John Burke - Top Picks
John Burke, CEO and Chief Investment Officer, Burke Financial Strategies
FOCUS: U.S. Equities
Those who did not sell in May to go away sold when the British voted Yes to Brexit. Since then, everyone seems to have rushed back in the market with the indices hitting new highs almost daily. Those who are fearful are earning nothing in cash and worse, some people who own bonds are paying for the privilege. And over the next three months, we have to experience the most intense part of the most polarizing election in the history of the U.S.
You would think that these are not the best of times for investors, but the major U.S. indices are up about 8 per cent, which is not bad.
We think investors who have earned those returns should be cautious. Investors are buying for two reasons: 1) They can’t make money in bonds. Evidence that this is a major theme is that dividend paying stocks are leading the way. 2) They are buying in anticipation of third quarter earnings which will be the first quarter of growth in a year and a half.
Top Investing Ideas
Our best investment theme has always been to buy what we hate. If we hate something, it means that it has gone down on us. Fortunately for us, we don’t own very many financial stocks but we don’t like the financials that we do own because we are losing money in them. Yet, this is the only sector that is downright cheap. We like to talk in earnings yield. If we can get reliable earnings at close to 10 per cent of our investment, we know that we will be happy. The only place we can find a lot of these types of stocks is in the financial sector.
Ameriprise Financial (AMP.N)
It is a broker dealer with 60 per cent of revenues coming from advice and wealth management with most of the rest coming from insurance and annuities. Fixed income and equity assets are both up this year which is good for the advice and wealth management business yet the stock is down 9 per cent year-to-date and 27 per cent since the first of the year last year. We get a 3 per cent dividend with an earnings yield of almost 9 per cent.
It is a regional bank based in Cleveland. Cleveland has the champion NBA team and a very good baseball team. And Cleveland has Key Corp which is a mid-sized regional bank. The housing market in the U.S. is doing well yet investors worry about the spread that banks make between deposits and loans. But much of the business is just turning over mortgages and with low rates, people continue to refinance. The dividend is 2.8 per cent and the earnings yield is 8 per cent.
Principal Financial Group (PFG.N)
It is a stock that we sold a little of after Brexit in fear of low rates. We hated it too much. The company is half insurance and half money management specializing in 401(k)s which are undergoing increased regulation. Since the market bottom in February, however, it is one of the better performing financials, up 24 per cent. It is still down 10 per cent from the beginning of 2015 with a 3.5 per cent dividend yield and a 9 per cent earnings yield.
Past Investing Ideas: May 11, 2016
Time Warner (TWX.N)
- Then: $74.14
- Now: $80.47
- Return: +8.54%
- TR: +9.12%
Occidental Petroleum (OXY.N)
- Then: $76.31
- Now: $76.25
- Return: -0.05%
- TR: +0.91%
Ameriprise Financial (AMP.N)
- Then: $95.17
- Now: $96.95
- Return: +1.87%
- TR: +2.68%
Total Return Average: +4.24%