May 19, 2016

Lorne Steinberg's Top Picks: May 19, 2016

Michael Chu , BNN Bloomberg

Lorne Steinberg , BNN

Lorne Steinberg, president, Lorne Steinberg Wealth Management

FOCUS: Deep Value Global Equities

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MARKET OUTLOOK:

Asset prices for the past several years have been boosted by artificially low interest rates. Valuations for everything from real estate to stocks are no longer cheap. At the same time further Fed tightening looks very likely his year. If so, this would put further pressure on emerging markets and U.S. corporate earnings. All of the above suggests that cash should be part of any investor's asset allocation.

The use of Benchmarks for investors

The investment industry is increasingly short-term as investment consultants attempt to set asset allocation based on benchmarks. This has often led to investors taking on excessive risk and ending up with large losses. We have written about the pitfalls of benchmarks in our most recent newsletter, which is available for free to anyone who subscribes on our website.

Top Picks:

Royal Dutch Shell (RDS’b.N)

Royal Dutch Shell has completed its acquisition of BG, and is executing well on all fronts despite low energy prices. The company remains solidly profitable as earnings from refining, chemicals and gas solidly more than offset weakness in E&P. The balance sheet remains in great shape, and the 7 percent + dividend appears secure through at least 2018.

Aegon N.V. (AEG.N)

Aegon is a global life insurance company. Its U.S. brand is Transamerica. The company is well capitalized and trades at an extremely cheap valuation of less than half tangible book value, and a P/E of 7. The company is using excess cash to buy back shares and increase the dividend, as well as making some niche acquisitions. With a 5.5 perfect dividend yield, the shares are compelling at the current price.

Riken Keiki (7734.JP)

Riken Keiki is a global manufacturer of gas detection and monitoring equipment for use in many industries. The company is a leader in its major businesses, and has an excellent growth profile, with revenues expected to grow by 10 percent this year and next. The shares are trading at a steep discount to tangible book value, and the P/E is about 9. A with most Japanese companies, there is net cash on the balance sheet. Another great Japanese company at a very attractive valuation.

Disclosure	Personal	Family	Fund/Profile
RDSb	Y	Y	Y
AEG	Y	Y	Y
7734	Y	Y	Y

Past Picks: June 2, 2015

Alcoa (AA.N)

Then: $12.62
Now: $8.94
Return: -29.16%
TR: -29.16%

Xerox (XRX.N)

Then: $11.48
Now: $9.05
Return: -21.17%
TR: -18.99%

Takasago International (4914.JP)

Then: ¥2825.00
Now: ¥2557.00
Return: -9.49%
TR: -8.00%

Total Return Average: -18.71%

Disclosure	Personal	Family	Fund/Profile
AA	Y	Y	Y
XRX	Y	Y	Y
4914	Y	Y	Y

Fund Profile

Steinberg Global Value Equity Fund

The Steinberg Global Value Equity Fund is a deep value global equity fund focused on investing in companies which trade at a steep discount to their intrinsic value. These companies must meet stringent investment criteria, both quantitative and qualitative including financial strength, track record and corporate governance. The fund is well diversified, and risk management criteria include diversification by industry and country. With a global value focus, the fund seeks the best values wherever they may be.

Performance as of April 30, 2016

1 month: Fund -0.4%, Index* 0.7%

1 year: Fund -2.6%, Index* -7.2%

3 year: Fund 8.8%, Index*7.4%

* Index: 50% TSX, 10% S&P500, 10% EAFE, 30% EM

* Returns net of fees and distribution

Top Holdings