MARKET OUTLOOK

Markets are disconnected from the economy at present, reflecting both massive monetary and fiscal stimulus, as well as investor sentiment that there will be a medical solution (treatment or vaccine) to the COVID-19 crisis within 6 -12 months. Corporate and wage support policies are supporting the economy in the interim, as governments are now focused on restarting the economy.

This record deficit spending is being financed with money printing by central banks at levels never seen before. With interest rates near-zero, the interest cost is minimal. Policy makers hope that the global economy will rebound without elevated inflation, so that stimulus can gradually be withdrawn without any major shocks to the system.

The reality is that no one understands the impact of this level of deficit spending, and what the ultimate effects may be.  However, it is equally true that governments have no alternative to supporting those who have lost their jobs until things improve.

In this environment, investors should take advantage of the recent rally to build some liquidity, and focus their investments on those companies that are financially solid.

TOP PICKS

Lorne Steinberg's Top Picks

Lorne Steinberg, president, Lorne Steinberg Wealth Management discusses his Top Picks: Discovery Inc, Visa and Espec

Discovery Inc. (DISCA NASD)

Discovery owns a number of television networks including HGTV, Food Network and TLC. It operates in the U.S. and internationally. The company remains solidly profitable and generates significant free cash flow.  After a recent large acquisition, cash will be used to reduce debt. At the current share price, the shares trade at a compelling valuation of only 7 times free cash flow, which leaves ample room for share buybacks and investment.

VISA (V NYSE)

Visa is thought of as a credit card company, but it is actually a payments technology company, facilitating transactions for consumers, merchants and financial institutions. Visa is a beneficiary of the evolution of payments away from cash. The company remains on a growth trajectory in its major markets, and although revenues will be somewhat impacted in the current environment, the long-term outlook remains very attractive. The free cash flow growth, and global expansion make these shares an excellent investment.

Espec  (6859 TYO)

Espec is another Japanese gem of a company. It is the market leader in test chambers for use in manufacturers’ laboratories as well as related products. The company has been experiencing steady growth, with consistent margins and free cash flow. Like so many Japanese companies, it has no debt – a great attribute during times of uncertainty. This has also become a great dividend stock, and now boasts a 3.9% dividend yield, and earnings and dividends should continue to grow. At the present valuation of a P/E of 14, the shares offer considerable upside.

Disclosure Personal Family Portfolio/Fund
Discovery inc. Y  Y Y
Visa  Y Y Y
 Espec Y Y Y


PAST PICKS: June 26, 2019

Lorne Steinberg's Past Picks

Lorne Steinberg, president, Lorne Steinberg Wealth Management discusses his Past Picks: Scotiabank, DOW Inc and Yamaha Corp.

Scotiabank  (BNS TSX)

  • Then: $71.13
  • Now: $57.35
  • Return: -19%
  • Total Return: -15%

Dow Inc. (DOW NYSE) *We SOLD Dow Inc. at US$56 in 2019

  • Then: US$50.45
  • Now: US$40.17
  • Return: -20%
  • Total Return: -15%

Yamaha Corporation (7951 TYO)

  • Then: ¥ 5180.00
  • Now: ¥ 5320.00
  • Return: 3%
  • Total Return: 4%

Total Return Average:  -9%

Disclosure Personal Family Portfolio/Fund
Scotiabank  Y Y Y
Dow Inc N N N
 Yamaha Corporation Y Y Y

 

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