Norman Levine.Fred Lum/The Globe and Mail
Norman Levine is managing director at Portfolio Management Corp. His focus is on North American large caps.
Top picks:
Wright Medical Group
Wright is in the replacement body parts business, with a specialty in extremities – fingers, wrists, ankles and toes. The market is growing nicely and a recovering economy means more operations as insurance coverage grows with employment growth. Wright is selling its hip and knee business to concentrate on extremities. The company has a great chief executive officer who is likely to sell the company at some time in the future to one of the major orthopedic players. No dividend – so not for income-seeking accounts.
Callaway Golf
Callaway is a turnaround story in the golf business. It has a new chief executive officer (the former head of Adams Golf). He is refocusing and revamping the company's product line, reducing headcount, improving operational efficiencies, and cleaning up the balance sheet. We are already seeing tangible improvement as the company's most recent quarter showed gains in sales, earnings, and market share. It is still early in the turnaround process and it is important for investors to understand that turnarounds are risky and often take longer than you expect but, when they work, the stocks usually go further than you expect. Minimal dividend – so not for income-seeking accounts.
Sun Life Financial
Sun Life is an anti-bond equity. Its value should rise as interest rates on bonds go up. That is because it invests the premiums it earns on its policies largely in bonds so higher interest rates means higher profits. Sun Life is also very large and successful in the fund management business through its subsidiary, MFS Investment Management of Boston. Sun Life sports a 4.3-per-cent dividend which should grow along with earnings.
Past Picks: July 27, 2012
Covidien
Then: $55.53
Now: $61.79
Total return: +24.42 per cent
Please note: Covidien recently spun out to shareholders its Mallinckrodt division. Covidien shareholders received 1 share of Mallinckrodt (MNK-N) for every 8 Covidien shares they owned.
Wright Medical
Then: $18.83
Now: $27.52
Total return: +46.15 per cent
Talisman Energy
Then: $12.71
Now: $11.79
Total return: -5.12 per cent
Total return average: +21.82 per cent
Market outlook:
We continue to believe equity markets (especially outside of Canada) have further room for upside and we continue to recommend investors increase their allocation to equities while reducing their allocation to bonds and preferred shares. The out-performance of most international markets relative to the TSX over the last three years demonstrates the benefits of an internationally-diversified portfolio. Canadians should use our strong currency (while we have it) to pick up high quality, best-of-breed companies across the planet. Assuming investors follow this advice they will: achieve higher average dividend yields, generally invest at lower valuations, and invest in markets growing faster than Canada.