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

MARKET OUTLOOK

Investors are too focused on market volatility instead of fundamentals. The reality is the global economy is decelerating while combined government, corporate and consumer debt levels remain stubbornly high. Central bankers have put the brakes on raising interest rates, which has provided some relief for markets, but with rates already at low levels the options for policymakers are limited.

The recent inversion of the yield curve, if it continues, will put pressure on financial stocks while corporate earnings in most sectors may fall short of expectations. All of this leads us to conclude that investors should focus on investing in strong businesses trading at attractive valuations and also maintain some sideline cash should there be a sell-off.

TOP PICKS

ALCOA (AA.N)

Despite weak aluminum prices Alcoa is generating free cash flow, which it’s using to buy back shares, reduce debt and invest in growth. After years of improving its cost structure, Alcoa is well positioned to generate returns for shareholders. This is a very cheap stock in the current market.

HEWLETT PACKARD ENTERPRISE (HPE.N)

HPE is a global technology company focused on providing hardware and services to corporate clients. The company has been executing well in all areas of the business, growing market share and improving margins. The shares are trading at a price-to-earnings of 10, with free cash flow being used to increase the dividend and buy back shares. At this valuation, the shares are compelling.

SANYO ENGINEERING AND CONSTRUCTION (1960 TYO)

This Japanese company specializes in electricity facility construction for governments and corporations. The company is benefiting from the increasing focus on eco-friendly design, and this should help drive growth over the next several years. Like a number of Japanese companies that we’ve owned, the shares are extremely cheap, trading at a steep discount to tangible book value while cash accounts for 75 per cent of the share price. The company has been aggressively buying back shares, an example of the changing corporate culture in Japan.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ALCOA Y Y Y
HPE Y Y Y
SANYO Y Y Y

 

PAST PICKS: APRIL 9, 2018

GOLDMAN SACHS (GS.N)

  • Then: $252.19
  • Now: $190.79
  • Return: -24%
  • Total return: -23%

CISCO SYSTEMS (CSCO.O)

  • Then: $41.17
  • Now: $53.35
  • Return: 30%
  • Total return: 33%

NIPPON PILLAR PACKING (6490 TYO)

  • Then: ¥1,488
  • Now: ¥1,300
  • Return: -13%
  • Total return: -12%

Total return average: -1%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
GOLDMAN Y Y Y
CISCO Y Y Y
NIPPON PILLAR Y Y Y

 

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