The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails. – William Arthur Ward
Investing can be a case of three or four steps forward, one or two steps back — and so February was our step back. Markets were pressured lower in the weeks leading up to the Russian invasion of Ukraine, while the event itself sparked a strong rally in stocks. It is often the case historically that the breakout of war sends the stock market higher, and it looks like that rule of thumb still holds. While our model portfolios ex-Small Cap are down for the month of February so far, our losses are quite manageable: Growth -1.91%, American Growth -1.74%, Income -0.73%, Small Cap +4.28%, estimated as of February 25th at 10am.
Now for the good news: Towards the end of the month we identified material mispricings in the options market, along with the worst investor sentiment in five years, and important divergences in stock breadth, all which lead us to believe the stock market has put in a tradeable bottom, setting the stage for a broad and durable rally higher. Our businesses continue to generate ample cashflow while their stock prices remain in uptrends. We believe this is a good opportunity to put any cash on the sidelines to work with us.
Model Portfolio Highlights
We purchased a new position in Iamgold, a gold producer with positive cashflow we view as undervalued. Historically, bullion prices tend to begin appreciating ahead of interest rate hiking cycles, which would line up presently for an improvement. The company is also emerging from a successfully resolved shareholder battle that saw a major overhaul of its leadership and board of directors. We expect the share price to reflect these positive changes as company fundamentals improve.
American Growth Portfolio
We added one new position in conglomerate beverage company Keurig Dr Pepper. KDP has a long and solid history of growing cashflows and growing dividends. The stock price exhibits one of the more durable and consistent uptrends available in the US market.
We deployed our cash at the beginning of the month back into Canadian real estate, this time focusing more on the cheaper value areas of the market found in commercial, retail, and office REITs. With post-covid reopening plans well underway across the country, we expect investor sentiment to improve materially.
Small Cap Portfolio
We purchased a new position early February in lithium extractor International Battery Metals, already up 30% as of the writing of this note. The company has innovated a mobile, cost effective, and relatively environmentally friendly process to extract lithium, an important raw material for electric car batteries.
Across all portfolios I look for mispriced opportunities, considering only those with a significant margin of safety and minimal risk of permanent capital loss. After identifying such opportunities, patience is the most important factor in realizing our expected long term return.
If you have any questions about your portfolio, financial planning or investments please be in touch. Click to book a meeting: https://calendly.com/bwk-wapw
Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth
Ben Kizemchuk offers full service wealth management for high net worth Canadians including families, business owners, and successful professionals. Ben and his team provide investment advice, financial planning, tax minimization strategies, and retirement planning.