Bill Dye, head of Canadian equity for Leith Wheeler Investment Counsel, thinks of his company as a “meat and potatoes” investment shop. “We’re not into the sexiest of businesses,” he says. Instead, his team in Canadian Equities looks for four things in a company. First, it has to be a strong business with a durable franchise. Second, management should be competent and shareholder oriented. Third, the balance sheet must be strong enough to survive a downturn. And fourth, and perhaps most important, the price needs to be right. “We look for a valuation that translates an attractive business into an attractive investment,” Dye says.
Five years into a bull market, those kinds of bargains are getting harder to find. (“Investors need to have realistic expectations of future returns,” he says.) But that doesn’t mean they’re non-existent. “We look for changes,” Dye says. That could mean alterations in management, a significant transaction or even a public cloud over the company that has other investors shying away. Dye and his team, who were named among Canada’s TopGun Investment Teams in 2013 by advisory firm Brendan Wood International, must be doing something right. Ten thousand dollars invested in their Canadian Equity Fund in 2003 was worth $23,700 at the end of last year.
Bill Dye’s Picks
Home Capital Group
1-yr total return: 58.7%
An alternative (read subprime) mortgage lender based in Toronto, Home Capital targets the self-employed, new immigrants and borrowers with minor blemishes on their credit histories who find themselves unwelcome at most banks. The Canadian mortgage market may be slowing in general, but at the low end, where Home Capital resides, there is still room for significant growth, Dye believes. “It has very aggressive growth targets for 2014,” he says. Even better, recent regulatory changes are allowing the company to get back into the prime mortgage market as well. “It just gives them another avenue of growth,” Dye says.
1-yr total return: 100.6%
Dye considers Constellation the Berkshire Hathaway of the specialized software world. The company acquires, manages and builds niche software brands that serve markets as diverse as winery management, construction and agri-food. Though based in Canada, Constellation has customers in over 30 countries. Two-thirds of its sales are in the U.S. “It is just beginning to be discovered,” Dye says. “The expected returns are still pretty attractive.” Dye considers president Mark Leonard an entrepreneurial success story. “He buys companies and lets them continue to grow,” he says. Leonard’s the kind of leader you can put your money behind.
1-yr total return: 16.2%
Best known as the parent company of Aeroplan (Air Canada’s erstwhile frequent-flyer program), Aimia is today a giant in the customer loyalty, information and marketing world. The company’s stock swooned a bit this year, following a protracted semi-divorce from Aeroplan credit-card partner CIBC, but Dye still believes in its long-term prospects. “This is a situation where there’s quite a lot of uncertainty,” he says. But eventually the changes in the program should result in better long-term growth. Aimia currently trades below $18. Dye’s team believes it will go to $23 within three years.