John Kim, portfolio manager at Aston Hill Financial

Focus: North American equities
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MARKET OUTLOOK
The market is in a period of uncertainty due to the U.S. presidential election and the question of whether or not the Federal Reserve will raise rates by end of 2016 and how this decision will impact the economy. We are also in earnings season, and although companies are generally beating much lowered expectations, top-line growth is still anemic. Markets are doing a seesaw pattern, going up one day and down the next. This chop has been going on since July. I think once the election is over, we will get a better picture on where the market is headed. But I believe 2017 will be okay and that the market will climb and come up on top of the wall of worry.

TOP PICKS

FIRST DATA CORP (FDC.N)
This is a merchant payment processing company that came out of private equity one year ago. It is in a sector undergoing structural growth as U.S. consumers migrate from cash and cheques to debit and credit transactions. The company has restructured its balance sheet to lower debt service cost and is using its high free cash flow generation to pay down debt. Also, it is re-investing in R&D again (which it curtailed during PE years) and fruits of this should start to appear next year. Its valuation is also much lower than its peer group. The stock recently came under pressure after it was announced that a large shareholder was being investigated for insider trading in an unrelated company.

MELLANOX TECHNOLOGIES, LTD. (MLNX.O)
This is a leading technology company that develops interconnect products to connect servers, storage, data centres, etc. There is a big migration to increased interconnect speeds with the massive growth in data consumption (video streaming, for example). Valuation is low compared to other high-growth companies, trading at seven per cent free cash flow yield and less than 11X 2017 with earnings growing 15 per cent to 20 per cent.

GENWORTH MI CANADA (MIC.TO)
Genworth is the second largest Canadian mortgage insurer after CMHC. The stock got hit after the Canadian government brought in new mortgage rules. Investors’ fear that the new rules will burst the housing bubble and that home prices and the number of transactions will dramatically decrease. However, we don’t think there will be a housing crash. We do think the number of transactions will slow but that there is now less risk to MIC; risk-reward is pretty good. Plus, you get almost six per cent dividend yield.
 

PAST PICKS: AUGUST 22, 2016

FIRST DATA CORP (FDC.N)

• Then: $13.36
• Now: $13.99
• Return: 4.71%
• TR: 4.71%

XPO LOGISTICS (XPO.N)

• Then: $36.46
• Now: $32.93
• Return: -9.68%
• TR: -9.68%

BADGER DAYLIGHTING (BAD.TO)

• Then: $26.65
• Now: $28.98
• Return: 8.74%
• TR: 9.12%

TOTAL RETURN AVERAGE: +1.38%
 

WEBSITE: www.astonhill.ca