Darren Sissons is managing director of Portfolio Management Corp. His focus is on global large caps.
Top Picks:
BHP Billiton (BHP-NYSE)
BHP Billiton has a progressive dividend currently yielding 4.3 per cent, and a best-in-class balance sheet. The company has a good management team, and attractive long-life mine exposure to copper, iron ore, coal (both met and thermal) and oil. It is thought to be a leader in the industry – i.e. it was first to cut debt levels and to re-balance its portfolio. The company is now driving up iron ore production volumes, which in the near term will negatively impact price but longer term will lead to further consolidation in the iron ore market.
Corning Inc. (GLW-NYSE)
Corning has a progressive dividend currently yielding 2.1 per cent, and a strong balance sheet. The collapsed Samsung joint venture enhances profitability, and a recovering U.S. economy should support a TV replacement cycle as consumers choose to replace aging TVs that were not replaced during the recession. Gorilla Glass prices are likely to rise on cellphones as the leading competitor GT Advanced filed for bankruptcy this week.
HengAn International (1044-HK)
HengAn International has a safe, progressive dividend currently yielding 2 per cent and has a strong balance sheet. It is leveraged to the fast growing Chinese economy so double-digit revenue growth rates will continue into the foreseeable future. It is a defensive consumer staple giant in China whose main products (sanitary napkins and tissues) are the market leaders in that country. It is currently on sale as political tensions over the "Occupy" democracy protests in Hong Kong, where the company has its primary listing, is negatively affecting share prices. Note: the company does very little business in Hong Kong.
Past Picks: October 24, 2013
BB&T Corp. (BBT-NYSE)
Then: $34.63; Now: $37.26 +7.59%; Total return: +10.43%
Wm. Morrison Supermarkets Plc (MRW LSE & MRWSY-5 NYSE) *Gbp
We sold the Wm. Morrisons at €193.20 – well above the current price – as the negative impact of European food discounters, which are relatively new U.K. market entrants, were driving down profitability of the entire U.K. food retailing sector. While we believe the company has good management, the dividend is safe and the balance sheet is strong there was ample evidence to suggest near term price declines would occur. A price decline subsequently happened and at this lower price we consider the company to be on sale.
Then: GBp282.30; Now: GBp 159.70 -43.43%; Total return: -38.74%
MTR Corp. (HK: 66-HK & MTRJF-5 ADR)
Then: HK$29.40; Now: $30.95 +5.27%; Total return: +8.55%
Total return average: -6.59%
Market outlook:
Finally, we have the long anticipated correction. The causes are many: lofty earnings expectations that haven't been met, political risk in Europe due to the Ukraine crisis and in China due to the democracy challenge from Hong Kong, a China slowdown, commodities prices are in free fall, Ebola, ISIS and/or falling currencies. While falling prices may seem a little unnerving, the likelihood of a major down-draught is limited. Prudent investors should now judiciously use their cash reserves to start picking away at their favourite positions, adding more on dips, re-balancing their portfolio to increase income and perhaps preparing for tax loss sales if appropriate. The global economy continues to heal from the negative effects of the global financial crisis but the recovery will be lumpy not linear. Lower prices now are healthy for the system and will offer better entry levels for the large amounts of cash not yet in the equity markets. Hopefully, the threat of lower prices will bring some sanity back into the global bond market and the seriously overheated real estate markets.