Darren Sissons is managing director at Portfolio Management Corp. His focus is on global large caps.
Top Picks:
China Mobile (941:HK ; CHL NYSE)
- 1) 4.6-per-cent dividend, which is extremely safe,
- 2) best balance sheet of all major large capitalization telecom companies and net cash positive i.e. more cash than total liabilities,
- 3) in recent history the stock has band traded between $46 (U.S.) and $56 a share. However, this will change as the Chinese telecom market is now beginning a phase of deregulation and because CHL’s 4G network roll-out will drive a higher market share of the profitable smart phone segment., and
- 4) CHL is the largest telecom operator in the world and has almost 800 million subscribers.
Paychex Inc. (PAYX NASDAQ)
- 1) 3.5-per-cent progressive dividend,
- 2) very strong balance sheet,
- 3) leveraged to the small business payroll market so declines in U.S. unemployment will drive higher earnings,
- 4) given the payroll float, the company is leveraged to interest rates so higher interest rates will drive higher earnings for Paychex.
Callaway Golf Co. (ELY NYSE)
- 1) modest dividend,
- 2) reasonable balance sheet,
- 3) attractively priced as the recession negatively impacted most U.S. retailers,
- 4) the recovering U.S. middle class consumer is helping drive an improved operating performance, and
- 5) The CEO’s turnaround strategy has refocused and revamped the company’s product line, reduced headcount, improved operational efficiencies, and has cleaned up the balance sheet.
We are now starting to see tangible evidence of a turnaround. Excluding the recent poor weather-related drag, the company is progressing well.
Disclosure: | Personal | Family | Portfolio/Fund |
CHL | Y | Y | Y |
PAYX | N | N | Y |
ELY | N | N | Y |
Past Picks: May 24, 2013
BB&T Corp. (BBT NYSE)
Then: $32.82; Now: $36.81 +12.16%; Total return: +15.10%
Callaway Golf Co. (ELY NYSE)
Then: $6.80; Now: $8.25 +21.32%; Total return: +21.80%
Deutsche Telekom (DTE Xetra)
Then: €9.26; Now: €13.12 +41.63%; Total return: +41.63%
Total Return Average: +26.18%
Disclosure: | Personal | Family | Portfolio/Fund |
BBT | Y | N | Y |
ELY | N | N | Y |
DTE | Y | Y | Y |
Market outlook:
We are less optimistic about the upside for the American markets versus some of their peers. The key statistics we are currently following are: the broadest measure of unemployment, new home construction and consumer spending. All are trending in the right direction but not as quickly as many market participants would like.
The Euro-zone has bottomed but we believe the market got a little ahead of itself last year. Consequently, we are now seeing earnings revisions or missed expectations for some of the cyclicals and the banking sector in particular so share prices are now falling back towards reasonable levels.
Japan is troubling us. We recognized the financial engineering – inflation strategy of Abenomics and the implicit export growth versus currency decline dynamic but concerns around the overall debt levels of Japan and therefore the country's ability to maintain the financial engineering trade long enough to matter is what has kept us on the side lines.
Emerging markets and developed Asia on balance is where the opportunities lie for value investors right now. Latin America is likely still too early as agricultural and mining commodity prices have fallen significantly so earnings estimates continue lower. On the bright side, the Soccer World Cup followed by the Olympics is a plus. Additionally, Argentina has begun discussions (again) around restructuring its sovereign debt, which is typically a sign that a recession in Latin America is nearing bottom.
Going forward, I suggest some profit-taking on U.S. cyclicals and investors should have sufficient dry powder for better opportunities in developed Asia and in Europe. A correction may or may not occur this year in developed markets but it should be welcomed when it does arrive as it will provide better entry opportunities for high quality companies in developed economies.