Jennifer Radman is portfolio manager at Caldwell Investment Management. Her focus is on U.S. equities.
Top Picks:
Chevron
Chevron is an extremely well run global energy company, boasting some of the best operating metrics in the industry. There was an overhang on the stock as the company was spending a lot of capital on growth projects but this high capital expenditure period is coming to an end. Concerns have started to ease as production growth is set to accelerate starting next year. The balance sheet is in a very strong, net cash position and this allowed the company to take advantage of companies that were forced to liquidate assets when natural gas prices collapsed. We think the shares go higher on the back of production growth and multiple expansions.
Brookfield Office Properties
The company has a block of office space in lower Manhattan that it needs to find a new tenant for. The uncertainty around when a new tenant will be found and when they will begin occupying the space (and paying rent) is causing an overhang on the stock. One of our objectives as managers is to look at a situation and asses whether the discount in a stock is related to temporary or longer term challenge. In this case, we see lease transitions as a normal part of being a landlord. Five years down the road, the company (and investors) will be looking at this period as a minor hiccup. An announcement on leasing progress, which we expect over the next twelve months, should act as a positive catalyst for the stock.
FedEx
FedEx recently reported earnings that were slightly ahead of expectations. The company reaffirmed this year's guidance and said that its substantial cost reduction program was ahead of schedule. FedEx is implementing a $1.6-billion (U.S.) cost cutting initiative where one-third of the savings are from new, more efficient aircraft, one-third from voluntary retirement and the remaining third from general expenses. Cost benefits start in 2015 and would increase operating earnings by 50 per cent. We like the fact that earnings can growth without having to grow revenue, and also that FedEx remains profitable even in recessions.
Past Picks: February 20, 2013
Kohl's
Then: $46.57
Now: $52.60
Total return: +15.32 per cent
Cisco Systems
Then: $21.11
Now: $24.51
Total return: +17.89 per cent
General Motors
Then: $27.10
Now: $36.83
Total return: +35.90 per cent
Total return average: +23.04 per cent
Market outlook:
Markets continue to react strongly to decisions out of the Fed and it is likely that speculation around when the Fed will start to taper asset purchases will continue to cause volatility down the road. We continue to buy into market dips driven by this (and other events, like Syria), as valuations in select companies continue to look compelling. In terms of how to position your portfolio, there are three common themes across many investor portfolios that we are advising against:
- 1) owning too many stocks (more than 30) or a portfolio that looks like the index;
- 2) pursuing a "safety"/yield strategy;
- 3) not having enough exposure to U.S. stocks.
Concentrated portfolios (25-30 stocks) and active management (not looking like the index) are key as not all areas of the market are attractive. We see the popular yield strategy, for example, as continuing to pose significant risks to capital loss as valuations remain well above historic levels (even with the poor performance of these names this year). We see the best opportunities in more cyclically-tied companies with strong balance sheets and management teams that are prudent with capital allocation. Many of these companies trade in the U.S. and so we currently have over 50-per-cent exposure to the U.S. market for our clients.