John Kim is a Portfolio Manager with Aston Hill Financial. His focus is on North American equities.
Top picks
First Data Corp. (FDC-N)
First Data is a merchant payment processing company that came out of private equity one year ago. It is in a structural growth sector as U.S. consumers migrate from cash and cheques to debit and credit transactions. Company has restructured its balance sheet to lower debt service cost and is using its high free cash flow generation to pay down debt. Also, it is re-investing in R&D (which it curtailed during PE years), and fruits of this should start to appear next year. Its valuation is also much lower than its peer group. The stock recently came under pressure after it was announced a large shareholder was being investigated for insider trading in an unrelated company.
Mellanox Technologies Ltd. (MLNX-Q)
Mellanox is a leading technology company that develops interconnect products to connect servers, storage, data centres, etc. There is a big migration to increased interconnect speeds with the massive growth in data consumption. Valuation is low compared to other high-growth companies, trading at 7 per cent free cash flow yield and less than 11x 2017, with earnings growing 15 per cent to 20 per cent.
Genworth MI Canada (MIC-T)
The second-largest Canadian mortgage insurer after CMHC. The stock was hit after the Canadian government brought in new mortgage rules. Investors fear that the new rules will burst the housing bubble and that home prices and the number of transactions will dramatically decrease. We don't think there will be a housing crash. We do think the number of transactions will slow but that there is now less risk to MIC. So the risk-to-reward is pretty good. Plus, the stock offers an almost 6-per-cent dividend yield.
Past Picks: Aug. 22, 2016
First Data Corp (FDC-N)
Then: $13.36 Now: $13.99 4.71% Total return: 4.71%
XPO Logistics (XPO-N)
Then: $36.46 Now: $32.93 -9.68% Total return: -9.68%
Badger Daylighting (BAD-T)
Then: $26.65 Now: $28.98 8.74% Total return: 9.12%
Total Return Average: +1.38%
Market outlook:
The market is in a period of uncertainty due to the U.S. presidential election and whether or not the Federal Reserve will raise rates by the end of 2016. We are also in earnings season, and although companies are generally beating significantly-lowered expectations, top-line growth is still anemic. Markets are showing a seesaw pattern, going up one day and down the next. This chop has been going on since July. I think once election is over we will get a better picture of where market is headed. I believe 2017 will be OK, and the market will climb the wall of worry.