David Fingold is vice-president and portfolio manager at Dynamic Funds. His focus is global equities
Strauss Group (STRS IT)
Based in Israel, Strauss is composed of three key segments. Sabra Dipping produces Middle Eastern salads and dips, such as hummus and baba ghanoush. They are the market leader in North America and are expanding into Europe. The growth in these products has been strong given their appeal to health-conscious consumers. Strauss's food division in Israel is one of the largest producers of dairy, snack foods, coffee and salads. Israel is one of the few developed countries with significant population growth. Strauss' coffee division is the leader in Brazil and Eastern Europe. Those markets are depressed and improving.
Inficon (IFCN SW)
Inficon is a manufacturer of vacuum metrology equipment based in Bad Ragaz, Switzerland. They are the global leader in leak detectors used in manufacturing and maintenance of refrigeration and HVAC equipment. They also make metrology equipment for semiconductor manufacturing. The current upgrade cycle of the foundries for smaller nodes and the shift toward EUV lithography is a big opportunity for them. They also produce equipment that provides real-time environmental monitoring including their Hapsite product, which is used by the military and homeland defense to detect and characterize chemical weapons. Their margins have been slightly depressed recently and can recover as volumes return in more cyclical end markets.
Keyence (6861 JP)
Keyence is a Japanese company that makes sensors used in factory automation. One of their key areas of strength is machine vision systems. Manufacturing is moving toward more and more automation in order to attain higher levels of quality. Clients of Keyence usually see rapid payback from installing their sensors. As a result, they have been able to grow their operating profit in most circumstances since they were founded. They have some of the highest margins in the electronics industry globally and a very significant amount of cash on their balance sheet.
As a bottom-up stock picker, I don't normally provide market forecasts. The direction of the market is more important to users of index funds and closet index investors (of course that likely accounts for over 75 per cent of investors, but they won't be interested in what I have to say). We tend to stay nearly fully invested unless credit markets become unglued. A look at the Investment Grade Credit Index would suggest that there is no need for immediate concern. Those who should be concerned are investors who have gambled their money on the industries that have continued to deteriorate from peak of cycle, like energy, mining and commercial aerospace. It will take many years to clear the massive mal-investment in those industries. Perhaps investors in ultra-expensive defensive issues, such as REITs, utilities and telecommunications, should also be concerned. Those issues appear to be priced for a continued environment with no growth. Investments in consumer staples should likely be quite selective, given they have been bid up by the same buyers as other high dividend yield-paying industries. The valuation of high dividend yield companies is at record levels.
At the same time, there is much to choose from for anyone looking to build a concentrated portfolio of high-quality companies with some prospect of growth. What we mean by that are companies with strong balance sheets and margins and returns that are well above average. As credit spreads are likely to widen slowly over time given the shift of the Fed Senior Loan Officer Survey toward tightening, issues with weak balance sheets should be avoided.Report Typo/Error
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