Full episode: Market Call for Tuesday, January 30, 2018
Lorne Steinberg, president of Lorne Steinberg Wealth Management
Focus: Global value stocks and high-yield bonds
As the bull market enters its ninth year, optimism abounds. The global economy is growing at a healthy pace, corporate earnings are rising due in part to U.S. tax cuts, and the unemployment rate continues to decline.
However, there are reasons to be cautious. Valuations remain above long-term averages, as low interest rates have encouraged investors to buy stocks. But we’re in the early stages of a rising interest rate cycle and bond yields have moved up sharply over the past few months. The S&P 500 dividend yield has fallen below two per cent and is now lower than the yield on two-year U.S. Treasuries. We expect the Fed to raise rates several times in 2018, which suggests that investors take some profits and build a cash reserve.
Arconic was spun off from Alcoa in 2016. It’s a global leader in engineered aluminum and related products for the aerospace, transportation and oil and gas industries. We expect earnings growth of 25 per cent per year for the next three years, with growing free cash flow. At the current valuation, Arconic shares offer significant upside.
Corning has evolved into a specialized manufacturer of display and optical technology equipment. The company has used its strong cash flow to make a number of acquisitions which are driving growth, and earnings should continue to rise in excess of 10 per cent over the next few years. We expect ongoing share buybacks and dividend increases as well, which suggests that shareholders will be rewarded.
YODOGAWA STEEL (5451 on the Tokyo Stock Exchange)
Yodogawa Steel is a diversified steel manufacturer in Japan and it has used its financial strength to grow its business while remaining debt-free. It’s trading at a steep discount to tangible book value, and cash accounts for over one-third of the share price! The company is well positioned to benefit from the strong global economy and earnings could double over the next five years. At the current price, these shares are compelling.
PAST PICKS: NOVEMBER 24, 2016
U.S. Thanksgiving, numbers are from Nov. 23rd close.
CISCO SYSTEMS (CSCO.O)
Cisco is successfully transitioning its business away from commodity telecom products to a value-added solutions provider while remaining a leader in its major markets.
- Then: $29.71
- Now: $42.14
- Return: 41.83%
- Total return: 48.00%
ING GROEP (ING.N)
ING is delivering a solid earnings growth and benefitting from an economic improvement in Europe. Earnings are growing, its financial position is strong and shares remain attractive.
- Then: $13.50
- Now: $19.96
- Return: 47.85%
- Total return: 54.41%
AIDA ENGINEERING (6118.TYO)
Aida is poised to generate significant earnings and dividend growth over the next few years. Another undervalued Japanese company.
- Then: ¥1,014
- Now: ¥1,522
- Return: 50.09%
- Total Return: 55.95%
TOTAL RETURN AVERAGE: 52.78%
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 includes diversification by industry and geography. With a global value focus, the fund seeks the best values wherever they may be.
Steinberg Global Value Equity Fund
Performance as of Dec. 31, 2017
- 1 Month: -0.4% fund, -0.5% index
- 1 Year: 18.9% fund, 12.6% index
- 3 Year: 10.5% fund, 9.7% index
* Index: 30% S&P/TSX, 20% S&P500, 50% EAFE
* Fund’s returns are based on reinvested dividends and are net of fees
TOP 5 HOLDINGS AND WEIGHTINGS
- Morgan Stanley: 2.6%
- Hirano Tecseed: 2.4%
- Manulife: 2.3%
- Microsoft: 2.2%
- Corning: 2.2%