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John Zechner.Danny Yu

John Zechner is chairman and chief investment officer, J. Zechner Associates. His focus is North American large caps.

Top Picks:

Walt Disney (DIS-N)

Disney remains a premier player in entertainment content, with additions of Star Wars and Marvel Comics franchises, adding to their Disney/Touchstone movie libraries, ESPN sports, ABC and music. Earnings growth boosted by strength in cross-selling these platforms through theme parks, merchandise, television, internet games and online content. Valuations in the media sector continue to rise as merger activity increases and Disney trades at only a slight premium to overall stock market P/E multiple, despite its proven record of decades of growth.

Manulife Financial (MFC-T)

Manulife has restructured its capital markets exposure and reduced its risk profile significantly, particularly its exposure to stock market volatility. Core earnings continue to grow, and the recent acquisition of Standard Life will add to core growth. Overseas and wealth management operations are also areas of new growth. Asian markets, in particular, are an area of strength not seen in any other major Canadian financial company. Valuation is still below long-term average and a significant discount to Canadian bank valuations. The company will also benefit from rising interest rates when they eventually occur.

Uranium Participation (U-T)

Uranium remains one of few commodities which trades well below its global cost of new production of about $60 (U.S.) per pound. Uranium Participation offers a direct way of owning the commodity without the mining risk associated with publicly-traded uranium miners, effectively allowing investors to buy uranium at $33 per pound, which is a discount to spot price ($34.50) and long-term contract price ($49). Minimal new supply growth, rundown of inventories and strong new demand from new reactors being built in China as well as some re-starts in Japan should all contribute to recovery in uranium price post-Fukushima.

Past Picks: June 2, 2014

Bank of America (BAC-N)

Then: $15.26; Now: $16.75 +9.76%; Total return: +10.84%

Agrium (AGU-T)

Then: $98.12; Now: $132.80 +35.34%; Total return: +39.72%

Google (GOOG-Q)

Then: $553.93; Now: $540.11 -2.23%; Total return: -2.23%

Total return average: +16.11%

Market outlook:

Outlook is cautious. Central banks have over-applied the medicine of zero/low-interest rates, with more success inflating the value of financial assets than stimulating global economic growth. Companies are eschewing real expansion in favour of stock buybacks and mergers, in many cases borrowing funds at low rates to do so. Average investors are being forced into riskier investments in order to receive a normal rate of return. Meanwhile, the global economy is seeing few benefits from these low rates as consumers are still paying down excessive debt loads instead of spending. U.S. growth is slowing down again due to negative impact of a stronger U.S. dollar and low export growth. Europe is growing at only 1.0 to 1.5 per cent at best, despite the influence of quantitative easing, weak euro and low oil prices. Chinese growth is deteriorating as it over-expanded capital spending after the 2008 financial crisis and now needs to push consumer spending as an offset.

Despite weak growth, inflationary pressure could be starting to return due to rising wage growth and a lack of new spending which means that central banks are already behind the curve and will need to raise rates. Earnings growth is slowing down as profit margins are already at all-time highs and revenue growth is coming down. Meanwhile, stock valuations are at levels which were higher only during the tech bubble. While low interest rates could keep stocks rising in the short-term, we see similar warning signs to what we saw in 1999 and 2007. Cash is not looking attractive now, but will be if other financial assets start to fall.