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

MARKET OUTLOOK

The stock market rally is being driven by a buoyant economic outlook combined with an accommodative central bank policy. The rebound in consumer spending has begun and the U.S. appears ready to pass an infrastructure spending bill which will provide an added boost. At the same time, despite an uptick in inflation, the Fed and other central banks seem in no hurry to raise rates, leaving yield-hungry investors little option but to buy stocks and hope that corporate earnings growth remains strong.

Equity valuations have been rising and the dividend yield of the S&P 500 is down to 1.37 per cent, close to its record low. It is getting tougher to find stocks that offer adequate risk/reward, so investors should be actively reviewing their portfolios and consider selling securities which are fully priced.

There are still excellent opportunities for investors, but the market as a whole is not cheap.

TOP PICKS

Corning (GLW NYSE)

Corning is a leader in glass science, ceramic science and optical technology. It is probably best known for its Gorilla glass, which is used in iPhones. However, the company’s fastest growing unit over the next few years may be its optical communications division, which makes optical fiber. This division is benefiting from the increased demand for broadband. Corning generates significant free cash flow which has been used for ongoing dividend increases and share buybacks. The company is extremely well positioned to benefit from 5G and offers excellent upside at the current price.

Compass Group PLC (CPG LON)

Compass is the world’s largest contract catering group, providing food services to corporations, hospitals, educational facilities and many other types of customers. The company operates in 45 countries, with the U.S. accounting for 60 per cent of sales. The service division accounts for about 14 per cent of sales.

Business suffered due to COVID, but the outlook is bright. The company has had an excellent M&A track record, and we expect that to continue. With the world opening up again, Compass’ revenues and earnings should rebound sharply, offering an extremely attractive opportunity for investors.

TaiwanSemiconductor (TSM NYSE)

Taiwan Semiconductor Manufacturing Company (TSMC) is the preeminent chip manufacturer in the world today, acting as the contract manufacturer for some of the largest companies in the industry.

The industry is an oligopoly with only three large players, and TSMC is the best in the business. There is increasing demand for chips as technology becomes more integrated into products such as autos. We are anticipating double-digit earnings growth from TSMC over the next several years. At the current valuation, these shares are compellingly cheap.

PAST PICKS: JUNE 2, 2020

Discovery Inc. (DISCA NASD)

• Then: $21.83
• Now: $30.84
• Return: 41%
• Total Return: 41%

Visa (V NYSE)

• Then: $196.36
• Now: $235.15
• Return: 20%
• Total Return: 21%

Espec (6859 TYO)

• Then: ¥1,804.00
• Now: ¥2,217.00
• Return: 23%
• Total Return: 26%

Total Return Average: 29%