Norman Levine, managing director at Portfolio Management Corporation
Focus: North American large caps

MARKET OUTLOOK

Investor interest appears to be moving towards value from growth/momentum (finally) as well as toward cyclical and foreign (Europe and Asia) stocks. These are all areas and markets that have lagged for some time. Even commodity stocks look like they may be coming out of a long downtrend. Combined with a larger-than-normal amount of cash that investors are hoarding on the sidelines which could be deployed to equities, it appears stock markets want to move higher. While we’re still keeping a cash cushion to use for unexpected opportunities, we have been spending some of it recently.

TOP PICKS

BERKSHIRE HATHAWAY (BRK/B:UN)
Last purchased on Dec. 13, 2019 at $225.46.

Berkshire Hathaway is the ultimate value stock. Its operating companies are mainly in insurance, railways, energy and manufacturing. Value stocks have underperformed growth and momentum stocks by a wide margin for the past three years and Berkshire’s stock has gone sideways for the past two years, until now. Value stocks are finally starting to act well and Berkshire Hathaway has just broken out to new high territory. This caught my attention and was the catalyst for purchasing the stock last week. The main negative is the ages of Warren Buffett and Charlie Munger. While the stock will likely suffer in the short term when one or both of them die, the major decision-making at the company has been in the hands of others for some time.

CENOVUS (CVE:CT)
Last purchased on Feb. 20, 2019 at $11.65.

Cenovus is one of the largest energy producers in Canada, 80 per cent of which is oil (largely oil sands) and 20 per cent natural gas. It owns long-life, low-decline assets, mostly heavy oil. Production growth has been stagnating due to a lack of pipelines to handle any additional production. Rail contracts it signed this year will help.

Cenovus had a difficult 2018 due to high debt levels and poor hedges. Its new CEO has strong operational skills and has cut its hedging program, reducing debt levels through asset sales. Helping earnings are its 50-per-cent ownership in two U.S. refineries. Money is finally starting to flow into the energy sector and we believe that Cenovus will be a leader as the group begins to advance. It currently yields 2 per cent.  One worry is the overhand in the stock as ConocoPhillips owns 17 per cent of the stock. Eventually that position will be offered into the market, but we believe it will be at significantly higher prices from today.

SANOFI ADR (SNY:UW)
Last purchased on July 7, 2016 at $41.

Sanofi (formerly Sanofi-Aventis) is a French-based multinational healthcare company focused on pharmaceuticals and human vaccines. Like most other drug stocks have experienced, Sanofi recently faced a patent cliff as many of its major drugs came off patent. Also like most other drug companies, its pipeline has been pretty bare. The best time to buy drug stocks and make a lot of money is when nobody wants them. Sanofi currently has six promising drugs in the pipeline, some of which could prove to be blockbuster drugs.  Sanofi has a great balance sheet and is using that money to buy companies with promising new products. The company’s new CEO has identified Dupixent (eczema) and vaccines as it main growth areas. The stock yields 3.3 per cent.

PAST PICKS: DEC. 20, 2018

AMERICAN FINANCIAL GROUP (AFG:UN)

• Then: $89.38
• Now: $111.02
• Return: 24%
• Total return: 30%

NUTRIEN (NTR:CT)

• Then: $60.74
• Now: $63.40
• Return: 4%
• Total return: 8%

UNI-SELECT (UNS:CT)

• Then: $18.81
• Now: $10.80
• Return: -43%
• Total return: -41%

Total return average: -1%

TWITTER: @levinepmc
WEBSITE: www.portfoliomanagement.ca