David Driscoll, president and CEO of Liberty International Investment Management Inc.
Focus: Global equities

MARKET OUTLOOK

In the fourth quarter of 2018, the market gave a wakeup call for investors. Stocks were overvalued and at an earnings peak, leaving investors to lick their wounds when their stocks got pounded. The lesson is that it didn’t need to happen if they took the appropriate steps to diversify their portfolios and hold some cash. Our all-equity clients, who were with us for the entire year, made 4 to 8 per cent depending on their circumstances.

Meantime, because we saw this as a correction and not investor capitulation, we believe that nothing has changed. For the market to continue higher, earnings growth is going to have to be as strong in 2019 as last year. Unfortunately, we don’t see that happening. When second-quarter earnings are announced by July, the benefit of U.S. tax cuts will disappear and company growth will be dependent on global GDP growth, which is already in decline. As a result, an earnings slowdown could keep the markets under wrap for 2019. More is explained in our upcoming newsletter, available on our website.

We continue to hold 20 per cent cash times the equity weight in portfolios and have no desire to sell our securities, as the average dividend growth rate is around 14 per cent.

TOP PICKS

DANAHER (DHR.N)
Last purchase was Jan. 7, 2019 at $101.46.

Danaher is a conglomerate of companies in the medical sciences, water management, dental and industrial technologies segments. Its businesses offer solid growth and the company has a penchant for finding reasonable acquisitions to grow their business both organically and through M&A activity. Expected revenue growth is 5 per cent organic to 2020, the dividend has been rising between 10 and 15 per cent a year and its debt-to-cash flow is two times, leaving it with plenty of room to make acquisitions. It currently trades around 15 times 2021 expected earnings.

NV5 GLOBAL (NVEE.O)
Last purchase was Jan. 7, 2019 at $64.36.

It provides professional and technical engineering and consulting services. The company offers planning, design, consulting, inspection, field supervision and management oversight, servicing the construction, real estate and environmental industries. The stock dropped from a $96.70 high in November and currently trades at an expected 12 times earnings for 2021. It doesn’t pay a dividend and is part of our U.S.-only and small-cap portfolios.

TELEPERFORMANCE SA (TLPFY.PK)
Last purchase was Jan. 8 at €143.20.

This company operates call centres, conducts programs to attract new customers, offers customer services and technical support services, collects debts, offers market research services, conducts telemarketing and develops CRM software. We like Teleperformance as it has embraced the future of call centres using artificial intelligence. This improves services and reduces costs as companies worldwide (like the banks and telecoms) work to cut expenses. The company is scaling up, allowing it to generate better free cash flows. This has helped support a significant boost to its dividend payout (1.85 euros in 2018, up from 1.30 euros in 2017). It currently trades at 15 times 2021 earnings.

PAST PICKS:  DEC. 28, 2017

CN RAIL (CNR.TO)

CN trades at 14.3 times 2021 expected earnings. In the past five years, dividends have grown 16 per cent compounded annually. It has been a core holding of our portfolios since 1997.

• Then: $103.91
• Now: $109.00
• Return: 5%
• Total return: 7%

COGNEX (CGNX.O)

Like all technology stocks, Cognex has had a nasty drop of 40 per cent from its all-time high. Apple is its biggest customer and their stock performances have been similar. Cognex trades at 19.3 times 2021 expected earnings, with a bigger earnings pickup expected in 2020 and 2021 when the cycle should return in its favour. In the past five years, dividends have grown 10 per cent compounded annually. It has been a core holding since 2013.

• Then: $61.74
• Now: $42.00
• Return: -32%
• Total return: -32%

UNILEVER (UN.N)

Unilever continues to grow its business thanks to growth in market share and overseas (Asian sales to India and China amount to over 40 per cent of its revenues). Compared to its peers, it has been busy adapting to new tastes of Millennials and Gen-Xers in many of their products: They own Dollar Shave Club, Seventh Generation Diapers and recently offered a high-protein, probiotic dessert through its Culture Republick brand. It trades at 15.1 times 2021 expected earnings and the dividends in the past five years have risen 9 per cent. It has been a core holding since 1997.

• Then: $56.39
• Now: $52.95
• Return: -6%
• Total return: -3%

Total return average: -9%

WEBSITE: libertyiim.com