Jennifer Radman is vice-president and senior portfolio manager at Caldwell Investment Management. Her focus is on U.S. large caps.
Top Picks:
Whirlpool Corp. (WHR NYSE)
Whirlpool is a leading maker of consumer appliances operating under the Whirlpool, Maytag, KitchenAid and other brands. The company recently closed joint ventures (JVs) that will significantly increase their scale in Europe and China and create tremendous operating leverage given the fixed cost nature of operations. Whirlpool's purchase of Maytag in 2006 is a great example – overall company revenue is flat since that time and yet earnings are roughly 90-per-cent higher today. The ability to unlock value without requiring an improvement in demand is attractive. The company has further growth potential from an improving U.S. economy through new housing builds and a replacement cycle.
Cognizant Technology Solutions (CTSH NASDAQ)
Cognizant provides IT/business process consulting and outsourcing to Fortune 500 companies, mainly in the financial and health care verticals. Over the last several years, clients have focused on using Cognizant to cut costs and increase efficiency, but focus is shifting toward using IT to generate revenue, differentiate product offering and bring product to market more effectively. Cognizant offers investors a steady and attractive free cash yield, despite growing revenue at a an average rate of 17 per cent over the last four quarters.
Onex Corp. (OCX TSX)
Onex is a private equity firm. Despite generating strong returns, investors are concerned about the large cash position built up from dispositions, which makes up approximately 50 per cent of the company's balance sheet. We do not think having a cash balance is something a company should be penalized for. Onex recently made an investment in its latest fund and we expect more to follow, especially given increased market volatility. We expect these announcements to drive shares higher. In the meantime, we own shares at a slight premium to net asset value.
Past Picks: November 20, 2013
Tyson Foods (TSN NYSE) We sold half our position in TSN on March 31 and the remaining position on June 10 when they announced the acquisition of Hillshire Brands.
Then: $30.91; Now: $41.31 +33.65%; Total return: +35.05%
Celestica Inc. (CLS TSX)
Then: $9.98; Now: $12.14 +21.64%; Total return: +21.64%
Zimmer Holdings Inc. (ZMH NYSE) We sold our full position in ZMH on April 29, 2014 when they announced the acquisition of Biomet.
Then: $89.27; Now: $114.85 +28.65%; Total return: +29.78%
Total return average: +28.82%
Market outlook:
We have advocated and pursued a focused approach to stock selection and have spoken to the benefits of having U.S. exposure. The decline in energy prices since the summer has highlighted the benefits of that strategy as our clients have performed relatively well in this environment. We wrote in our Caldwell Balanced Fund August commentary about the home country bias, a behavioural bias where investors allocate a disproportionate amount of their investments to their home country. This is particularly concerning for Canadian investors given the high level of energy-related commodity risk in Canada – while the energy sector alone accounts for 25 per cent of Canada's stock market, the significance is even greater when one accounts for the many companies that indirectly benefit from the development of Canada's energy resources (bank financings, rail and trucking logistics, temporary workforce accommodations, real estate developers, electricity providers, Western-based telecom companies, etc.). As energy volatility continues, and overall market valuations trend higher, we believe the aforementioned approach becomes increasingly valuable.