Full episode: Market Call for Thursday, October 17, 2019
Lorne Steinberg, president of Lorne Steinberg Wealth Management
Focus: Global value stocks and high-yield bonds
The global economy is slowing and investors are faced with the conundrum of zero yields.
With corporate earnings expected to decline for the third consecutive quarter, equity markets are being kept afloat by expectations of further monetary easing by central banks. We are now in a “bad news is good news, good news is bad news” environment, whereby economic weakness supports the case for lower interest rates, which in turn helps boost asset prices.
The longer interest rates remain at current levels, the more complacent investors become and the risk of a market shock increases. History suggests that asset prices don’t remain high forever and prudent investors should hold some cash in case opportunities arise.
Sanofi is a diversified global pharmaceutical company with strong franchises in diabetes, immunology and oncology. The company has a consistent history of free cash flow generation which has been used for acquisitions, dividends and share buybacks. The shares are currently trading at a P/E of 13 with a dividend yield of 3.7 per cent and offer excellent total return potential over the next several years.
Corteva is the agricultural chemicals company that was recently spun out from DowDuPont. The company is a global producer of seeds and crop protection chemicals. There are a number of higher margin new products in the pipeline, which along with some cost-cutting, should lead to double-digit earnings growth over the next few years.
Canadian bank stocks have lagged global markets over the past three years, and Bank of Nova Scotia is no exception. Profit growth has been strongest in Latin America and steady in Canada. The Canadian loan book is in good shape, with mortgage exposure heavily weighted to houses versus condos. At the current valuation (P/E of 11) with a 4.8 per cent dividend yield, the shares offer compelling value.
PAST PICKS: OCT. 2, 2018
SUN LIFE FINANCIAL (SLF:CT)
- Then: $50.74
- Now: $58.55
- Return: 15%
- Total return: 20%
GOLDMAN SACHS (GS:UN)
- Then: $226.07
- Now: $206.08
- Return: -9%
- Total return: -7%
AIDA ENGINEERING (ADERY OTC)
- Then: ¥1,026
- Now: ¥920
- Return: -10%
- Total return: -7%
Total return average: 2%