Barry Schwartz is chief investment officer and portfolio manager at Baskin Financial Services. His focus is North American large caps.
(**Have been buying all three in line with the market recently)
Molson Coors Brewing Co. (TAP NYSE)
Molson Coors trades at a reasonable valuation to its projected earnings. We believe Molson will eventually acquire 100 per cent of its MillerCoors joint venture, which will be highly accretive to earnings. The company generates significant free cash flow and after reducing its debt, the company is now on the hunt for more acquisitions. Molson offers a dividend of 2 per cent and has raised its dividend by 16 per cent since 2012.
Viacom Inc. (VIAB NASDAQ)
Viacom offers the cheapest media valuation among its peers. With Fox courting Time Warner, we think it is only a matter of time for Viacom to eat or be eaten. The company is rewarding shareholders with a smart capital allocation as it has reduced its shares outstanding by almost 40 per cent since 2006. Viacom offers a yield of 1.5 per cent and has raised its dividend by 26 per cent since 2012.
Neenah Paper (NP NYSE)
Neenah Paper is a spin-off from Kimberly Clark. The company manufactures fine paper, industrial labels and filtration products. A recent acquisition should bolster its presence in the filtration market. The company generates significant free cash flow and we expect it to make more acquisitions in the coming months, particularly in emerging markets. The company offers a dividend yield of 2 per cent and has raised its dividend 125 per cent since 2012. Neenah recently reiterated its 3-per-cent dividend yield target.
Past Picks: Aug. 6, 2013
SNC-Lavalin (SNC TSX)
Then: $41.07; Now: $58.81 +43.19%; Total return: +46.14%
Potash Corp. of Saskatchewan Inc. (POT TSX)
Then: $30.54; Now: $38.47 +25.97%; Total return: +31.22%
Rogers Communications (RCI.B TSX)
Then: $41.44; Now: $42.71 +3.06%; Total return: +7.27%
Total return average: +28.21%
There are parts of the market that are frothy and there are parts that are extremely cheap. Bull market, bear market – this has always been the case. The names may change but the culprits are always the same. When you invest in pie in the sky, expect to get the pie in your face. I am very positive on equities for the following reasons:
1) We are running out of publicly traded companies. The market is shrinking due to share buybacks, M&A, and the high cost of being a public company. The demand for quality is greater than its supply.
2) The world is getting richer. Incomes, portfolios, houses and other assets are growing in value. At the same time, investors, institutions and state owned pensions are swimming in cash. Cash has to go somewhere and it’s not going to be happy earning 0 per cent while uninvested.
3) Population Growth and demographics. North America’s population is growing, people have to live somewhere, work somewhere and spend money somewhere. We are in the early innings for the need of services that will support an aging population.
4) Companies are shareholder friendly. Smart managers are focused on cost containment, share buybacks, reducing debt and increasing dividends. Good time to be a shareholder, bad time to ask for a raise. Focus on shareholder yield.
5) In context of next to nothing on bonds and cash, I’m sticking with stocks. I’m finding lots of companies with free cash flow yields in excess of 7 per cent, high returns on equity and return on capital, low debt and shareholder friendly.