Randy Oliver doesn't mind being beyond shouting distance of Bay Street.
During a recent interview, the president of Hesperian Capital Management was forced to entrust his trusty business partner, Keith Leslie, with relaying the TSX's one-year return.
When Oliver discusses the market, you get the feeling that he wouldn't be shaken by Bay Street's tumult and shouting if his office sat on the reverberating TSX trading floor.
"I don't predict markets and I don't predict recessions, although I'm an economist," says Oliver when asked to tell the TSX's 2007 fortune. "I'm looking for inexpensive stocks, clean balance sheets and high returns on equity, and as long as your portfolio looks better than the market does, you will do well on a relative basis each year."
|Photo courtesy of Hesperian Capital Management|
|Randy Oliver is Edge Stock-Picker of the Year once again.|
Leslie, also a Hesperian portfolio manager, had to dig up the S&P/TSX Composite annual return, but it seems that this type of oversight is strictly the effect of the different sightline used at the Calgary-based investment firm.
Oliver, after all, was up 26.2 per cent with his nine Business Edge Pro's 3 Stars picks in 2006, making him the Edge Stock-Picker of the Year for the second straight year.
His Norrep Fund performed with similar aplomb, claiming a one-year return of 27 per cent, drubbing the TSX benchmark by 10.1 per cent.
Although Oliver submits that consistently beating the TSX by 10 per cent is a goal of Hesperian, his concentration is finding companies that won't go down in flames when the market relays an inflammatory message.
Screaming buys that are scarcely a whisper.
"Our whole basis in this business is looking for stocks that don't have very much research coverage and are really inexpensive with clean balance sheets and then we sort of think serendipity sets in and good things happen to those types of companies whether they are known or not."
Not to say that the small- to medium-cap specialist doesn't enjoy sending the market's trumpeters a message of his own occasionally, on the back of one of his unsung and unsought stock picks.
Century II Holdings (TSX:CH), Oliver's best pick for the Edge the past year, gained 72.5 per cent from the time he touted it in December at $4 (statistics are based on Edge picks made from December 2005, through November 2006).
Century II's wholly owned subsidiary ICS Courier serves 35,000 corporate customers throughout Canada. The courier company had evaded analysts' radar at the time Oliver identified it.
"Century II is a classic Hesperian type stock," says Oliver. "It came up in a computer run that we do here (as part of) our quantitative work that showed that the stock had a very low P/E (price-earnings ratio), a very high return on equity and earnings momentum. I don't remember any brokerage house covering it and we love stocks like that because then I can promote them to the brokers and drive them up even more."
His second-best play in the Edge was Axia NetMedia (TSX:AXX), which gained 61.9 per cent.
"It showed up on our quantitative work as having a low multiple, high return on equity and a relatively clean balance sheet, and when it popped up in the numbers we started researching it," says Oliver of the Calgary-based technology company that derives the majority of its revenue from the Alberta Supernet, an IP network that supplies broadband services to 429 communities within the province.
What gives Oliver the ability to zig when the TSX says to zag?
"I would have to say that it's confidence - the confidence to act quickly and decisively when you have a good idea. With Century II, it took me all of 10 minutes to say, we've got to own a lot of that stock. Computer Modelling Group was similar to that as well."
Computer Modelling Group (TSX:CMG) has returned 55.1 per cent since it was selected in the Edge. The computer software company derives its revenue from the TSX oil and gas sector, which has suffered since its peak early in the year.
"We never, ever pick sectors," says the Hesperian founder. "We don't manage that way. We look to find 35 of the best stocks and whatever sectors they fall in, they fall in. If a company came up and looked like it had the types of numbers we look for, then we would invest in any sector.
"Out of all the stocks (that were picks in the past year), there are three that I would still have as part of my primary choices this year and they are Axia, Vector Aerospace (TSX:RNO) and Computer Modelling Group."
Oliver's worst pick in the Edge was Strongco Income Fund (TSX:SQP.UN), an industrial equipment supplier and income trust that was down 18.1 per cent. However, while many institutional investors had their portfolios devastated by the federal government's decision on Oct. 31 to tax income trusts, only one of the Norrep funds was spooked by the Halloween ruling.
"It (income-trust exposure) was very, very limited in our Norrep Fund and our Norrep II Fund and in our Norrep Q Fund. We do have one fund, the Norrep Income Growth Fund - which has only been around a year - which got knocked for about 10 per cent when the announcement came out."
Oliver believes there may be some income-trust bargains in 2007.
"It'll be interesting to see how the whole trust thing works out over the next three years, before they become fully taxable. We've always looked at some of the lower-yielding income trusts that have room for growth within their trust vehicle."
The nine income-trust picks made in the Edge were down 16.1 per cent for the year.
Two Edge pros (among those who made at least six picks) were neck and neck with Oliver in the running for top honours. Bill Harris of Avenue Investment Management was up 24.6 per cent on nine picks and Jean-Francois Tardif of Sprott Asset Management gained 24.3 per cent with 12 picks.
As a result, Harris and Tardif, both Toronto-based, continued a six-year tradition of thwarted attempts at Edge glory by eastern pickers.
Tardif's four income-trust picks ruined his chances, as they dropped an average of 15.9 per cent. His other eight picks collectively yielded 44.3 per cent on the strength of a 277.4-per-cent gain with Tournigan Gold (TSXV: TVC). Tardif picked Tournigan, a uranium and gold play, in July at 90 cents.
Combined, the 13 Edge pickers returned 8.8 per cent with their picks in a 12-month span in which the S&P/TSX Composite index returned 15.9 per cent.
(Sasha Konotopetz can be reached at email@example.com)