Jordan Zinberg, president and chief executive officer at Bedford Park Capital Corp. in Toronto.The Globe and Mail
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While many investors steer clear of small-cap stocks given their volatility, money manager Jordan Zinberg seeks them out.
“We prefer smaller companies because they tend to grow faster, and we can buy that growth at better valuations,” says Mr. Zinberg, president and chief executive officer at Bedford Park Capital Corp. in Toronto and portfolio manager of the $100-million Bedford Park Opportunities Fund, which focuses largely on Canadian small and mid-cap equities.
“Our objective is to get involved with small and fast-growing companies early in their life cycle and then look to capitalize as profits grow and as valuation multiples expand. With smaller companies, we also have better access to management teams,” he adds. “And because small- and mid-cap stocks tend to be more volatile than large-cap stocks, it can create trading opportunities.”
The fund’s top three holdings today include consumer lender Goeasy Ltd. GSY-T, financial technology company Propel Holdings Inc. PRL-T, and frac sand producer and distributor Source Energy Services Ltd. SHLE-T.
The fund has returned 33.2 per cent year-to-date and 66.8 per cent during the past 12 months. Its five-year annualized return is 14.7 per cent. The performance numbers are based on total returns, net of fees and expenses, as of May 31.
The Globe spoke with Mr. Zinberg recently about what he has been buying and selling:
Talk a bit more about your investment style.
We’re stock pickers. We don’t spend a lot of time looking at macroeconomic variables. Instead, we focus the majority of our time looking at individual companies. Our fund invests exclusively in Canada, focusing on high-quality, Canadian small- and mid-cap growth stocks. Our portfolio is very eclectic and relatively concentrated. We currently own 19 stocks and one bond – the Source Energy Services corporate bond maturing in the first quarter of 2025 – so we own the company’s equity and debt.
What have you been buying recently?
We continue to buy shares of frac sand provider Source Energy – a stock we’ve owned since the fall of 2022. It was the biggest winner in our fund last year. We started buying shares in November last year at $1.60 and it surpassed $18 in April. The stock came off significantly in the past six weeks, and we don’t see any fundamental reason for the pullback, so we bought more at about $9. We expect multiple catalysts for the stock in the coming months, including the company refinancing its debt at a lower rate. Its customers include some of Canada’s largest energy companies.
The expected startup of the LNG Canada project in mid-2025 should provide a big boost in demand for frac sand and, in turn, the stock. The company has also been exploring other ways to grow without using its own balance sheet. It has talked about a possible joint venture. We believe the stock is extremely cheap right now, trading at less than three times 2025 earnings. It also has one of the highest free cash flow yields out of any stock I own and follow.
Another stock we’ve been buying is Mainstreet Equity Corp. MEQ-T, which specializes in acquiring and managing mid-market rental apartment buildings in Western Canada. Its portfolio has grown to more than 18,000 apartments from about 200 two decades ago. We think it will reach 20,000 apartments within the next year. Notably, it has achieved this growth without raising any equity.
It has been a long-term holding in our fund. We first bought it at $80 in February, 2020 and added it recently at $162. It’s trading at about a 20-per-cent discount to its net asset value right now, whereas it was trading at a premium not long ago. We believe it’s an extremely well-run business positioned exactly where you want to be in Canadian real estate investing: the multi-family rental housing market.
The company operates in provinces with strong demand, no rent control and declining vacancy rates. It also has a very low cost of capital, and its founder and CEO Bob Dhillon owns about half of the stock, which means he’s highly aligned with shareholders.
What have you been selling?
We recently trimmed technology services company Converge Technology Solutions CTS-T, a stock we bought in September, 2020 at about $2. It was a highly acquisitive company and a market darling in 2020 and 2021, but then it stopped making acquisitions. I expected to see improved margins as a result. But the growth slowed and its margins weren’t as high as I expected, so we trimmed it at around $5. We decided to find a better use for that capital. We still own a bit of the stock.
Zedcor Inc. ZDC-X is a stock we’ve been selling and exited entirely early this month. It’s a provider of video monitoring surveillance towers. The stock has done extremely well in recent weeks, and we still like the company, but I felt the valuation had become a bit stretched and that it was time to take profits. We were trading it actively; however, the bulk of our position was purchased at just below $1 and sold in the $1.30 range.
This interview has been edited and condensed.
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