Norman Levine, managing director for Portfolio Management Corp
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. 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 still keeping a cash cushion to use for unexpected opportunities, we will be deploying some of our higher than normal cash position in the coming weeks.

TOP PICKS

ASTELLAS PHARMACEUTICALS (ALPMF OTC)
Bought on Oct. 29 at $16.49.

Astellas is a Japanese pharmaceutical company. Like all other drug companies, Astellas recently faced a patent cliff with revenue declining over the past four years, which caused the stock to be a poor performer. This fiscal year (March 2020) is expected to be the trough in revenues. Astellas’ largest drug, Xtandi (for prostate cancer), is patented until 2027. Astella’s focus is on oncology and immunology. New drugs include ones for leukemia, bladder cancer, oral anemia, hot flashes, and gastric cancer. The company has a great balance sheet, buys back its stock, and hired an new highly-regarded CEO a year ago. Finally, the Japanese stock market is starting to act well.

ROTORK (RTOXF OTC)
Bought on Dec. 8, 2015 at $2.75.

Rotork is a British company and the world’s leading provider of electric valve actuators and network control systems. It also manufactures gears and gearboxes for the international valve industry, flow and pressure control and measurement instruments, and pneumatic, hydraulic and electro-hydraulic actuators and control systems. It is asset-light, as it subcontracts most of its manufacturing. This makes it a high-margin company. Its biggest customer is the oil and gas industry, both upstream and downstream. The company has a new president who is working to reduce costs and increase margins by both increasing sales and reducing the company’s bloated headcount, the result of many small acquisitions in the past few years. Rotork yields 1.8 per cent.

BB&T (BBT NYSE)
Bought on Jan. 12, 2012 at $26.96.

BB&T is a regional consumer bank headquartered in North Carolina and operating largely along the U.S. East Coast.  BB&T is buying SunTrust in a friendly transaction, which will make it the U.S.’s sixth-largest bank.  The deal should close this current quarter. The merger brings with it economies of scale with respect to technology, compliance, headcount and real estate. The merged banks have a growing footprint, mostly on the Eastern seaboard. They will have a roughly 60/40 per cent split between interest income and fee income. The bank’s revenue stream will be quite diverse: insurance brokerage, credit cards, capital markets, mortgage and commercial banking. Both banks are well managed and this is not a turnaround situation.  We currently prefer U.S. banks to Canadian banks on a valuation and risk basis. BB&T’s current yield is 3.3 per cent and we expect its dividend to continue to grow at regular intervals at a rate well above the industry average. Financials look good currently in the U.S. and we own three banks and an insurance company there.

PAST PICKS: NOV. 8, 2018

WELLS FARGO (WFC NYSE)

• Then: $53.16
• Now: $53.80
• Return: 1%
• Total return: 5%

NXP SEMICONDUCTOR (NXPI NASD)

• Then: $84.62
• Now: $116.45
• Return: 38%
• Total return: 39%

LANXESS (LNXSF OTC)

• Then: $63.09
• Now: $67.80
• Return: 7%
• Total return: 7%

Total return average: 17%

TWITTER: @levinepmc 
WEBSITE: portfoliomanagement.ca