Lorne Steinberg, president at Lorne Steinberg Wealth Management 

Focus: Global value stocks and high yield bonds
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MARKET OUTLOOK
Markets have rallied since the U.S. election, due to expectations that U.S. policy makers will enact significant tax cuts, relax regulatory oversight and implement stimulus spending — all of which would boost the outlook for corporate earnings. However, these policies would presumably be inflationary and the Fed is warning that interest rates will continue to rise.

Since the financial crisis, low interest rates have benefitted real estate, equities and bonds. Today, inflation has picked up, and we are now in a rising rate cycle. This should give investors pause, as rising rates are usually a negative for most asset classes. Sectors such as REITs, utilities and pipelines are overvalued, and susceptible to a correction.

TOP PICKS

XEROX (XRX.N)
Xerox recently spun off its business process outsourcing division, and is focused on its original document management business. The new management team is showing early signs of success, with a slew of new product offerings, significant free cash flow and margin improvement. The dividend yield is 3.5 per cent, and free cash will be used for share buybacks and ongoing dividend growth. At a P/E of less than nine, the shares represent compelling value in an expensive market.

BP (BP.N)
With the Macondo accident behind it, BP is the cheapest of the integrated oil and gas sector. The company has returned to profitability, and earnings and cash flow are on the rise. BP has reduced its cost structure, and its 6.8 per cent dividend is sustainable at current commodity prices. Management has done a good job repositioning the asset base, finances are solid, and growth has returned.

TAKASAGO INTERNATIONAL CORP.  (4914 – TOKYO STOCK EXCHANGE)
Takasago is a Japanese producer of flavours, fragrances, aroma ingredients and fine chemicals. Management has successfully focused on international expansion, which is driving revenue and earnings growth. The company has significant operations in Asia, the U.S. and Europe, and is increasing market share in a growing industry. The shares are trading at a P/E of only 13, with double-digit earnings growth and a discount to tangible book value, offering significant upside for a this world class company.
 

PAST PICKS: MAY 19, 2016

ROYAL DUTCH SHELL (RDSb.N)

• Then: $49.82
• Now: $58.32
• Return: 17.06%
• TR: 23.30%

AEGON N.V. (AEG.N)

• Then: $5.00
• Now: $5.02
• Return: 0.50%
• TR: 7.29%

RIKEN KEIKI (7734.JP)

• Then: ¥1,120
• Now: ¥1,872
• Return: 67.14%
• TR: 69.94%

TOTAL RETURN AVERAGE: 33.51%