Lorne Steinberg, president of Lorne Steinberg Wealth Management
Focus: global value stocks and high-yield bonds
MARKET OUTLOOK
The global economy remains stable at present, but we anticipate some deceleration into next year. At the same time, corporate earnings growth has slowed despite the recent market rally and the valuation gap between the U.S. stock market and other developed markets has widened. This rally has been driven by the Fed’s comments that rate hikes are on hold, but the reality is that valuations are rising while fundamentals are deteriorating, which should give investors pause for reflection.
Some sideline cash is warranted in this volatile environment. We expect patient investors will be rewarded with opportunities.
TOP PICKS
BP (BP.N)
BP is among the best-positioned of the major energy producers, with good production growth, and an impressive downstream portfolio. The $10.5 billion acquisition of BHP’s U.S. energy assets has proven very timely and will add to free cash flow. The 5.5 per cent dividend is easily covered by free cash flow and these shares offer excellent total return potential over the next several years.
CORNING (GLW.N)
Corning is a glass technology company best known for its Gorilla glass, which is used for the iPhone. The company has a wide product offering in markets such as optical communications, environmental products and life sciences. It has generated significant free cash flow over the last few years and been a steady dividend-grower while growing revenues at a faster rate than most. Earnings should grow at over 10 per cent yearly over the next few years. At the current price, these shares are a compelling buy.
HIRANO TECSEED (6245 TYO)
This Japanese company produces specialized coating and laminating machinery which is used in a wide variety of industries. The company has been expanding into the U.S. and revenues and earnings have been growing at an impressive pace. The company has been using free cash flow to increase its dividend and we project double-digit earnings growth this year and next. The company has no debt and significant net cash. Our break-up value is more than double the current share price.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BP | Y | Y | Y |
| GLW | Y | Y | Y |
| 6245 | Y | Y | Y |
PAST PICKS: MAY 7, 2018
MORGAN STANLEY (MS NYSE)
- Then: $52.39
- Now: $46.82
- Return: -11%
- Total return: -8%
ROYAL DUTCH SHELL (RDS/B NYSE)
- Then: $72.57
- Now: $62.90
- Return: -13%
- Total return: -8%
HOSIDEN (6804 TYO)
- Then: ¥1328.00
- Now: ¥1007.00
- Return: -24%
- Total return: -23%
Total return average: -13%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MS | Y | Y | Y |
| RDSb | Y | Y | Y |
| 6804 | Y | Y | Y |
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