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Globe Investor: What Caldwell’s Jennifer Radman is buying, selling, and regretting | June 7, 2017

Inside the Market

BRENDA BOUW
Special to The Globe and Mail
Published Wednesday, Jun. 07, 2017 4:48PM EDT
Last updated Thursday, Jun. 08, 2017 10:22AM EDT
If there’s a market crash coming, as some predict, Jennifer Radman doesn’t see it. The vice-president and senior portfolio manager at Caldwell Investment Management says markets are driven by emotion and “investors are still focused on the downside, which suggests there is still room for markets to move higher.” Ms. Radman recommends investors consider owning a limited number of quality stocks, to avoid overdiversification. She also sees the United States as more attractive right now, versus Canada, but sees some opportunities here at home. The Globe and Mail spoke with Ms. Radman recently about investor sentiment, her take on the markets and a high-flying stock she got out of too soon.

What concerns are you hearing from investors today?

There is still skepticism. People still very much remember the past two crashes and are waiting for the next one. I think that, in itself, suggests we’re still okay. The markets work with emotions, with extremes at the top and bottom: extreme fear and pessimism at the bottom and extreme optimism and excitement at the top. We’re just not seeing that. Canadian investors, I think, are still very cautious. Canada is a much different story than the United States, given the Canadian market’s concentration in energy and banking. So energy prices, and any impact from the Home Capital situation, will drive the Canadian market.

What’s your take on the markets today?

We have had a very nice run. I think we are seeing very different things in Canada and the United States. Canada has really struggled this year. It’s a combination of weaker energy prices and also the concerns on the financial side and the housing situation. A lot of the growth in Canada has been driven by housing and consumer debt and also government debt and the underpinnings to support that. Business investment and exports have been weak. That has been a concern for us for a number of years. We’ve been in the U.S. for about five years now, coming out of the last recession. That’s still on our minds. The big point is that you have to be focused. The average mutual fund in Canada owns about 60 stocks. That just won’t do it. Valuations are too high. Growth is too low. You can’t be overdiversified and expect to do well. Our mandate is to hold about 15 to 20 stocks, which is one of the reasons why we’ve been so successful. We prefer the U.S. market [right now]. You can still be successful in Canada, but you have to be focused.

What stocks have you been buying lately?

We recently bought BRP Inc., the company behind the Ski-Doo, Sea-Doo brands. They’re the leading global manufacturer of power-sport vehicles. The reason we like them is they’ve done a lot to improve their products and are gaining quite a bit of market share. You’re seeing very good top-line growth and margin improvements, too. When we picked this stock about a month ago, it was trading at quite a bit of a discount to its primary competitor – despite having a much better operational performance. We also recently bought Apogee Enterprises, which trades in the United States. They do architectural glass for high-rise buildings. It’s a relatively new management team. They’ve done a good job of improving margins. They seem to have a lot of growth opportunities.

What have you sold lately?

Our most recent sale was Onex. We held it since November, 2011. We did really well with that one. Our return was about 180 per cent. The TSX over that time was up about 30 per cent. We think it’s range bound [for the near term] and believe we have better opportunities [elsewhere]. It’s a fantastic company and would love to own it again, but I think where it’s valued right now doesn’t make sense for us.

What stock do you wish you bought?

Air Canada. We bought it in November at $11.90 and sold it in January at $13.70. We did make a profit, but it’s now above $17. [The sale] was part of our investment discipline, but it still hurts when you see it.

This interview has been edited and condensed.

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