This week, KeyStone published a Special Canadian Focus BUY Quarterly Report. The report updates what was a very successful start to 2015 for our Canadian Small-Cap Recommendations.
In total we have had 5 new additions to our Focus BUY Portfolio including the top performing software and technology stock on the entire Toronto stock exchange over the first quarter. The company has gained 143% since our original recommendation this year. Out top ranked Canadian Specialty Pharmaceutical stock based on its value and growth proposition has jumped 65% and still ranks in our coverage universe as the cheapest Canadian Specialty Pharmaceutical company.
Other recent editions are also performing well. The “laggard” of the group, a unique royalty based financing company, is now up 30%. The gains compare very favourably to the S&P TSX index which is up a mere 3.7% year-to-date in 2015.
This year, and more acutely over the past month, we have seen a sharp uptick in a number of the energy related stocks in our Coverage Universe from the lows experienced after the oil price shock which began this past fall. As oil prices have shown strength in recent weeks, investors have bid up depressed energy shares, particularly in some of the quality names KeyStone covers. While some of the gains are deserved as the price declines are typically over done as panic sets in, we do see some risk in the segment as capital spending has ground to a halt in some areas. Crude is now well above its lows but still remains 35% lower than the levels we saw at this time last year and by most reports, the world remains rather awash in oil at the moment.
Given this widely held view, it is unclear as to whether a continued uptick in oil is sustainable. What we do know is that capital spending will be significantly lower in the energy segment for at least 12-months time. As such, we are not looking to add to our exposure in this group and took the opportunity to cut a couple individual stocks from our BUY recommendations (selling the stocks) this past week. Nearly all of these companies will be facing significantly lower year-over year results for the next 12-18 months minimum.
Our choice to hit the SELL button on each company also held company specific reasons. For example, in the case of our top rated international light oil stock, we continue to see the company as “best-of-breed” on the TSX – we just see the stock as fair to richly valued at present. Of course, if oil continues to move higher, these stocks will perform well. But at this stage the supply/demands situation is tenuous. We just do not feel it is necessary to be overexposed to this volatile segment at present. For unique exposure to the segment we do continue to recommend one international energy service stock, which pays a strong dividend and is well positioned to post cash flow growth in 2015 when most in the segment will face significant declines.
At this stage, we prefer to be very focused in our exposure to the energy segment and the recent uptick in stock prices in the sector has allowed us to trim a couple names and focus on the strongest in our portfolio.
