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Don Lato is president of Padlock Investment Management. His focus is on North American equities.

Top picks:

NCR Corp.

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NCR's progression from a hardware company to a hardware and services company continues as they continue to digest the software acquisitions made over the last few years. Forecast earnings growth of 15 per cent exceeds current price/earnings multiple of 11.0 X 2014 earnings. Recent pullback from 52-week highs provides a great entry point.

Parex Resources Inc.

Parex has created a solid exploration and production base on its properties in Columbia. Production has grown by over 50 per cent this year to a current estimate of 15,700 boe/day and the company has guided to a 15-per-cent increase in production next year. Several exploration announcements are expected over the next few weeks that could be the catalyst to propel the stock higher than its current extremely low valuation of 2.7 times this year's cash flow.

Sears Holdings Corp.

Although its most recent earnings report continued the series of quarterly losses that Sears Holdings has endured, the company has also announced a number of value realization measures in the last month, including the sale of some Canadian real estate and the possible spin-out of their Lands End and Sears Automotive businesses. Under the guidance of chairman and largest shareholder, Eddie Lampert, the value realization plan will continue and could lead to significantly higher share prices. A high risk/high reward investment.

Past Picks: December 6, 2012

Hi-Crush Partners LP
Then: $16.22 (U.S.)
Now: $31.80
Total return: +144.49 per cent

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New Flyer Industries Inc.
Then: $8.00 (CAD)
Now: $10.46
Total return: +38.33 per cent

NCR Corp.
Then: $24.91 (U.S.)
Now: $34.84
Total return: +39.86 per cent

Total return average: +74.23 per cent

Market outlook:

With the 2008 real estate bubble and the 2000 stock bubble firmly entrenched in investors' memories, talk about a bubble in the equity market after its 5-year move off the bottom has increased in the last few weeks, including the cover of Barron's two weeks ago. In my experience, bubbles are recognized with hindsight and not foresight and when everyone is looking for a bubble, they are apt not to appear. There are "bubble-like" characteristics in some sectors of the market (eg. social media stocks) but many of the characteristics of past bubbles are simply not there. I remain constructive on equity markets but do acknowledge that another 28-per-cent increase in the S&P 500 (2013's YTD return) is unlikely to occur in 2014.

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