Lorne Steinberg, president of Lorne Steinberg Wealth Management
Focus: Global value stocks and high-yield bonds
MARKET OUTLOOK
The global economy is slowing, most notably in emerging markets such as China, India and South America. With interest rates at historic lows, further rate cuts will not have the same impact as with past slowdowns. At the same time, global debt is at record levels, implying that governments will have less room for fiscal stimulus. In a world of elevated asset prices, investors should focus on value – seeking out companies with strong balance sheets that are trading at reasonable prices. Buying growth stocks regardless of valuation will not prove to be a winning strategy as the economy slows.
TOP PICKS
CVS HEALTH (CVS:UN)
With its acquisition of Aetna, CVS is arguably the best-positioned company in the healthcare delivery industry. U.S. reimbursement models are evolving to value-based care and the company is leveraging its medical, pharmacy and lab data to deliver a lower cost and more effective model. CVS is using free cash flow to reduce debt from the Aetna purchase, but we expect dividend growth next year. At a price-to-earnings (P/E) ratio of 10, the shares offer compelling value in an expensive market.
GOLDMAN SACHS (GS:UN)
Goldman Sachs has been investing in a number of new initiatives (such as Marcus) which have negatively impacted return on equity in 2019, but which should boost returns going forward. The 1MDB issue remains a potential headwind, but free cash flow is strong and share buybacks should be substantial in 2020. The shares offer excellent value at a P/E of 10, a dividend yield of 2.2 per cent and growing dividends and earnings over the next few years.
TOPRE (5975 TYO)
Topre makes metal press forming products for the auto industry as well as refrigeration equipment for refrigerated trucks. The company has generated impressive revenue growth over the past five years and it is strong financially. This is another compelling Japanese investment. The shares trade at a P/E of 7, a 30 per cent discount to tangible book value, and offer a 3.3 per cent dividend yield.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CVS | Y | Y | Y |
| GS | Y | Y | Y |
| TOPRE | Y | Y | Y |
PAST PICKS: DEC. 5, 2018
ALLSTATE (ALL:UN)
- Then: $86.40
- Now: $109.65
- Return: 27%
- Total return: 29%
KONINKLIJKE PHILIPS (PHG:UN)
- Then: $37.84
- Now: $48.49
- Return: 28%
- Total return: 31%
ESPEC CORPORATION (6859 TYO)
- Then: ¥2021.00
- Now: ¥2232.00
- Return: 10%
- Total return: 14%
Total return average: 25%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ALL | Y | Y | Y |
| PHG | Y | Y | Y |
| ESPEC | Y | Y | Y |
TWITTER: @steinbergwealth
WEBSITE: www.steinbergwealth.com
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