John Kim, Portfolio Manager, Aston Hill Financial

Focus: North American Equities

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MARKET OUTLOOK:

Global markets facing a lot of uncertainty right now after Brexit vote to Leave. No one knows what will happen. That is the biggest danger, the unknown. That is why markets initially sold off, because of the uncertainty. In the short run, say the next 6 to 12 months, the UK will remain a part of the EU so not much will really change. But corporations may delay certain decisions until they know what the future political and economic landscape looks like. This may have the effect of slowing economic growth, although I doubt enough to tip into recession.

So we are focused on sectors that have very little exposure to Europe and ones that should still do well even with the political uncertainty in Europe. For example, discount retailers like Dollar General and Dollar Tree have no exposure to Europe and should still do well in a slowing economy. Other sectors include technology companies exposed to the increasing use of video and data, and healthcare that are relatively insulated from economic swings. Finally, oil & gas, where global demand is driven by India and China and swing production in the U.S. is declining and we believe we have seen the bottom in oil price.

Top Picks:

Allergan (AGN.N)

Sold off after Pfizer walked away from deal to buy them after the U.S. Treasury changed the rules on inversions. Selling their generics business to Teva for $40 Billion which should close in the next week or so. This will put them almost debt free. Committed to $10 Billion buyback, more than 10 per cent of market cap, once deal with Teva closes. Will be a branded pharma company and so overhang and controversies surrounding specialty pharma companies (due mainly to Valeant) should lift.

First Data (FDC.N) 

Concerns around their high debt and slowing economy and market share losses weighing on stock price and 15 per cent international exposure.  Management has been focused on restructuring of debt to lower interest cost and extend maturities, which they have largely accomplished. Now they can turn their full attention to execution on business. We believe they can stem the share losses and steady the business. First Data should generate over $3 Billion in free cash flow through 2018 with can be used to pay down debt. That is over 30 per cent of their market cap.

Enerplus (ERF.TO)

Management has done a great job of managing through the downturn, selling non-core assets to pay down debt and restructure balance sheet. They also recently raised over $200 million in equity to further bolster the balance sheet. Recently held investor day to provide update on operations and future plans, which was very well received. They can grow very modestly spending within cash flow at current oil & gas price.

Past Picks:  March 21, 2016

Royal Bank (RY.TO)

• Then: $75.32
• Now: $78.11
• Return: +3.70%
• TR: +4.79%

Bank of America (BAC.N)

• Then: $13.84
• Now: $13.21
• Return: -4.55%
• TR: -4.23%

Ametek (AME.N)

• Then: $49.90
• Now: $46.24
• Return: -7.33%
• TR: -7.16%

Total Return Average: -2.20%

Website: www.astonhill.ca