Apr 9, 2018

Lorne Steinberg's Top Picks: April 9, 2018

BNN Bloomberg

Lorne Steinberg , BNN

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

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MARKET OUTLOOK

The threat of trade wars combined with rising interest rates is causing increased market volatility. Increased tariffs would slow global economic growth, and cause disruption for various industries and consumers. If companies are worried about possible tariffs, they won’t be willing to make long-term investments. That’s why most business groups are lobbying for continuation of reduced tariff policies. If the rhetoric continues, this issue will continue to influence investors.

Interest rates are another matter. Thus far, the Fed has been raising rates at a measured pace. But with the current strong jobs market, an uptick in inflation could cause the Fed to raise rates faster than anticipated, which would most certainly cause pain for investors. Stock market valuations aren’t cheap. It’s no coincidence that some of the best performers have been the most negatively impacted during the current market weakness. Investors should be very focused on owning that which offers compelling value, and maintaining a reasonable cash position to take advantage, if opportunities present themselves.

TOP PICKS

GOLDMAN SACHS (GS.N)

Goldman Sachs is the best managed global investment bank and it’s extremely well positioned to benefit from global volatility and rising interest rates. The shares trade at a modest price-to-earnings ratio (P/E) of 12, and the company is using its financial strength to aggressively buy back shares and raise dividends.

CISCO SYSTEMS (CSCO.O)

Cisco has consistently remained a “best-in-class” company and a leader in its major markets, while delivering strong free cash flow. The company maintains its large cash balance, allowing it to make strategic acquisitions, buy back shares and raise the dividend. Net of its cash, the valuation is compelling at about 13 times earnings, with double-digit dividend growth expected for years to come.

NIPPON PILLAR PACKING (6490.TYO)

Nippon Pillar Packing is a specialty manufacturer of fluid-control-related equipment. Its products are used in a wide range of industries, including semiconductor and LCD manufacturing. The company has successfully evolved over its 90-year history, and its recent growth is impressive. Earnings and revenues have been growing at over 10 per cent annually over the past five years, yet the shares trade for less than tangible book value, and at a P/E of 11 – extraordinary value!

DISCLOSURE	PERSONAL	FAMILY	PORTFOLIO/FUND
GS	Y	Y	Y
CSCO	Y	Y	Y
6490	Y	Y	Y

PAST PICKS: MAY 16, 2017

XEROX (XRX.N)
1-for-4 stock split in June 15, 2017.

Xerox is merging with joint venture partner Fuji Xerox. Xerox shareholders will receive $9.80 per share plus 49.9 per cent of the combined company.

Then: $7.14
Now: $27.53
Return: -4%
Total return: -0.4%

BP PLC (BP.N)

Despite the recent volatility in oil prices, BP remains a core holding with a 5.5 per cent dividend and increased free cash flow. The company is solidly profitable at $50 oil prices.

Then: $36.24
Now: $41.66
Return: 15%
Total return: 20%

TAKASAGO INTERNATIONAL (4914.TYO)

Takasago’s international growth remains a major driver, but recent quarterly earnings were negatively impacted by the strong yen. We expect strong earnings growth over the next several years.

Then: ¥4010
Now: ¥3405
Return: -15%
Total return: -14%

Total return average: 2%

DISCLOSURE	PERSONAL	FAMILY	PORTFOLIO/FUND
XRX	Y	Y	Y
BP	Y	Y	Y
4914	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 include diversification by industry and geography. With a global value focus, the fund seeks the best values wherever they may be.

Performance as of: March 31, 2018