(Every week, Business Edge columnist Gyle Konotopetz profiles the top three stock picks of one of Canada’s most accomplished investment pros).

FEATURED PRO: Gene Vollendorf is president of Savoy Capital Management (www.savoycapital.ca). The Calgary-based firm focuses on fundamental research in the Canadian market.

Fund Form: Savoy’s flagship fund, Gladiator LP, a long/short hedge fund, has generated a return of 66 per cent over the past two years and returned 32.2 per cent in 2003. The Management Expense Ratio (MER) is 1.5 per cent plus performance fees.

Vollendorf’s Perspective: “With the fixed income market expected to provide miniscule returns over the next 18 months, there should be substantial capital flows from fixed income into equities, supporting the buoyancy of the stock market.

"Our view is that the North American economy will continue to perform well in the first half of the year and the stock markets will move upward, albeit at a slower pace than last year.

“However, at some point there will be repercussions to this massive monetary and fiscal stimulus which will unfold over the next 18 months, perhaps after the American election if (President) Bush has his way, but maybe sooner if an exogenous event shocks the system.

“Furthermore, investor sentiment has clearly improved and lofty earnings expectations are being reflected in stock prices. Thus, companies will have to deliver on expectations to continue the stock market’s strong ascent.”



FIRST STAR
* Terra Payments Inc. (TPI-TSX)
* Recent Price: $4.35.
* 52-Week Range: $1.40-$5.20.
* Snapshot: Terra Payments, a spinoff from BCE Emergis in 1998, originally focused on processing for online gaming sites but has now expanded to offer transaction processing for a variety of second-tier online merchants. The company’s software completes credit checks, cash management, returns management and takes a service fee of approximately five per cent for each transaction.
* CEO: Mitchell Garber.
* Head Office: Montreal.
* Vital Stats: Current Price/Earnings Ratio, 24.6; Revenue (last 12 mos), $55.0 million; 5-Yr Revenue Growth, 60.2%; Earnings (last 12 mos), $2.3 million; Market Cap, $57.90 million; Shares Outstanding, 13.3 million.
* Vollendorf’s View: “Terra Payments is a high-risk situation but the combination of strong earnings momentum and cheap valuation make the upside potential upwards of 50 per cent in the next six months. The company has cut expenses, focused on high-margin businesses and is looking to make at least one accretive acquisition by the end of the first half of the year.”
* Vollendorf’s Risk Rating: High.
* Web Watch: www.surefirecommerce.com



SECOND STAR
* Telus Corporation (T-TSX)
* Recent Price: $27.50.
* 52-Week Range: $15.25-$28.52.
* Snapshot: Telus is the largest telecommunications company in Western Canada and the second largest in Canada. The company provides subscribers with a full range of telecommunications products and services including data, voice and Telus Mobility wireless services across Canada.
* CEO: Darren Entwistle.
* Head Office: Burnaby, B.C. (27,765 employees).
* Vital Stats: Revenue (last 12 mos), $7.1 billion; Earnings (last 12 mos), $142.7 million; Market Cap, $5.21 billion; Shares Outstanding, 189.39 million; Dividend Yield, 1.70%.
* Vollendorf’s View: “Telus is an earnings growth story with an attractive valuation. Earnings are expected to increase more than 40 per cent in 2004 as the company benefits from margin expansion and wireless growth. The company is also generating record levels of positive cash flow. I would be surprised if the company did not raise its dividend in 2004.”
* Vollendorf’s Risk Rating: Medium.
* Web Watch: www.telus.com



THIRD STAR
* Evolved Digital Systems (EVD-TSX)
* Recent Price: $1.45.
* 52-Week Range: $1.10-$3.68.
* Snapshot: Evolved Digital Systems is a software maker focused on the cardiology end market. The company was formerly known as Electromed and recently completed the acquisition of Inphact, a U.S.-based provider of integrated image and information management solutions.
* Vital Stats: Revenue (last 6 mos), $6.2 million; 5-Yr Revenue Growth, 137.5%; Earnings/Loss (last 12 mos), $7.9 million Loss; Market Cap, $18.97 million; Shares Outstanding, 13.1 million.
* Vollendorf’s View: “This company participates in the high-growth sector of the health-care software market. In the past, sales traction has been lacking due to the licensing structure of its revenue model combined with
incompetent management.”
“With new management and ownership, the company has implemented a fee-based revenue model. If successful, the company should break even on a cash-flow basis and grow earnings in excess of 100 per cent in the next 18 months.”
* Vollendorf’s Risk Rating: High.
* Web watch: www.electromed.com

Vollendorf’s EDGE Record: +38.8%. Best Pick: Cinram International (CRW-TSX) +209.9%. Worst Pick: Rockwater Capital (RCC-TSX) -10.0%.

Disclosure: The featured stocks are held in the Gladiator LP fund.

* CORRECTION: In the previous issue, Bonavista Energy Trust (BNP.UN-TSX) was incorrectly identified as the worst pick of Jean-Francois Tardif of Sprott Asset Management. In fact, Bonavista has been a big winner and one of the hottest performers among royalty trusts, with its unit price increasing 33.4 per cent in the six months since the company converted into a trust.