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Finding Value in Uncomfortable Territory

September 05, 2014
David Barr and Felix Narhi, managers at PenderFund Capital Management, talk about finding value in uncomfortable territory in the article below. They also highlight Northstar Healthcare Inc. and explain why they believe it is of value and how investing in the company is a smart option. Read the article below that was originally featured in the Financial Post.
The managers look for two types of companies: those with long runways of compounded growth ahead, and more mediocre but cheap ones.

“The vast majority of the market consists of average companies,” Narhi said. “We’re much more likely to take money off the table with those kinds of names after a run-up and put it back into other cheap companies.”

Barr noted it is much tougher to find value among the largest North American companies, highlighting the opportunities in small caps, due to their greater variance in performance, and health care, as a source of predictable revenue and growing cash flows.

The managers are also opting to keep some powder dry in case there are some dramatic selloffs — broad-based, sector-wide or company-specific.

“You have to be able to buy companies when they go on sale,” Barr said.

Narhi adds that investors have to be comfortable with being uncomfortable if they want success in investing.

“People keep riding the same horse that has done well, but we’re kind of going into more uncomfortable territory because that’s where tomorrow’s returns will be,” he said.


Northstar Healthcare Inc. (NHC/TSX)
The position:
Recently added to existing position
Why do they like it?
Shares of this operator of ambulatory surgical centres in Texas and Arizona have come under pressure due to a warrant that was recently exercised at $1.10. The warrant’s deadline is Sept. 8, 2014.
“The price has been suppressed a little bit, but this is a small cap that is totally off the radar screen,” Barr said. “There aren’t too many investors looking for exposure to an asset like this and there is basically no following on the Street.”

He noted that Northstar’s revenues could grow to $65-million this year from $43-million last year as it increases utilization at the clinic level and moves toward higher margin surgeries.

To see the full article. visit http://business.financialpost.com/2014/09/04/finding-value-in-uncomfortable-territory/.