John Zechner.Danny Yu
John Zechner is chairman and founder at J.Zechner Associates. His focus is North American large caps.
Top Picks:
CGI Group (GIBa.TO)
Last purchased in Oct. 2015 at $47
The company has effectively positioned itself as a facilitator for the migration of corporate IT systems to cloud-based services in key industries such as health care, financial and government services. While organic growth is slow, the company generates substantial free cash flow, which it has used for accretive global acquisitions such as Logica in 2012. Valuation is reasonable at 15x forward earnings with the potential for upside from further acquisitions as the industry continues to consolidate.
Manulife Financial (MFC.TO)
Last purchased in Feb. 2016 at $15.80
A recent miss in core earnings as well as an admission that they won't hit their core earnings target of $4-billion in 2016 has created a buying opportunity in Manulife's stock. It is trading around 8x expected 2016 core earnings . Wealth management continues to grow in North America, while acquisitions in Asia make this one of the better "global growth" financial plays in Canada. Stabilization in financial markets, a recovery in the energy sector or further acquisitions could all accelerate the recovery as the stock trades at distressed levels.
Freeport-McMoRan (FCX.N)
Last purchased in Feb. 2016 at US$4.80
This stock is down over 90 per cent from its 2011 high as an ill-timed purchase of oil and gas assets added financial leverage at the wrong time. The company has best-of-class copper assets and has made asset sales to meet financial obligations. Now it should benefit from a recovery in the resource sector and could easily double from current levels if commodity prices start to rebound. It could also become a target for corporate activity, as large investors become more active in restructuring.
Past Picks: March 9, 2015
Catamaran (CCT.TO) *Acquired by UnitedHealth
Then: $60.88 As of July 27, 2015: $80.18 +31.70% Total return: +31.70%
Detour Gold (DGC.TO)
Then: $9.51 Now: $19.90 +109.25% Total return: +109.25%
Torstar (TSb.TO)
Then: $6.51 Now: $2.24 -65.59% Total return: -61.19%
Total Return Average: +26.59%
Market outlook:
While we have been exceptionally bearish on the outlook for stocks over most of the past eighteen months, it was primarily because investors were too complacent about risk and dependent on central bank easing to justify high valuations, despite slower growth. But we do not expect this slowdown to deteriorate into a recession any time soon, and we believe that stocks can rebound now that valuations have been brought down to more normal levels, investor exuberance is reduced and economic growth stabilizes.
We are not bearish on the stock market over the longer term and are always looking for opportunities to add to strong stocks and industries at reasonable valuations. The stock market carnage over the past year is starting to create some such opportunities. Canadian stocks have underperformed for four years, European stocks are now down over 20 per cent from last year's highs and the emerging markets are down as much as 40 per cent from peak levels. We have used the recent weakness to add to some positions in the technology, financial service, materials and energy sectors in both the U.S. and Canada. We also think that the German stock market could be one of the better performers outside of North America, as that market is under-valued relative to historical levels, the economy is recovering and they also have the benefit of continued monetary support from the ECB through its quantitative easing. The euro also appears to have found a bottom versus the U.S. dollar, which would be more of a tailwind for investments in that market going forward.
The "long the U.S. dollar" trade is extremely crowded right now and could reverse, as the gap between economic growth in the U.S. versus other industrialized countries begins to narrow. That will shift stock buying stratgies from growth to value and will likely signal a bottom in the cyclical/resource sectors of the market.