Christine Poole is CEO and managing director at GlobeInvest Capital Management. Her focus is North American large caps.
Boeing is a global commercial aerospace and defence company, benefiting from strong demand for commercial aircraft due to growth in air travel in developing markets and replacement demand from developed markets. Strong profit and cash flow growth will be driven by production rate increases on its various models (737, 777 and 787) and productivity improvements. Management is committed to return free cash flow to shareholders through dividends and stock buybacks. Following a 50-per-cent increase in its quarterly dividend in December, Boeing offers a 2.4-per-cent yield.
Johnson & Johnson
JNJ is a global diversified health care company, manufacturing a broad range of products within three segments: Medical Devices and Diagnostics (MD&D: 40 per cent of 2013 sales), Pharmaceuticals (39 per cent) and Consumer (21 per cent). Earnings growth will be driven by higher revenues and operating margin expansion lead by strong organic growth from the Pharma division and stabilization of its Consumer business as OTC products are re-launched to the market. One of a handful of triple-A rated companies left in North America, JNJ consistently raises its dividend and offers investors a dividend yield of 3.0 per cent.
Wells Fargo & Co.
Wells Fargo is a premier U.S.-based financial services company garnering approximately an 11-per-cent national deposit market share. As the leading originator of residential mortgages, WFC is successfully offsetting slowing mortgage loan volumes with fee-based income streams such as wealth management, increased cross-selling and productivity initiatives, supplemented by ongoing opportunistic acquisitions of U.S. loan portfolios from foreign banks. Management targets to return 50 per cent to 65 per cent of earnings to shareholders through share repurchases and dividends. WFC currently offers a dividend yield of 2.7 per cent.
Past Picks: February 12, 2013 (all prices US$)
Then: $34.30; Now: $36.23; Total return: +7.44%
PPG Industries Inc.
Then: $136.45; Now: $177.24; Total return: +31.92%
Walt Disney Co.
Then: $54.95; Now: $71.05; Total return: +30.90%
Total return average: +23.42%
The much-anticipated correction is underway, kick-started by growth concerns within emerging market geographies. While the pace of growth may at times be uneven, the long-term secular economic growth theme remains in place for emerging economies. Rising GDP per capita, expanding consuming middle class and favourable demographics substantiate developing markets will be the growth leaders over the next decade. Investors should opportunistically build positions in companies well-positioned within these regions. Fundamentals in developed markets are improving, evidenced by healthy manufacturing activity, positive corporate profit growth, improving consumer confidence and continued Fed tapering. At this juncture, money flows into equities will also help cushion any pullback. Equity valuations (as measured by the price-to-earnings ratio) are reasonable against a backdrop of benign inflation. Equities remain the favoured asset class and market dips are opportunities to add equity exposure.