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

MARKET OUTLOOK

The global economy was slowing before the coronavirus problem and now it may be headed for a recession. The recent rate cuts by the Fed and the Bank of Canada have done nothing to assuage investors and the flight to safety has resulted in North American bond yields being driven toward zero yields.

We have maintained a large cash position for quite some time, waiting for more attractive valuations. While no one can predict the timeline for a vaccine or a cure, the markets are in a state of fear and uncertainty, which is usually the time for value investors to spend some cash and we’re doing so. Long-term investors finally have opportunities to pick up some wonderful businesses with healthy dividend yields at depressed prices.

TOP PICKS

ALLSTATE (ALL NYSE)

Allstate is the premier property and casualty insurer in North America with an outstanding track record of consistent free cash flow, earnings and dividend growth. The company is using technology to gain market share and improve efficiency. We expect free cash flow to continue to be used for dividend increases and share buybacks. At a price-to-earnings ratio (P/E) of 10, the shares are compelling.

DIAGEO (DEO NYSE)

Diageo is the global leader in the premium spirits business with a slew of iconic brands. The company has done an impressive job of gaining market share with brands that command premium prices. The result has been steadily increasing profits and dividends. The coronavirus will negatively impact sales in Asia and the recent sell-off provides an excellent entry point for investors.

CISCO (CSCO NYSE)

Cisco has done an excellent job repositioning itself as the leader in end-to-end IT security solutions, an area of increasing importance to its corporate customers. In addition, the company is turning into more of a recurring revenue business as software and services become a larger part of the mix. The shares sold off due to recession fears and the current price offers outstanding value, with a 3.5 per cent dividend that will see healthy growth over the next five years.

PAST PICKS: MARCH 26, 2019

ALCOA (AA NYSE)

We sold Alcoa due to our outlook that weakness in aluminum prices would continue in a slowing global economy.

• Then: $27.54
• Sell price (Sep. 17, 2019): $21.94
• Return: -18%
• Total return: -18%

HEWLETT PACKARD ENTERPRISE (HPE NYSE)

• Then: $15.31
• Now: $11.33
• Return: -26%
• Total return: -26%

SANYO ENGINEERING AND CONSTRUCTION (1960 TYO)

• Then: ¥708
• Now: ¥587
• Return: -17%
• Total return: -14%

Total return average: -19%

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