Full episode: Market Call for Tuesday, October 2, 2018
Lorne Steinberg, president of Lorne Steinberg Wealth Management
Focus: Global value stocks and high-yield bonds
A strong economy coupled with inflationary pressures has resulted in the ongoing interest rate increases by the Federal Reserve. With several more hikes expected over the next year, the era of low interest rates is coming to an end.
Low interest rates helped fuel the global recovery, as borrowers took advantage of cheap money. But this has resulted in record-high consumer, government and corporate debt levels. Increased borrowing costs will have a negative impact on spending at all levels, suggesting that economic growth will start to decelerate in 2019.
Against this backdrop and with equity markets rather fully valued, investors should hold some cash and wait for the inevitable opportunities that will arise.
SUN LIFE FINANCIAL (SLF.TO)
Sun Life is experiencing strong profit growth in most segments. Higher interest rates will be an additional positive for the company. The company is well capitalized and growing earnings should result in healthy dividend increases over the next several years. At a price-to-earnings of 11 and with a healthy dividend yield, the shares offer very attractive upside.
GOLDMAN SACHS (GS.N)
Goldman Sachs is arguably the best managed global investment bank, with an excellent track record for delivering value for shareholders. The sector is suffering from a flattening yield curve, which presents an excellent opportunity for value investors. Goldman Sachs is trading at a price-to-earnings of 10 and is generating significant free cash flow, which is being used for dividends and share buybacks.
AIDA ENGINEERING (6118 TYO)
Aida Engineering is a supplier of specialized manufacturing machinery – including metal press equipment and robotics – to the auto and electronics industries. The company has a long track record of innovation and has been consistently profitable. The shares are trading at less than tangible book value and cash accounts for half of the market value. With earnings growth forecast at over 10 per cent, the shares are compelling.
PAST PICKS: NOV. 28, 2017
- Then: $43.30
- Now: $41.46
- Return: -4%
- Total return: -4%
ING GROEP (ING.N)
- Then: $18.26
- Now: $12.88
- Return: -29%
- Total return: -26%
FUTABA CORP (6986 TYO)
- Then: ¥2,375.00
- Now: ¥2,020.00
- Return: -15%
- Total return: -13%
Total return average: -14%
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 geography. With a global value focus, the fund seeks the best values wherever they may be.
Performance as of: Aug. 31, 2018
- 1 Month: -0.5% fund, -1.2% index
- 1 Year: 7.2% fund, 10.6% index
- 3 Years: 9.0% fund, 8.4% index
Index: 30% S&P/TSX, 20% S&P500, 50% EAFE Value.
Returns are based on reinvested dividends. Returns are net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Microsoft: 2.5%
- Cisco Systems: 2.2%
- Morgan Stanley: 2.1%
- Corning: 2.0%
- The Allstate Corp: 1.8%