Three small-cap picks from a Canadian-focused money manager
Money manager Anil Tahiliani is less focused on the macroeconomic environment when picking stocks, preferring to drill down into individual companies to find growth potential.
“We’re looking for tomorrow’s leaders, today,” says the senior portfolio manager at Matco Financial Inc. in Calgary, who oversees about $230-million of his firm’s $600-million in assets. He manages Matco Opportunities Fund and Matco Canadian Equity Income Fund.
Mr. Tahiliani describes his investment style as “bottom-up stock picking” focused on metrics such as earnings and valuations. His criteria include companies with high insider ownership, an ability to dominate their niche and strong earnings growth.
Matco Opportunities Fund, focused on small and mid-cap growth companies, includes about 25 stocks. It focuses on growth companies at or near inflection points. The fund’s top three sectors as of July 31 included technology at 29 per cent, energy at 24 per cent, and industrials at 16 per cent.
The fund has returned 21.5 per cent year-to-date. Its one-year return was 25 per cent, while its three-year and five-year annualized return was 6.4 per cent and 6.1 per cent, respectively. The performance is based on total returns net of fees as of July 31.
The Globe spoke with Mr. Tahiliani recently about what he has been buying and selling:
Name three stocks you’ve bought in the past year and continue to own.
Kits Eyecare Ltd. the Vancouver-based online retailer of glasses and contacts, is a stock we bought just over a year ago. The company has a strong management team and a successful track record. One of its founders also started Coastal Contacts Inc. (a company bought by France-based optical firm Essilor International SA in 2014).
Management owns about 78 per cent of the company, so it’s strongly aligned with shareholders. The company recently reported that its revenue was up 25 per cent year over year and annualized sales of about $152-million across Canada and the U.S. It’s also making a profit, and the company is sitting on about $19-million in cash compared to about $9.2-million in debt.
Its repeat customers continue to grow, and it recently announced a major partnership with Telus Health to allow direct insurance billing to various insurance providers here in Canada. We believe the company can hit $500-million in sales over the next few years. The stock is up 149 per cent since I started buying in February, 2023, and finished building our position in May, 2023.
A risk is a recession that could slow consumer spending, but we don’t see this as a big risk given that people still need glasses and contacts to see – and many people have the costs covered partially or fully through their workplace benefits.
Hammond Power Solutions Inc. is another stock we bought about a year ago. The Guelph, Ont.-based company is North America’s largest manufacturer of dry transformers for the resources industry as well as waste and water treatment, commercial construction and data centres.
The company has been in business for more than 100 years. Its key markets today include the U.S., Canada, Mexico and India. The company benefits from growth in areas such as energy and mining, renewable energy, and the construction of new infrastructure and replacing older buildings.
We also expect it to benefit from the reshoring of select manufacturing. The company recently reported quarterly sales that were up 14 per cent year-over-year. The stock is up 190 per cent since we started buying in April, 2023, and finished building our position in May, 2023, and we see more growth potential. A risk for the stock is a major slowdown in infrastructure spending, but I don’t see that happening.
Vecima Networks Inc. which provides critical digital infrastructure services, is a company we’ve owned since March, 2024. The Victoria-based company develops hardware and software for broadband access, content delivery and fleet tracking.
We see it as a secular grower with cable, telecommunications and media companies looking to upgrade their networks to expand capacity for faster download speeds and provide more consumer services. The company recently reported its all-time best quarterly performance for the quarter ended March 31.
The stock is up 18 per cent since I bought it. Risks for the company include direct competition from a larger technology company, which we believe is unlikely given that the company operates in a smaller market. There’s also a risk of delayed spending from their customers.