Sep 4, 2018

Lorne Steinberg's Top Picks: Sep. 4, 2018

BNN Bloomberg

Lorne Steinberg , BNN Bloomberg

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

MARKET OUTLOOK

There are signs that the strong global economy may be peaking. Even without the threat of trade wars, China’s growth has been decelerating and increasing tariffs will have some added impact. At the same time, inflation has picked up resulting in rising interest rates. Higher rates, the flattening yield curve and a fully valued stock market suggest that the current bull market, which is the second-longest in 70 years, may be coming to an end. Prudent investors should keep some cash on the sidelines, as the level of risk remains elevated the market.
We’ve written a research report discussing the risks of rising interest rates, market valuation, rising trade tariffs and slowing growth in China. It is available at no charge to subscribers to our website.

TOP PICKS

SHINHAN FINANCIAL (SHG.N)

Shinhan Financial is one of Korea’s largest banks. The company is benefitting from increasing net interest margin, strong loan growth and international expansion. Earnings and dividends should continue to grow at a healthy pace. The company boasts strong capital ratios, which gives it flexibility to continue its acquisition strategy.

TOTAL S.A. (TOT.N)

Total is a global energy company which is generating significant free cash flow. The company has been using its cash flow to reduce debt, increase investment in renewables and increase dividends. The shares are among the cheapest in the energy sector, while the company is positioning itself for the future.

MICROSOFT (MSFT.N)

Microsoft has returned to growth as its cloud business has become one of the two dominant players in the industry. Enterprise security and efficiency are driving the shift to the cloud, and this business should continue to grow at a healthy rate. Free cash flow is being used for investment, share buybacks and dividend growth. The shares are not cheap, but earnings per share over the next five years should grow substantially.

DISCLOSURE	PERSONAL	FAMILY	PORTFOLIO/FUND
SHG	Y	Y	Y
TOT	Y	Y	Y
MSFT	Y	Y	Y

PAST PICKS: OCT. 23, 2017

DOWDUPONT (DWDP.N)

DowDuPont is still going through its integration. Earnings per share and free cash flow are growing at over 10 per cent yearly. The company will be split up over the next couple of years, so shareholders should be patient as our estimated sum of the parts valuation is at least $95.

Then: $44.16
Now: $39.03
Return: -12%
Total return: -9%

MANULIFE (MFC.TO)

Then: $25.96
Now: $23.64
Return: -9%
Total return: -6%

KAWASUMI LABORATORIES (7703 TYO)

Kawasumi is another extremely cheap (and profitable) Japanese company whose share price is less than the net cash and accounts receivable. It offers a compelling value for patient investors.

Then: ¥836.00
Now: ¥678.00
Return: -19%
Total return: -18%

Total return average: -11%

DISCLOSURE	PERSONAL	FAMILY	PORTFOLIO/FUND
DWDP	Y	Y	Y
MFC	Y	Y	Y
KAWASUMI	Y	Y	Y

FUND PROFILE

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: JULY 31, 2018