Aug 8, 2016

Lorne Steinberg's Top Picks: August 8, 2016

BNN Bloomberg

Lorne Steinberg , BNN

Lorne Steinberg, President, Lorne Steinberg Wealth Management

FOCUS: Value Stocks & High-Yield Bonds

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MARKET OUTLOOK:

Zero interest rate policy is impacting equity markets, as corporate earnings have declined while equity markets have been stable. Therefore valuations are getting expensive, as evidenced by the S&P500 P/E ratio of 20. The utilities, pipeline and consumer sectors are over-valued as investors are paying hefty valuations for stable dividend paying companies. Central banks are in no hurry to raise rates, and bond yields keep declining, but these yields are not sustainable. More than ever, investors need to focus on value. Buying indices is a losing strategy in this market.

Top Picks:

Goldman Sachs (GS.N)

With global investment banks reducing exposure to proprietary trading and related businesses, Goldman Sachs stands out as remaining committed to these areas. Reduced competition will lead to expanding margins which should drive earnings growth, over the next few years, despite the difficult low interest rate environment. Goldman Sachs is a global market leader whose shares are on sale.

Most recent purchase: July 7, 2016 at $147.50

Koninklijke Philips N.V. ADR (PHG.N)

Philips recently completed an IPO of its lighting business, and is showing impressive growth in its health technology business. Margins are rising and revenues are growing, which should lead to healthy earnings improvement. We anticipate EPS growth of 15 per cent in each of the next 3 years, which suggests that these shares are very cheap. The dividend yield is 3.2 per cent.

Most recent purchase: July 12, 2016 at $25.43

KOA Corporation (6999.TSE)

KOA is a 75 year-old Japanese company which manufactures specialized resistors, sensors and other electronic components for a variety of industries including the telecommunications, auto and energy efficiency sectors. The company is global, and is a leader in its niches. The shares offer outstanding value, trading at less than working capital, a 50 per cent discount to tangible book value with a 3.5 per cent dividend yield. The company is generating excellent cash flow, and earnings will benefit if the yen weakens.

Most recent purchase: July 9, 2016 at 789 YEN

Disclosute	Personal	Family	Portfolio/Fund
GS	Y	Y	Y
PHG	Y	Y	Y
6999	Y	Y	Y

Past Picks: October 5, 2015

Cisco Systems (CSCO.O)

Then: $26.85
Now: $31.01
Return: +15.49%
TR: +18.57%

Corning (GLW.N)

Then: $17.64
Now: $22.80
Return: +29.25%
TR: +31.92%

ING Groep (ING.N)

Then: $14.78
Now: $11.78
Return: -20.30%
TR: -17.27%

Total Return Average: +11.07%

Disclosute	Personal	Family	Portfolio/Fund
CSCO	Y	Y	Y
GLW	Y	Y	Y
ING	Y	Y	Y

STEINBERG GLOBAL VALUE EQUITY FUND

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 country. With a global value focus, the fund seeks the best values wherever they may be.

Performance as of: July 31, 2016

1 month: Fund 5.2%, Index* 4.7%

1 year: Fund -0.6%, Index* -4.6%

3 year: Fund 8.9%, Index* 8.8%

* Index: 50% EAFE, 20% S&P500, 20% TSX, 10% EM

*Returns are based on reinvested dividends. Returns are net of fees

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