The markets had a rocky finish on Friday but still managed to close the week green. Even amid a bear market, there’s some positivity over the last month as the NASDAQ, S&P 500, and Dow Jones are up by 7%, 5.3%, and 4.6%, respectively.
The TSX? It’s not so good on that front. However, if you’re not heavily exposed to cyclical options on the TSX, you likely aren’t feeling as much pain. With such a heavy weighting towards material and oil plays, the TSX is undoubtedly a problematic and somewhat confusing index to benchmark against.
This week’s e-mail will primarily focus on the Late Stage (what will now be called our Growth Models) model portfolios here at Stocktrades Premium.
But first, we’d like to highlight that the progress on our newly developed stock screener is coming along well. We are currently in a situation where we are doing beta testing and taking feedback from members on potential improvements.
If you would like to participate, simply CLICK HERE to opt in.
**The link above will take you to the login page of premium. But do not worry, your response has been noted by us**
Tomorrow morning, I’ll e-mail you a copy of the screener and you can play around with it and report back with your thoughts/opinions and potential improvements.
Additionally, we have a new Dividend Bull List stock getting the final touches on its report and should be sent out midway through the week. For now, let’s take a look at the portfolios.
Keep in mind that if you want to see any of these portfolio documents in-depth, just head here to log in and download the portfolio packs or PDFs.
A quick recap of portfolio activity:
- We trimmed profits in Brookfield Renewables and Parkland Fuels and reduced our position (slight reduction) in Goeasy Ltd in our Early Stage Aggressive
- We added new positions in Aritzia and Granite REIT and topped up Good Natured Products in our Early Stage Aggressive
- We trimmed our positions of Dollarama, Parkland, and OpenText in our Mid Stage Aggressive
- We added positions in Granite REIT and TFI International in our Mid Stage Aggressive
- We trimmed positions in Dollarama and TC Energy in our Late Stage Aggressive
- We added a position in Telus International in our Late Stage Aggressive
Early Stage Aggressive
Midway through the year, the Early Stage Aggressive is underperforming its benchmark by quite a wide margin, around 10%. However, this is to be expected. This is our most aggressive growth portfolio here at Stocktrades Premium and during times where the market is “risk-off” we can expect this one to underperform.
It’s important to remember that prior to the recent market correction, this portfolio was returning nearly 33% annualized. That was complete market euphoria, and now we are in a stage of market fear. We believe the potential of this portfolio lies somewhere in the middle.
General thoughts on the portfolio overall are that it remains well balanced. It was finance heavy, primarily due to the fact the portfolio holds banks, two of the top alternative lenders, and Intact Financial. But in this rebalancing, we made an effort to get the financial allocation under 20% due to recessionary fears.
Parex Resources is the oil and gas play in this portfolio and is under some heavy scrutiny right now due to some political issues and anti-oil sentiment in Columbia. The company is an outstanding operator, and we’re comfortable continuing to hold here. Most of the damage is done already in our opinion, as at the time of this update the stock has fallen over 30% in a month.
Because of depressed levels in growth stock prices, we haven’t made too many shifts inside of this portfolio. However, we did rebalance and take some profits on some stocks that have performed well since our last update in order to top up on some struggling growth stocks and add a few Foundational options as well.
We trimmed back Goeasy and Brookfield Renewables to 5% positions. Brookfield had a nice run-up since our last update and was overweight inside of the portfolio, and Goeasy, even though it has struggled, we wanted to maintain that 5% position and get our overall financial exposure down. We also took some profits from Intact Financial, which has proven to be one of the best financial holdings in Canada over the course of 2022. While many financial companies are struggling, Intact is not far removed from all-time highs at the time of this update.
We’ve also trimmed some profits from Parkland Fuels. We’re still bullish on the company but wanted to get it back to its original 4.5% weighting inside of this portfolio. Along with this, we trimmed many of the ETFs inside of this portfolio back to their original allocations. A small recovery in the US and bond markets allowed us to do this.
With those rebalancing moves, it left us with quite a bit of room to make some plays inside of this portfolio. First, we added a 3% position to Aritzia (TSE:ATZ). This portfolio didn’t have any retail exposure, and we felt for our most aggressive portfolio, Aritzia was preferable over a defensive retailer like Dollarama. The runway for Aritzia is long, and as a recent Bull List stock at the time of update, we think patient investors will be rewarded here as there is a margin of safety, even at today’s levels.
Secondly, we added Granite REIT (TSE:GRT.UN). Due to this portfolio’s highly aggressive nature, it was certainly lacking Foundational Stocks. Granite is arguably one of the most attractive Foundational Stocks at this time (on the Canadian end) and the only real estate exposure this portfolio had was Minto, which is a residential REIT. We took a 3.5% position in Granite and were extremely happy to get shares in the mid $70 range.
We also added another Foundational Stock to the portfolio in Telus. This portfolio lacked a major telecom, and we couldn’t think of a better opportunity to add one than a 16%+ correction in our favorite. The company’s recent acquisition of Lifeworks plus a general selloff in the telecom sector has left it at attractive price levels, ones that we’re more than happy to take advantage of.
And finally, we topped up our position in Good Natured Products. This company is doing all the right things but has been dragged down by negative sentiment in the small-cap sector. The company is growing at a triple-digit clip, just signed a major deal with a US food company that will add $13M USD to its annual revenue, and will likely continue to benefit from an effort to shift away from single-use plastics worldwide. This company still poses a lot of risks as it is a small cap company with high debt levels. But this is much more than a “story stock” as it has the products and growth behind it to drive potential returns in the future.
Mid Stage Aggressive
Out of all the aggressive growth portfolios here, the Mid Stage Aggressive has struggled the most. However, it’s still outperforming its benchmark and posting near double-digit annualized returns.
Short-term pressures on high-growth plays like Greenlane Renewables, WELL Health Technologies, and Bitcoin have fueled the underperformance, as the core of this portfolio is performing quite well.
Fundamentally, nothing has changed with any of the companies inside of this portfolio. Aecon is currently going through some struggles, as the tailwinds we predicted for infrastructure spending coming out of the pandemic are quickly reversing into recession-like headwinds because of rate increases. However, we’re comfortable holding Aecon here. The dividend is well covered, and the company has been through numerous situations like this before and has come out on top. However, we will be keeping a close eye on them moving forward.
In terms of trimming, we did quite a bit in this portfolio. We sold off some of our positions in Dollarama, Parkland, OpenText, the bond funds, as well as some of the international ETFs. The rebalancing of Dollarama, Parkland, and OpenText was nothing more than simply getting these companies back down to their original allocations. Dollarama is certainly fully valued at this time, which doesn’t come as a surprise to us. The company should bode well during a recession, and it’s likely it could maintain strong value as long as fears of a recession exist, or if we do enter into a recession.
Parkland Fuels has held up admiringly well since our last update. Not surprising due to the rise in oil and gas and also the return of consumer travel. It’s green on the year while the TSX is down by 10%. So as a result, its position bloated a bit in this portfolio and we’re happy to trim it. We’re still bullish, and believe the company is in a near-year-long rut primarily due to high debt levels in a rising rate environment and sky-high fuel prices. The company is still putting up strong earnings and hasn’t given us any reason to believe it isn’t undervalued here. But we do want to keep our position balanced. In terms of OpenText, this was a small rebalancing and is from the company bouncing off May lows strongly.
When we look at additions, we’ve made a few to balance this portfolio out. As of right now, it is arguably the most balanced growth portfolio we have, with no individual sector making up over 15% of allocations at the time of this update.
This of course is after adding Granite REIT (TSE:GRT.UN) to the portfolio. The portfolio was lacking real estate, and we can’t think of a better option right now than an industrial REIT trading at a discount. Our position in Granite is 3.5% of the total portfolio.
The other addition to this portfolio is TFI International (TSE:TFII). The company has rebounded strongly since we added it to the Bull List after its recession-fear-driven selloff. However, we still find it attractively valued at this time, and is a company that I (Dan) have in my regular dollar-cost averaging strategy.
If we were to enter a recession, you’d be hard-pressed to find a trucking and logistics company that is more prepared to handle it than TFI. In fact, it could easily become another pandemic-like situation in which the company will be able to deploy capital and scoop up struggling companies for cheap. However, this is speculating a little too much into the future. For now, we’re happy just adding a 3.5% position in this portfolio.
Late Stage Aggressive
We sound like a broken record every time we update this portfolio. But realistically, if it isn’t broken, don’t try to fix it. The portfolio has put up annualized returns of 15% since its inception in 2018 and has returned over 3x its benchmark over that period as well.
We do see a need for this portfolio to include more tech though, as the portfolio doesn’t have much exposure to the sector. So much as we did in the Mid Stage Moderate, we’ll trim some profits from a solid performer in Dollarama, and also take some profits from an outstanding Foundational Stock in 2022 TC Energy.
With the profits, we’ll take a position in Telus International. The position is small, around 2.5%, but we feel Telus is a nice, profitable company for a later-stage investor who’s looking for a bit of outsized potential, but with a company that is cash flow positive and growing quickly.
Again, we’re really trying not to overthink this one here. It’s tracking its benchmark quite well, is well balanced, and is built in a way it should be able to withstand a recessionary environment just fine.
