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A View From Here March 2011

March 28, 2011 • Print This Article

Waiting for the Other Shoe to Drop

On March 9, 2009, stock markets around the world reached what some have called a generational low. Two years and a lot of anxiety later, one has witnessed one of the most powerful stock market rallies ever seen. February marked the return of the Dow Jones Industrial average to levels not seen since April 2008, when all seemed well on Wall and Bay Street... maybe too well.

It now seems to be a foregone conclusion that recovery was inevitable yet fear has returned based on geopolitical events occurring throughout the Middle East and northern Africa. This has led to escalated oil prices and another coming out party for the pessimists who have been patiently waiting for the other shoe to drop. One never knows what others are invested in, but those loud voices missed out on a lot of gains prompting me to quote Golda Meir when she said, "Pessimism is luxury that few can afford".

On a more fundamental level, most of the companies in our portfolios performed quite well on a corporate level throughout this period and we must commend management for having the fortitude to focus on future growth, and in some cases use the malaise to strengthen their corporate brand. Most of our holdings with special mention of Softchoice and in particular, FirstService are seeing the fruits of those actions which should continue to have a positive impact going forward.

Our Performance & Our Own Seed Planting

January and February continued the trend of outstanding financial performance in our portfolios. Further, we have begun to establish new positions in an Alberta based Real Estate Company and a natural gas producer with an attractive dividend and through our purchase may have planted the seeds for the start of a very unique investment.

We have also seen excellent earnings and have a clearer picture of our restaurant royalty holding which reported excellent fourth quarter and year-end numbers in late January. I suspect however, given the continued strength in the portfolios during 2010 and into the first 8 weeks of the year, that we must be open-minded that consolidation can occur during the investment process.

RRSP Season

Now that RRSP season has passed, we are delighted that so many have taken advantage of the only natural tax credit available to Canadians. We are believers in this investment account and pontificate that one of our stated goals is to overfund your retirement through long-term outperformance. I still feel quite strongly about investments using Tax Free Savings Accounts (TSFA) and Registered Education Savings Program (RESP) which if eligible, we should all try to take advantage of.

Our Positions Continue to Be Strong

February and early March saw the release of earnings from many of our investments in Sherritt, Softchoice, Leons, Bridgewater and FirstService. In each case,continued growth in corporate bottom lines and their performance relative to their peers continues to fuel our conviction that we are making the right investment decisions.

Leon's was the one exception, having reported a weaker than expected quarter in the last three months of the year. Having said this, the company has strong growth ahead, a large cash position, a substantial real-estate portfolio and an attractive dividend with a history of paying special distributions. The Leon family owns 70% of the outstanding shares. Last month, Softchoice's chairman passed away. While we mourn the loss, his replacement Bill Linton (Chief Financial Officer of Rogers Communications, which is one of Canada's largest companies) makes for an interesting replacement. Further, scouring through the insider reports revealed that he made substantial purchases in shares of Softchoice adding further credibility to this unique company which we own.

March will see an important 4th quarter and full year earnings release from our investment in Evertz Technologies. We have been encouraged by its share price strength in recent weeks while we reflect back to the earnings strength in the last three quarters as prophetic.

Even though at the time of writing, Spring has yet to reveal itself, there's that familiar mid-day Sun that tells us...it's coming...it's been a cold but very profitable winter.

See ya in April!

And always...

All Good Things,


Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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