Michael Decter is president and CEO, LDIC Inc. His focus is Canadian large caps.
JP Morgan (JPM.N)
JP Morgan is reporting Q4 results later this week, making it the first of the global investment banks to report. Management has aimed for modestly lower trading revenue and lending fees. We continue to like this global leader, particularly in a rising interest rate environment. Litigation expenses have trended down significantly as legacy issues are resolved; Jamie Dimon has navigated well through these challenges. It has a 3-per-cent dividend yield, has grown 12.75 per cent each year for over the last three, pays out in the 30-per-cent range and its valuation is very compelling, trading below 10x PE.
Verizon reports Q4 results on Jan. 21. Expectations for the December quarter have ramped up consistently through 2015. We expect follow-through from strong results posted in Q3.
Verizon is positioned well for long term growth. Its wireless business has been ramping up consistently as it scales out of wireline. The wireline segment remains geared to rural and enterprise. Smartphones make up about 70 per cent of postpaid subscriptions and are in the final stages of its 4G coverage buildout. Network services are becoming a larger component. The company has a 5-per-cent dividend yield, modest low-single-digit growth, a low payout ratio and a strong balance sheet. Verizon has demonstrated that it can grow profitably in a competitive environment. Margins have remained reasonably healthy given the evolution of the industry. It's trading at a considerable discount to Canadian carriers (11x PE vs ~15x for the Canadian group).
Cineplex is the dominant movie theatre owner in Canada with over 70 per cent of screens. Revenue from food sales and advertising in the theatre is rising. 2016 will feature another Star Wars movie as well as Batman vs. Superman and Captain America.
Past Picks: January 14, 2015
Walt Disney (DIS.N)
Then: $94.23 Now: $99.92 +6.04% Total return: +7.33%
Lions Gate Entertainment (LGF.N)
Then: $29.37 Now: $28.62 -2.55% Total return: -1.66%
Then: $44.90 Now: $47.76 +6.37% Total return: +9.82%
Total Return Average: +5.16%
The World Bank has reduced its forecast for world economic growth to 2.9 per cent for 2016. This is an increase from the 2.4 per cent achieved in 2015, but a drop from earlier forecasts of 3.3 per cent growth. The World Bank forecasts recessions for both Russia and Brazil. We expect greater volatility to persist in world equity markets and for interest rates to also remain lower for longer. We have the courage to stay with reliable, growing and dividend-paying companies that are not currently in favour with investors. We will continue our efforts to find new opportunities to earn sound returns for our clients in turbulent markets.
Examples of companies which we continue to favour are Cineplex, the dominant movie theatre chain in Canada; JP Morgan, one of the best managed global banks; DH Corp., a consolidator of financial sector information technology services; Clearwater Seafoods, a growing supplier of protein to world consumers and Walt Disney, one of the leading entertainment companies on earth.