shareholder value. We are initiating a small position in this name, and will look to add as the company progresses.
 
Initiate a 2.0% Position in EQB Inc. (EQB)
Trade Rationale – EQB is a fast-growing Challenger Bank that provides personal and commercial banking services for retail and commercial customers across Canada. We like EQB’s digital-first and tech-forward business model, combined with its strong fundamentals. Its revenue growth is strong, it has a solid ROE, and it’s attractive on a valuation basis. We feel that as the Canadian economy recovers and we begin to see some stability in interest rates, that EQB will benefit from these more predictable monetary conditions.

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