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

MARKET OUTLOOK

Volatile markets can cause investors to focus too much on daily price movements instead of on fundamentals. The reality is that global interest rates are rising, economic growth is decelerating and all of this will eventually have some impact on corporate profits.

The issue is not if there will be a recession, but when. Regardless of timing, the companies that should outperform in this environment are those which are financially strong, can generate increasing earnings and, most importantly, are trading at attractive valuations.

TOP PICKS

CISCO SYSTEMS (CSCO.O)

Cisco has continued to successfully evolve its product offering away from simply hardware toward an increasing mix of software and services. The result is that the company remains a leader in its major businesses, while the revenue line is back in growth mode. Cisco has used its significant free cash flow to buy back shares and increase dividends. We expect double-digit annualized dividend growth to continue.

AEGON (AEG.N)

Aegon is a Netherlands-based life insurance company with half of its operations in the U.S. It has been a consistent dividend grower and will benefit from rising interest rates. The shares are trading at a steep discount to tangible book value and offer a dividend yield of over 6 per cent. The stock is compelling at the current price.

TAKASAGO INTERNATIONAL (4914 TYO)

Takasago develops and sells flavours and fragrances to an increasingly international client base (international sales now account for half of the business). This Japanese company has successfully been able to grow revenues while increasing its margins. It has used free cash flow to increase dividends and invest in ongoing growth initiatives. At a price-to-earnings of 9, these shares present excellent value.

PAST PICKS: JAN. 30, 2018

ARCONIC (ARNC.N)

Arconic reportedly turned down a bid for over $22 per share as the company is at an inflection point, with earnings and free cash flow on the rise. Patient investors will be rewarded.

• Then: $29.92
• Now: $18.80
• Return: -37%
• Total return: -36%

CORNING (GLW.N)

Corning continues to execute well in all divisions and has been rewarding investors with significant share buybacks and dividend increases, both of which should continue in 2019.

• Then: $32.33
• Now: $33.31
• Return: 3%
• Total return: 6%

YODOGAWA STEEL (5451 TYO)

Shares are down mostly due to trade fears and the flow of funds into the U.S. dollar. The shares are actually trading for less than the company’s net working capital, thus placing zero value on the company’s actual business.

• Then: ¥3,405.00
• Now: ¥2,212.00
• Return: -35%
• Total return: -33%

Total return average: -21%

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