Same idea applies to Lonestar By Jonathan Ratner, Financial Post January 15, 2015
The sharp decline in oil prices has affected companies indirectly related to the energy sector, but Stephen Takacsy believes there are opportunities among these "babies thrown out with the bathwater."
The chief investment officer at Montreal-based Lester Asset Management is specifically looking at industrial companies that have had dramatic shareprice declines.
"We're looking at companies that do business with the oil and gas industry, but also deal with other sectors and may have been unfairly punished," Takacsy said.
Such companies include industrial-waste recycler Newalta Corp., cleanair equipment supplier Questor Technology Inc., and excavating-services provider Badger Daylighting Ltd.
Takacsy also considers transportation (airlines and trucking) and consumer retail stocks as the obvious beneficiaries of oil's plunge into bear territory, but believes these sectors are expensive.
"We think [oil's price drop] is largely priced into the market," Takacsy said.
"When oil prices turn up, everyone is going to bail out of that theme."
As a result, industrials remain the biggest sector weight in the Lester Canadian Equity Fund at 22%, while larger dividendpaying stocks account for roughly 25%.
The latter includes utilities, pipelines, telcos and smaller renewable energy companies.
Takacsy believes dividend yield will remain an important part of investor returns given the persistent low-growth and lowinterest-rate environment globally.
"Inflation is virtually nonexistent or even negative in some places," he said.
"And with oil prices down so much, that's going to further mute inflation. "That's why there won't be any big move up in rates and that's what the bond market has been telling us."
jratner@nationalpost.com Twitter.com/jonratner
MANAGER PROFILE
Manager Stephen Takacsy, Lester Asset Management Fund Lester Canadian Equity Fund Description All-cap fund focused on under-represented sectors Firm AUM $285 million Performance 1 year: 8.8%; 3-year: 14.4%; 5-year: 14.9% (annualized, net of fees, as of Dec. 31, 2014) Management fee 1.5%
BUY SELL
Big-picture views, current issues, outlook and picks.
BUY
DirectCash Payments Inc. (DCI /TS X) The position Largest holding Why do you like it? A former income trust yielding 7.5%, Takacsy considers DirectCash the safest high-dividend-yielding stock out there.
The largest independent consolidator of ATM networks in Canada also has become a market leader in Australia, New Zealand and England, and diversified its revenues by acquiring Threshold Financial Technologies Inc., a Canadian company that manages ATMs for credit unions and does transaction and payment processing. "It generates a lot of cash, has very low capex, its CEO is a major shareholder, and there is a large short position on the stock," Takacsy said. "It's one of the few bargains having a great yield with a low payout ratio, as well as a low valuation."
Biggest risk A more rapid decline in ATM use.
Badger Daylighting Ltd. (BAD/TS X) The position Recently added to new position established in September 2014 Why do you like it? Takacsy bought Badger, the largest operator of hydrovac trucks in North America, following the October 2014 market correction. Its trucks use high water pressure to excavate without damaging underground infrastructure such as water pipes and gas lines. "This is much more cost effective for municipalities and corporations," Takacsy said, noting that Badger has been growing earnings and revenue between 20% and 30% for many years. "They do business with the oil and gas sector, but they're involved in long-term projects, and most of Badger's growth is in the U.S. and nonenergy related."
Read more at https://www.stockhouse.com/companies/bullboard/t.bad/badger-daylighting-ltd#Gy1LFWUKhLvhJdzy.99