Aug 2, 2016

Greg Dean's Top Picks: August 2, 2016

BNN Bloomberg

Greg Dean , BNN

Greg Dean, Principal and Portfolio Manager, Cambridge Global Asset Management

FOCUS: Global Growth Stocks

_______________________________________________________________

MARKET OUTLOOK:

It’s important to begin by saying at Cambridge, there are 4 things we try not to predict and they are: commodities, currencies, interest rates and government policy. If an investment thesis hinges on one of these four levers you are in trouble in my opinion. Markets today are expensive and “fat pitch” opportunities are scarce so it’s really important to focus on quality and also be extremely discerning when allocating capital. Cash is a great option as volatility has historically been high but in recent months has dramatically reduced. My fear levels are at their highest when markets are calmest and conversely I am most excited when markets are least rational (think Brexit, Global Deflation fears, etc).

As I look out on the horizon, the biggest challenge today isn’t finding great businesses trading below intrinsic value, its protecting capital against the uncertainties we see at a more macro level (fixed income and China). This is why my cash levels are elevated and I have only been willing to part with it for truly “fat pitch” opportunities that offer several free options in case we do see a correction. If we can help clients preserve their capital when we don’t see a lot of opportunity, then our job gets easier in better markets to compound that capital while taking less risk.

As a bottoms-up stock picker, I don’t spend a lot of time worrying about elections or the above noted macro factors. I really focus on businesses that control their own destiny and are run by intelligent managers who have an ownership mentality and can very clearly explain to me their strategy and decision making process. I’m excited with what I own today and think we are well positioned to succeed in the long term.

Top Picks:

Computer Sciences Corp (CSC.N), Most recent purchase was February 11 at $27.26

Computer Sciences Corp has very strong free cash flow generation and a proven ability to make very large and successful acquisitions. Mike Lawrie the CEO has successfully turned around this company to be able to compete and consolidate the fragmented IT service sector going forward. The market is also underestimating the impact of their recently announced merger with HP’s IT service business.

Walgreens Boots Alliance (WBA.O), Most recent purchase was July 25 at $81.40

New management has come in from the U.K. and is improving the front store offer and cutting a lot of back-end costs that will not only improve margins but allow the business to respond to changing customer preference faster. Still early days in the integration and the CEO has a proven track record of delivering results. I expect Rite Aid acquisition to add $1 to EPS when fully integrated and today market doesn’t believe it will close.

Signature Bank of New York (SBNY.O), Most recent purchase was July 20 at $123.82

A very high quality regional bank focused on relationship banking for private small and medium sized businesses and their owners. They have built their firm attracting top talent from the largest banks who forgot the business is about people and relationships and not spreadsheets and systems. They are able to take share in deposits and loans allowing them to continue growing book value and earnings by 15 per cent per year. Valuation underappreciates their consistency and durability to the share gains.