Apr 21, 2020

Lorne Steinberg's Top Picks: April 21, 2020

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Lorne Steinberg's Top Picks

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Lorne Steinberg, president of Lorne Steinberg Wealth Management
Focus: Global value stocks and high-yield bonds

MARKET OUTLOOK

The extreme level of market volatility reflects the fact that no one has a good understanding as to when the global economy will return to some level of “normal.” We may indeed be on the verge of the worst recession since the 1930s. However, this time around, most governments and central banks have acted quickly to blunt the impact on society with massive fiscal and monetary stimulus.

Governments are paying people to stay at home by running record deficits. With long-term bond yields hovering around zero, and central banks providing an unlimited backstop, these deficits can be funded with minimal interest expense. When the COVID-19 situation is finally resolved, governments will have run up a mountain of debt, financed by central bank money printing. The impact of these policies on future inflation is a question mark.

Investors need to maintain a longer-term time horizon to successfully navigate the uncertainties. March provided opportunities to deploy cash. We expect plenty of bad economic news over the next few months, which may result in markets testing lows once again. Investors should remain patient and strike as opportunities present themselves. The focus should be on excellent companies that are financially strong enough to weather the storm.

TOP PICKS

Lorne Steinberg's Top Picks

Lorne Steinberg gives shares his top picks: Becton Dickinson, Disney and Unilever.

BECTON DICKINSON (BDX NYSE)

Becton, Dickinson is a global medical device company whose focus is on disposables and diagnostics. 90 per cent of its products are consumables, providing a recurring revenue stream. The company boasts a solid capital structure, strong free cash flow generation and we anticipate earnings growth of 8 to 10 per cent yearly for the next several years. These shares offer excellent value in a difficult environment.

WALT DISNEY (DIS NYSE)

Shares of Disney have taken a tumble, given its exposure to theme parks and film. However, at the current valuation investors have an opportunity to buy one of the world’s great companies on sale. The largest division is the media business, which includes ABC, ESPN and various other cable channels and content. In addition, Disney’s new streaming service is off to a very successful start, with over 50 million subscribers. This service is now being rolled out globally and will be a major contributor to earnings in the years ahead. Disney has unique content and distribution, and at the current price, investors are getting an excellent entry point.

THE UNILEVER GROUP (UN NYSE)

Unilever shares have fallen with the rest of the market and investors have the opportunity to buy one of the best consumer products companies at a price that offers a healthy dividend, steady growth and minimal impact from a weak economy. The company has a strong presence in emerging markets and a great line-up of global brands. Growth has slowed in several product lines, most notably tea, but we anticipate that some M&A activity will get the company back on a growth track. In the meantime, investors get a world-class company with a 3.5 per cent dividend, which should continue to grow.