$800,000 threshold passed in July
Just five months after reaching the $700,000 mark, the Montreal Gazette portfolio has topped $800,000.
The model portfolio of 15 Quebec-based companies, launched just over 18 years ago with an imaginary $100,000, crossed the threshold thanks to a July advance of 1.74 per cent. It ended the month worth $803,193.
The portfolio actually underperformed last month, lagging the Toronto Stock Exchange by more than 2 points and the BMO Quebec small-cap index by 2.68 per cent, but it still leads the TSX in 2016 with a total return through July of 15.59 per cent.
“We’re at another milestone here,” said the portfolio’s longtime manager, Christine Décarie of Investors Group. “What it shows, I think, is that you don’t necessarily have to trade a lot to build value. A lot of these holdings have been in there a long time.”
Ten of the 15 stocks moved up in July, paced by informationtechnology company CGI, which surged 14.8 per cent. Communications company Québecor and Canadian National Railway also had hefty gains of more than 8 per cent.
CGI had been oversold the previous month on concerns over the Brexit vote, Décarie said. The company has a significant portion of its business in the U.K.
“It reported good numbers in July, and said it wasn’t seeing much weakness, and the stock price more than recovered. At the end of the day, it’s still the good company it was.”
July’s underachiever was steel fabricator Canam Group, which plunged 19 per cent and weakened further last week after reporting a second-quarter loss of $28.4 million.
“I’m not selling — I think it still plays on the theme of non-residential construction being strong — but the market is not very permissive these days. Maybe it thinks there’s more (bad news) to come. It might take a few quarters for the market to regain confidence in the name,” she said.
Décarie, who under the rules of the portfolio can trade only at the end of the month, did sell one holding, disposing of all 1,943 shares of the pharmacy chain Jean Coutu Group at $18.91. With the proceeds and some accumulated cash, she added 860 shares of Laurentian Bank at $48.41.
It’s the second time Jean Coutu has exited the portfolio. One of the original holdings back in 1997, it was sold off for a nice profit in 2006, returned in 2012, and has now been sold again. The selling price was about $5 more than the average cost this time around, translating into a gain of roughly 35 per cent.
Décarie said it was bought in 2012 as a defensive name when markets were rocky, “and it did what it was supposed to do,” but there doesn’t appear to be much of a growth or earnings catalyst on its horizon.
“It isn’t in trouble, but we don’t really know the full impact yet of the (provincial) drug reform. It’ll be a challenge for the company to grow earnings over the next couple of years, and if a company doesn’t grow earnings, it becomes more difficult to have an acceptable valuation.”
Laurentian, she said, fills a void in the portfolio, since it had no bank holding. It trades at a 25-per-cent discount to the largest Canadian banks and has a 5-per-cent dividend yield. “It has a large mortgage portfolio, so a weaker housing market could be problematic, but most of its residential business is in Quebec, not Toronto or Vancouver,” she noted.