Jessica Vomiero | Smallcappower | December 23,2015
At the 2015 President’s Club Investment Conference, Jason Donville, President and CEO of Donville Kent Asset Management discusses what investors need to be focusing on in 2016. The conference took place in the Bahamas from November 6 to 8, where Donville describes three sectors that he predicts will see high returns in the new year.
“Looking into 2016, I think there’s really three major themes that investors need to be looking at, where I think the greatest opportunity is. And those themes are, number one, healthcare, number two, cleantech and then number three, the SaaS companies and the SaaS industry.”
Donville believes that software as a service is a lucrative business model and he’s on the hunt for the next Open Text or Constellation Software. He says the conference has really given them an opportunity to get acquainted with emerging SaaS companies that are “just coming out of the chutes.”
In regards to the spike in the healthcare sector, the proof is in the numbers. “There’s been a huge correction in healthcare and yet the earnings profiles of this sector are extremely high, because demographics are still an important driver of growth, number one, and because most of these companies that allow them to have margins. So you’ve got growth plus margins, and that’s a really powerful combination.”
He states that the Toronto Stock Exchange trades on about 16 times 2016 earnings, the healthcare sector trades on 5.8 times. He concludes that the selloff on healthcare stocks has been grossly overdone, which is why investors may see an improved performance in the coming year.
The final theme he believes investors and fund managers may see more of in 2016 is cleantech, and Donville believes this could be credited to the changing energy sector.
“I haven’t figured out how to play it yet from a long side but on the short side, for example, Hydro One, which is going public right now, may not be as exciting a company as it might seem because I think that whole electricity grid thing is changing.”
Non-traditional utilities technology companies are going to grow as people search for alternatives in the cleantech sector. Donville uses Hydro One as an example of a company that won’t see much growth come 2016 because of these trends.
“So Hydro One would be a stock that I wouldn’t be as interested in being involved with because I think there’s going to be very, very little growth for the utilities going forward, given how fast the price points on solar are coming down, how fast the improvements in battery technology are coming along.”
Donville delivered a keynote presentation at the conference and has been recognized as the Top Stock Picker in Diversified Financial Services in the National Post/Starmine surveys in 2004.
He believes that the competitive advantage is important, which is why he’s always cautious buying into companies that are not profitable yet.
“Don’t back up the truck until you have a company where there’s consistent profitability in place. And be very skeptical about the company that is going to be profitable next year, because most of them aren’t going to be profitable next year. If they’re not currently profitable, then go slow.”
When looking at a company however, Donville wants to know that the company’s place in the market is secure. He uses proprietary technology as an example of the kind of security he’s looking for.
“If there’s a mining company that’s doing bauxite at the same price everybody else is doing bauxite, it doesn’t interest me very much. But if you showed somebody who says, ‘Hey, we have a competitive advantage because we have some kind of a proprietary technology or a patent that allows us to lock in our margin,’ that’s of a high degree of interest to me.”
He maintains however that it’s always better to watch a company for two, three or four quarters and get to know their story before taking the next step.
