BNN Market Call

3 top stock picks from Wealth Management’s Lorne Steinberg

Special to The Globe and Mail

Lorne Steinberg.

Lorne Steinberg is president and portfolio manager at Lorne Steinberg Wealth Management. His focus is on North American large caps.

Top Picks:

Xerox

Xerox has transformed itself from an equipment company to a services company. Its global outsourcing business accounts for over 50 per cent of revenues, and is the engine for future growth. The company is trading at a compelling valuation of about 7 times its free cash flow, and it is using this cash to buy back shares, reduce debt and make acquisitions.

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Aegon NV

Aegon is one of the most undervalued life insurance companies in the world. Operations are focused in North America, Netherlands and the U.K. The company is well capitalized and extremely cheap. It is trading at less than 10 times earnings, a steep discount to tangible book value, and offers a dividend of over 4 per cent. We expect double digit earnings growth over the next couple of years.

ING Group

ING has rebounded from the financial crisis and is solidly profitable. It should complete its government loan repayment over the next twelve months, and we expect the dividend to be reinstated in 2014. ING is trading at less than 7 times earnings, and half of tangible book value. We expect significant earnings growth over the next five years, providing significant upside. We expect that markets in Europe and Japan will outperform Canada.

Past Picks: September 11, 2012

Manulife Financial
Then: $11.75
Now: $16.89
Total return: +47.71 per cent

TOTAL SA
Then: $52.65
Now: $48.05
Total return: -3.16 per cent

Hirano Tecseed
Then: 411.00 yen
Now: 1005.00 yen
Total return: +149.49 per cent

Total return average: +64.68 per cent

Market outlook:

We expect markets to be volatile over the next year, given the specter of rising interest rates, and slowing growth in China and other emerging markets. This is definitely a stock picker’s market. We have had much success by buying shares in companies which are extremely undervalued and totally out of favour. That is always where true value is found. We expect that markets in Europe and Japan will outperform Canada.

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