Full episode: Market Call for Tuesday, November 28, 2017
Lorne Steinberg, President, Lorne Steinberg Wealth Management
FOCUS: Global Value Stocks and High Yield Bonds
Global stock markets have continued to advance, supported by low interest rates and economic growth. However, looking forward, there are reasons for concern. We are in the early stages of a rising interest rate cycle, while global debt remains elevated. This has negative implications for consumer spending and general economic growth.
Also, market valuations are somewhat stretched, as corporate earnings growth is not keeping pace with stock prices, and the S&P500 dividend yield has fallen below two per cent. Investors should remember that markets never remain expensive forever, so prudent investors will maintain a reasonable cash position in order to take advantage of an inevitable correction. Patience always wins.
Alcoa is extremely well-positioned to benefit from rising aluminum prices. Aluminum is a growth metal, gaining market share in auto and aircraft production due to its light weight and high strength qualities. After its recent spinoff, this company is a low-cost producer, with minimal debt and strong cash generation. The shares offer excellent value, trading at only 7x free cash flow, and we anticipate earnings growth of over 20 per cent in 2018, with continued growth over the next several years.
ING GROEP (ING.N)
ING has emerged as one of the best run retail European banks following the financial crisis. This bank is well-capitalized and is delivering solid earnings growth investing in its core businesses, while paying a 4.2 per cent dividend. We anticipate earnings growth of 10 per cent, with ongoing dividend growth as Europe’s economy continues to recover.
FUTABA CORP. (6986.TYO)
Futaba is a Japanese manufacturer of highly specialized electronic components including VFDs, touch panel displays and robotic parts. This company is well-positioned for the revolution in manufacturing automation in the years ahead. The company’s cash position accounts for half of the share price, and with earnings rebounding after a transition year, these shares offer compelling value.
PAST PICKS: AUGUST 8, 2016
GOLDMAN SACHS (GS.N)
Goldman Sachs is benefiting from rising interest rates, an improved trading environment and U.S. regulatory changes. It is the premier global investment bank, trading at a modest valuation, offering plenty of upside.
- Then: US$167.83
- Now: US$234.69
- Return: 44.13%
- Total return: 46.50%
KONINKLIJKE PHILIPS (PHG.N)
After a years-long restructuring, Philips has emerged as a global leader in health care technology. Earnings are expected to grow another 25 per cent in 2018 and the company has a healthy pipeline of new products.
- Then: US$26.85
- Now: US$38.94
- Return: 45.02%
- Total return: 48.68%
KOA CORPORATION (6999.TYO)
This manufacturer of electronic components is truly a Japanese earnings growth stock, trading at a very cheap valuation. Earnings are growing at over 15 per cent per year, as margins are expanding and the company is growing its international business.
- Then: ¥803.00
- Now: ¥2,297.00
- Return: 186.05%
- Total return: 195.68%
TOTAL RETURN AVERAGE: 96.95%
Steinberg Global Value Equity Fund
The Steinberg Global Value Equity Fund is a deep value global equity fund 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, track record and corporate governance. The fund is well-diversified, and risk management criteria includes 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, 2017
1 Month: 4.3% fund, 4.3% index
1 Year: 21.8% fund, 13.7% index
3 Year: 10.5% fund, 7.6% index
*Index: 30% S&P/TSX, 20% S&P 500, 50% EAFE
*Returns are based on reinvested dividends, net of fees
TOP HOLDINGS AND WEIGHTINGS
- Morgan Stanley: 2.3%
- Hosiden: 2.1%
- Microsoft: 2.0%
- Philips NV: 2.0%
- Manulife: 2.0%