Lorne Steinberg, president of Lorne Steinberg Wealth Management
FOCUS: Global value stocks and high yield bonds
_______________________________________________________________

MARKET OUTLOOK

Markets have rallied since the U.S. election, despite rising interest rates in North America, weak commodity prices and various geopolitical issues. Why? The global economy is growing at a reasonable rate, which benefits corporate earnings. Also, investors are anticipating significant tax cuts, stimulus spending and relaxed regulatory oversight in the U.S., all of which would benefit investors.

However, since the financial crisis, low interest rates have been a major factor in driving up valuations of most asset classes including equities, bonds and real estate. With interest rate policy reversing course, investors should prepare for a revaluation of asset prices and build a cash reserve.


TOP PICKS

AEGON NV (AEG.N)
Aegon is a Netherlands-based life insurance company with a significant U.S. presence through its Transamerica Life unit. The company has been consistently profitable, is well capitalized and maintains strong market share in its major markets. Earnings and cash flow are growing, and the 5.5 per cent dividend is secure. The insurance sector will be a major beneficiary of rising interest rates, and Aegon is extremely well-positioned.  The shares trade at a steep 50 per cent discount to tangible book value and a P/E of less than 8. This stock is a compelling value in an expensive market.

SUN LIFE FINANCIAL (SLF.TO)
Sun Life is one of the few life insurers that was unscathed by the financial crisis. Management is executing well, there is general improvement in all geographies, and earnings are growing in spite of low interest rates. Rising rates will provide a boost to the industry, and Sun Life will benefit - but even without higher rates, these shares boast a 3.7 per cent dividend yield, a cheap valuation with a P/E of 11, and excess capital. Given the strong capital position, there is room for dividend growth, strategic acquisitions and share buybacks at an attractive price. 

NIPPON ANTENNA (6930.JSD)
Nippon Antenna is a Japanese producer of a wide range of antennas, including those for smart devices and security equipment. The company is over 60 years old, and has evolved into a technologically advanced company. As with so many under-followed Japanese companies that we have owned, the share price is actually lower than the amount of net cash that the company holds, after subtracting all liabilities! An investor in these shares is buying the cash at a discount, and getting this profitable, dividend paying business for free. The dividend yield is 3.5 per cent, and our estimated breakup value is triple the current share price.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
AEG Y Y Y
SLF Y Y Y
6930 Y Y Y


PAST PICKS:  AUGUST 8, 2016

GOLDMAN SACHS (GS.N)
Goldman Sachs is benefitting from its strong presence as the premiere global investment bank in an improving economy. Also, with many of its competitors reducing exposure to trading, Goldman has less competition and is extremely well-positioned. Plenty of upside still left in these shares.

  • Then: $162.83
  • Now: $215.36
  • Return: 32.26%
  • Total return: 34.44%

KONINKLIJKE PHILIPS N.V. ADR (PHG.N)
Philips has transitioned to a healthcare technology company after spinning off its lighting business, and after a lengthy restructuring, has returned to growth mode.  Earnings and cash flow are on the rise, and the company has a slew of new products coming to market which bodes well for ongoing growth.

  • Then: $26.85
  • Now: $39.85
  • Return: 48.43%
  • Total return: 52.17%

KOA CORPORATION (6999.TSE)
KOA has had strong growth over the past year, but we expect that earnings will double over the next four years, which makes these shares attractive at the current price.

  • Then: ¥803.00
  • Now: ¥1,941.00
  • Return: 141.71%
  • Total return: 148.05%

 TOTAL RETURN AVERAGE: 78.22%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
 GS Y Y Y
 PHG Y Y Y
 6999 Y Y Y


FUND PROFILE

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.

1 Month: 1.8% fund, 0% index
1 Year: 19.1% fund, 8.2% index
3 Year: 7.9% fund, 4.1% index

*Index: 30% TSX, 20% S&P500, 40% EAFE Value, 10% MSCI World
*Returns are net of fees

TOP HOLDINGS AND WEIGHTINGS

Morgan Stanley - 2.25%
Hosiden Corporation - 2.24%
Manulife Financial - 2.04%
Philips - 1.92%
Corning - 1.91%

TWITTER: @steinbergwealth
WEBSITE: www.steinbergwealth.com