Lorne Steinberg, president of Lorne Steinberg Wealth Management Inc.
Focus: Global value stocks and high-yield bonds
The investment landscape is rapidly changing. Over the past few years, low yields have resulted in elevated valuations, but rising bond yields and the prospect of Fed rate hikes suggest that low-growth sectors such as utilities, telcos and pipelines are vulnerable.
The strengthening U.S. dollar will negatively impact U.S. corporate earnings, and investors would be wise to focus on undervalued sectors such as technology, as well as diversifying into Japan and Europe, both of which will benefit from currency weakness.
CISCO SYSTEMS (CSCO.O)
Cisco has maintained its global leadership position in its communications technology businesses over its long history. The shares offer compelling value, trading at a cash-adjusted P/E of 10, a 3.5 per cent dividend, and enough free cash flow to support double-digit dividend increases, acquisitions and share buybacks for years to come.
ING GROEP NV (ING.N)
ING is a major retail bank in the Netherlands and Belgium. It has none of the problems that are impacting the rest of the European banking sector. It is well capitalized, is experiencing strong earnings growth, and the dividend yield of 5.5 per cent should grow with earnings over the next three years. The shares trade at less than tangible book value, with a P/E of 10, and are worth substantially more. As with the rest of the sector, ING will benefit from the steepening yield curve.
AIDA ENGINEERING (6118.JP – TOKYO STOCK EXCHANGE)
Aida Engineering is a market leader in specialized metal press machines and industrial robots that are used in the manufacturing of autos and electronics. The company is a beneficiary of increased automation processes used by these manufacturers. With its large cash position, investors can buy these shares at less than 10 times earnings and a discount to tangible book value. We expect these shares to double over the next three to five years.
PAST PICKS: JANUARY 12 2016
TOTAL S.A. (TOT.N) – Share price is up 13.7 per cent + five per cent dividend = 18.7 per cent
We continue to hold Total. The dividend is secure and the shares offer significant value, even at current commodity prices. With most of the sector in survival mode, Total has the capacity to acquire properties at very cheap prices, which should result in value creation for shareholders.
- Then: $40.88
- Now: $46.44
- Return: +13.60%
- TR: +18.61%
MORGAN STANLEY (MS.N) – Share price is up 44 per cent
We continue to hold Morgan Stanley. It is benefitting from higher bond yields and the possibility of a less restrictive regulatory environment in the U.S. The company has done an excellent job of building its wealth management business, which is generating significant earnings growth.
- Then: $28.46
- Now: $41.04
- Return: +44.20%
- TR: +47.71%
CAMELLIA PLC (CAM.L) – Share price down 1.6 per cent
Camellia continues to offer excellent value; it trades for a 50 per cent discount to its intrinsic value. It has world -class agricultural assets in India, Africa and elsewhere, and has a 40-year track record of raising dividends, supported by strong cash flow.
- Then: 9325 GBP
- Now: 9300 GBP
- Return: +0.26%
- TR: +1.32%
TOTAL RETURN AVERAGE: +22.54%
FUND PROFILE: STEINBERG GLOBAL VALUE EQUITY FUND
The Steinberg Global Value Equity Fund is focused on investing in companies which trade at a steep discount to their intrinsic value. These companies must meet stringent investment criteria both quantitative and qualitative including financial strength, a good track record and corporate governance. The fund is well diversified, and risk-management criteria include diversification by industry and geography. With a global value focus, the fund seeks the best values wherever they may be.
PERFORMANCE AS OF OCTOBER 31, 2016:
- 1 month: Fund 2.6%, Index* 1.6%
- 1 year: Fund 5.5%, Index* 3.2%
- 3 years: Fund 8.2%, Index* 7.2%
* Index: 33 per cent S&P500, 34 per cent EAFE, 33 per cent TSX
* Returns are based on reinvested dividends.
* Returns are net of fees.
TOP HOLDINGS AND WEIGHTINGS
- Morgan Stanley: 2.8%
- Manulife: 2.5%
- Corning: 2.2%
- EI Dupont de Nemours: 2.1%
- Microsoft: 2.1%