David Driscoll, president and CEO at Liberty International Investment Management

Focus: Global equities

MARKET OUTLOOK

There’s lots of noise out there that can leave an investor unsure of what to do. According to billionaire investor Leon Cooperman, he believes the stock market is in a “zone of fair value” at current levels. He warned that a big move higher in stocks could signal the “close-out move”, meaning the end of the recent bullish run that we’ve seen since December. On the other hand, the U.S. Federal Reserve is expected to cut rates in July, meaning the market could rally further as bond yields would no longer be deemed a competitor to stocks.

On the other hand, it’s more than the stock market that’s been rising. The total return indexes for U.S. investment-grade corporate bonds, high-yield, sovereign and quasi-sovereign debt has risen to record levels and for the first time since July, 2016 all these asset classes have traded at their peaks simultaneously. However the need to cut interest rates signals a slowing in global growth and unfortunately investors can’t have it both ways.

If the yield curve stays flat or inverted because of weak GDP growth, corporate profits will suffer, turning what’s deemed to be a market trading at historical levels to one that will reflect valuations that are too high. Remember, when a recession comes, stock markets can drop from 20 per cent to 40 per cent fairly quickly.

As a result, the most important thing for investors is to stay focused on the structure in their portfolios. Hold some cash to take advantage of opportunities and make sure to be diversified by country, industry and size of company. If the pain caused by lower stock and bond markets appears, that pain won’t be as bad for those who have a proper plan in place.

TOP PICKS

ALFA LAVAL (ALFVY.PK)

Last purchase was on January 17, 2019 at 196.95 SEK.

ALFA provides specialized products and engineering solutions. The company’s product line includes equipment and systems for heating, cooling, separation and the transportation of products such as oil, water, chemicals, beverages, starch, foodstuffs and pharmaceuticals. About half of their sales go to Asia and if the U.S. dollar continues its slide, demand from emerging markets may pick up.

From a valuation standpoint, the company trades at 15 times 2021 earnings, the dividend yields 2.39 per cent and was raised 17 per cent this past year. They have a strong return on invested capital (ROIC) of 15 per cent and little debt. The debt-to-cash flow ratio is 1.28. Anything under 2.0 is desired.

LOGITECH INTERNATIONAL SA (LOGI.O)

Last purchase was June 12, 2019 at 37.78 CHF on the SIX Swiss Exchange.

Logitech makes computer mice, trackballs, game controllers, keyboards, PC video cameras and multimedia speakers. There are three major global trends driving their business. First, the cloud is making offices video enabled. Second, PC game play is destined to become one of the biggest sports or hobbies. The third trend is the explosion of content creators. Today, more people are watching content created by other people than any time in human history, so the demand for computer devices remains high.

Return on invested capital is 23 per cent and the cost of its capital is only 11 per cent, leading to tremendous free-cash flow growth. They have no debt and the dividend has historically risen by 10 per cent annually. 50 per cent of their sales are to emerging markets so if those markets recover, Logitech’s profits should continue to grow. It’s currently trading at 15 times 2021 earnings.

KINGSPAN GROUP (KGSPY.PK)

Last purchase was June 12th at 46.84 EUR.

Kingspan Group is the world leader in high-performance insulation and pan building envelopes, with innovative products around thermal and fire protection. They are also helping out the global plastic problem by recycling them in their insulation. Uses of such high-performance materials are at relatively low-levels in emerging markets. As a result, they are now in India with the establishment of Kingspan Jindal. The dividend has grown by double-digits historically. Debt-to-cash flow is 1.59 times and return on invested capital is 15.6 per cent. The stock is a bit expensive today, so if investors want to buy it, they should do just half positions today and then buy more on any weakness.

PAST PICKS: Aug. 17, 2018

NUTRIEN (NTR.TO) 

• Then: $73.11
• Now: $72.32
• Return: -1%
• Total return: 1%

SPECTRIS PLC (SEPJY.PK)

• Then: £2305.00
• Now: £2784.00
• Return:  21%
• Total return: 24 %

STRYKER (SYK.N)

• Then: $169.98
• Now: $202.72
• Return: 19%
• Total return: 20%

Total return average: 15%

WEBSITE: www.libertyiim.com