James Telfser’s Best Picks: November 24, 2022

James Telfser’s Best Picks: November 24, 2022

James Telfser, Partner and Portfolio Manager, Aventine Investment Counsel

FOCUS: North American Stocks


MARKET OUTLOOK:

While we are encouraged that central banks have begun to soften their language and that we may have passed the peak of hawkishness, what remains to be seen is the damage done to corporate profitability by earlier tightening in financial conditions. Earnings in the third quarter surprised mostly positively, but the bond market still expects a significant downturn as the entire yield curve remains inverted. While they are still far below water, stocks and bonds have started to pull in for the better recently. Additionally, gold is looking increasingly attractive as central banks around the world bought a record amount in the third quarter, a trend that appears to be continuing. While we believe the market is likely to continue to experience increased volatility in the near term, and we currently maintain an above-average cash weighting across all portfolios, there are a number of companies that are performing exceptionally well even in the current uncertain environment. . We are selectively adding exposure to both equities and fixed income as we feel these opportunities may prove short-lived.

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BEST OPTIONS:

James Telfser’s Top Picks

James Telfser, Partner and Portfolio Manager at Aventine Investment Counsel, discusses your best options: premium brands, exchange income, and Agilent technologies.

Premium Brands (PBH TSX)

Aventine Core Strategy

We have been long-term shareholders of Premium Brands, a specialty food and distribution company, and continue to believe that its management team is one of the leading allocators of capital in the country. Despite recent challenges regarding inflation, supply chains and a pandemic, the company continues to report impressive free cash flow per share growth. Equity valuation has recently corrected to levels that we believe significantly undervalue the stock, especially given the steady growth in earnings and dividends. We are confident that management will continue to be opportunistic in acquisitions, buybacks and performing well against its long-term goals. While this will help close the valuation gap, we recognize that the current environment is fluid and it may take a few quarters to return to normalized profitability.

Exchange Income (EIF TSX)

Aventine Canadian Equity Fund

Exchange Income Corporation is an acquisition-focused company with a concentration in aviation, aerospace and manufacturing. We have enjoyed reconstructing the history of the company under its current leadership and have been quite impressed with its ability to allocate capital and integrate acquisitions. He has completed ~16 acquisitions since 2012 with a total value of over $1 billion. Exchange Income recently surprised analysts with a significant increase in earnings and increased guidance as recent acquisitions and strong operating performance combined to deliver strong results. We believe that, at current levels, investors are undervaluing the power of the earnings and free cash flow conversion of Exchange Income. Investors will be rewarded through a growing dividend (currently yielding five percent), continued earnings-per-share growth, and catalysts like acquisitions.

Agilent Technologies (NYSE)

Aventine Dividend Fund

Agilent is a leader in analytical measurement. The company sells instruments, consumables, and services to identify, quantify, and analyze molecular properties. The company is the market leader in an oligopolistic industry in which the top five players account for 75% of the market share. The company has a strong management team that tends to under-promise and over-deliver, a trait we look for in our holdings. The company provides its devices and services to the pharmaceutical, chemical and energy, food and educational end markets; all of which are growing. Agilent recently reported fourth-quarter earnings, which showed organic revenue growth of 17 percent and operating margin expansion of more than 200 basis points, during a challenging operating environment. Agilent has minimal debt, has increased its dividend every year since 2012, and has a valuation in line with its peer group.

PAST PICKS: April 20, 2021

James Telfser’s Past Selections

James Telfser, partner and portfolio manager at Aventine Investment Counsel, reviews his previous picks: Taiwan Semiconductor, Heroux-Devtek and CCL Industries.

Taiwan Semiconductors (TSM NYSE)

  • So: $114.95
  • Now: $81.97
  • Return: -29%
  • Total Return: -27%

Heroux-Devtek (HRX TSX)

  • So: $16.44
  • Now: $13.71
  • Return: -17%
  • Total Return: -17%

CCL Industries (CCL.B TSX)

  • So: $69.10
  • Now: $63.92
  • Return: -7%
  • Total Return: -5%

Average Total Return: -16%











TSM NYSE north north north
HRXTSX north north Y
CCL.B TSX north north north

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