2016 was a good year for equity markets. My portfolio was up 24.4%, which was in line with the benchmark return of 24.4%. While valuations have run up significantly on the stock market in general and a lot of stocks currently look overvalued from a historical perspective, I believe the vast majority of the 24 positions currently in my portfolio are undervalued to fairly valued.
During 2016 I sold five positions.
MTY Food Group had been a big winner for me since I first purchased it. I believed that the current valuation wasn't justified, especially given continual negative same store sale growth. What I didn't count on was the capital allocation ability of Stanley Ma, CEO and largest shareholder. Subsequent to my sell, MTY announced the largest acquisition in the firm's history, which was welcomed by the market. I took a look at the stock a couple of times for a possible re-entry, but couldn't get comfortable with the valuation.
BlackRock was sold in May as I was concerned that the market was overheated and a pull-back would cause AUM to drop at BlackRock, therefore affecting the stock. In hindsight, a major correction did not occur in 2016 and the market continued to trend higher. I continue to believe BlackRock is a solid long-term investment and may look to get back into the name when there is eventually a correction.
Enzymotec, a strong performer in 2015, was sold in February 2016. I did not see the growth I had hoped for when I originally bought the stock. The company is sitting on a pile of cash and there is no sign that management will be returning that to shareholders in the form of dividends or share buybacks. I exited my position at an opportune time as the stock has since fallen as more investors have lost patience.
Home Capital was sold at the beginning of 2016. I was finally able to exit after having been denied numerous times from selling it by my company's compliance. The stock is cheap and the dividend yield has been increasing, however I didn't want to be stuck in this name.
The final sell was Callidus Capital. I had bought a very small position at what turned out to be the very bottom. While I made ~50% on this stock, if I had continued to hold, I could have made over 100%.
I finished the year with six new positions. Four positions of note are listed below.
AmTrust was bought with the proceeds from BlackRock. It is an insurance company that has a strong track record of growing both organically and making acquisitions. It has a 2.5% dividend yield and has regularly increased its dividend.
Celgene was bought on two occasions in 2016 for under $100 both times. Given that the stock finished the year ~$116, this has been a good investment. Celgene has a strong drug pipeline and I view this as a long-term hold. I may add to the position if the price comes down again.
Gentex was bought in October. I had followed this company for a while and has many of the attributes I like. The balance sheet is strong with a lot of cash (probably too much) and not very levered. The founder/CEO, Fred Bauer, owns a lot of stock and has consistently grown the company. ROE is high and dividends have regularly been increased. Also, valuation is reasonable.
Vecima Networks was bought in December. Two Canadian small/micro-cap investors whom I have a lot of respect for both own the stock. The company has a rock-solid balance sheet and pays a dividend. The stock had taken a hit earlier in the year due to a weaker than expected forecast, however looking past the short-term, Vecima looks cheap.
After a disastrous 2015 stock performance, Issuer Direct (NYSEMKT:ISDR) came back strong in 2016 gaining 50%. It continues to be my largest holding. During 2016 ISDR increased its dividend by 67%, stabilized and started once again to grow revenues, and increased its sales team to grow their cloud-based solutions to customers.
Silicom was also a winner, up 36%, as the company continues to get new design wins from existing and new customers. I sold some of my position during 2016 on price strength. However the current valuation is quite attractive.
ZCL Composites gained 79% in 2016. I sold half my position and have been trying to sell the remainder, however have been getting blocked by my company's compliance. I believe this is one of the only overvalued stocks in my portfolio. I've also been trying to sell Pure Industrial REIT, another name that did quite well in 2016. I started the year with about 20% of my portfolio possibly being hard to liquidate due to trading restrictions and have finished the year at 9%. I'm hoping to continue to lower this. In addition to ZCL and Pure, AutoCanada and Avigilon may prove difficult to sell if I were to try.
Not everything worked out this year. The biggest detractor was Titan Logix, which saw revenues tumble on weaker oil prices. The company has no debt and the stock is trading at the cash on the balance sheet. This is currently a deep value play. I added to my position and am currently comfortable to wait for things to improve. Titan has been in business since 1979, so they have seen cycles in energy before.
Property financer Terra Firma also detracted, largely due to a developer filing for bankruptcy and missing interest and principle repayment. This is currently getting resolved. The stock has recently trended higher.
Other Notes and Outlook
My trades in 2016 cost about 13bps in fees, which is quite low. This is due to using a discount brokerage and looking for an average 3-5 year hold period.
In 2017, I believe that the Canadian dollar may weaken vs. the USD if the U.S. continues to increase interest rates quicker than Canada. About 46% of my portfolio is in USD, which should help.
In January, I will add cash to my wife and my TFSA's. I will look to increase my positions in Gentex and Vecima and have some cash on hand to take advantage of any market weakness.