Lorne Steinberg's Market Outlook
Lorne Steinberg, president at Lorne Steinberg Wealth Management
Focus: Global value stocks and high yield bonds
The global economy is heating up, driven by a rebound in consumer spending and ongoing government stimulus. When markets are rising, Wall Street tends to focus on the positives, and that is certainly the case today. Despite the recent uptick in inflation, Wall Street is betting that bond yields will remain low.
Such a scenario would provide the perfect backdrop for equities to climb higher, as corporate earnings rebound closer to 2019 levels.
If investment analysts were meteorologists, rain would never be in the forecast.
Bull markets always lead to excesses, and an increasing number of stocks are trading at prices that assume a growth trajectory that defies logic. The stage is being set for central banks to reduce monetary stimulus, which will result in volatile markets and impact the pricier sectors of the market most of all.
Diageo (DEO NYSE)
Diageo is the world’s largest spirits producer with such leading brands as Smirnoff vodka, Johnnie Walker whiskey and Guinness. The company has unparalleled distribution and is focused on increasing its exposure to premium brands. Organic revenue should grow in the four to five per cent range, while margins should gradually increase. Free cash flow is funding dividend growth and share buybacks. Investors have an opportunity to buy a great business at a price which offers attractive upside.
Kirin Holdings (2503 TYO)
Kirin is best known as the second largest beer company in Japan, but it also produces domestic spirits and non-alcoholic beverages. The company owns substantial stakes in two Japanese public companies (pharmaceuticals and cosmetics/dietary supplements). These latter two holdings account for about 2/3 of the share price, so one is buying the beer/beverage business for a very cheap multiple. The company has been using free cash flow to buy back shares and raise dividends. At the current price, investors should receive an excellent return over the next several years.
Tractor Supply is the largest U.S. rural lifestyle retailer, selling a wide variety of merchandise for livestock, pets, hardware, and seasonal goods. This company has an outstanding track record of organic growth, consistently increasing revenues and earnings. Free cash flow has been used to fund growth as well as increasing dividends and buying back shares. This is a gem of a business with a great brand name, whose shares offer outstanding long-term growth prospects, while trading for an attractive price.
PAST PICKS: July 22, 2020
Berkshire Hathaway Class B (BRK/B NYSE)
- Then: $192.10
- Now: $280.38
- Return: 46%
- Total Return: 46%
Danone SA (BN EPA)
- Then: €60.08
- Now: €56.73
- Return: -6%
- Total Return: -2%
ING Groep (ING NYSE)
- Then: $7.47
- Now: $12.74
- Return: 71%
- Total Return: 73%
Total Return Average: 39%