David Driscoll is president & CEO, Liberty International Investment Management Inc. His focus is global equities.
Dassault Systemes (DSY FP)
The company makes CAD/CAM software for engineers, architects, scientists and inventors. It lets them create a three-dimensional model of a product, simulate its assembly, and test it before building a prototype. This helps customers identify the "next big thing" and ensure it can be done at the lowest cost, and with the greatest manufacturing efficiency.
Atrion Corp. (ATRI.O)
The company makes medical products such as IV clamps, contact lens cases, pull-straps for life-saving vests and cardiovascular products that deliver essential fluids and medications to the heart during open-heart surgery. The firm is not covered by any brokerage analysts and has grown its profits and dividends at a double-digit pace.
Jardine Matheson (JM SP)
The company is a huge conglomerate in the Asia-Pacific region that has been around since the 1800s. Its activities include financial services, supermarkets, consumer marketing, engineering and construction, automobile dealerships, real estate holdings, as well as hotels and restaurants.
For investors, it's a one-stock holding that covers all the Asian-Pacific economies. The stock trades at 11 times earnings, its dividend has grown about 10 per cent a year and its leverage is small. If the region suffers a sell-off, Jardine has the capability to make cheap acquisitions, something that management has done successfully in the past.
Past Picks: May 20, 2014
Fortis Inc. (FTS.TO)
Then: $32.41 Now: $36.52 +12.68% Total return: +19.04%
Getinge AB (GETIB SS)
Then: SEK 190.20 Now: SEK 192.30 +1.10% Total return: +2.44%
FEI Company (FEIC.O)
Then: $80.14 Now: $69.46 -13.32% Total return: -11.27%
Total Return Average: +3.40%
Removing extraordinary items from earnings, the true Price-Earnings (P/E) ratios for most indexes currently exceed 22 times, making the markets frothy and close to historical peaks. It's no surprise, therefore, that we're in the midst of a market correction. And, because of lower revenue growth and operating margins, future profits are expected to slow, shifting trading strategies from momentum-based to value-based.
As stock prices rose these past six years, the prudent action was to accumulate cash. As the market rose, investors still participated in the rally. Since the market is in a correction phase, the prior accumulation of cash has reduced potential losses and provided opportunities to buy stocks at cheaper prices.
Having some cash available is often a good strategy, as it lets investors take advantage of market corrections and buy gradually. No more than a 20-per-cent cash weighting is recommended. Holding too much cash forces an investor to pick the market bottom (something I've never seen anyone do in my 36 years of investing). Instead, use a pragmatic approach. Leave emotions at the door, make a plan before investing and stick to it. It ensures that you won't run out of money and it will let you sleep at night.