Norman Levine is managing director of Portfolio Management Corp. His focus is North American large caps.
Bank of Nova Scotia (BNS-T)
We only own one Canadian bank, Bank of Nova Scotia, preferring to own life insurance companies in Canada and banks in the U.S., Europe and Asia. The reason we only own one Canadian bank is we believe that outside of capital market activities, Canadian banks face headwinds that will retard earnings and dividend growth from historical levels, while foreign banks will show stronger earnings and dividend growth. That said, we have a double weight position in Bank of Nova Scotia. While its Latin American and Asian exposure is currently viewed as a negative, we believe it will fuel superior growth in the future, and we like that Bank of Nova Scotia has more exposure outside Canada than its major competitors. It is the cheapest of the Canadian banks and sports a 4.2-per-cent yield.
Badger Daylighting (BAD-T)
Badger is North America's largest high-pressure water excavating company. Its main customers are utilities and energy companies who need to move earth without disturbing an existing infrastructure. The growth for this company has largely been in the United States as it has been building its presence in that market. The stock has been affected by its 50-per-cent exposure to energy markets but its ability to move equipment from energy projects to other areas and its continuing growth in the U.S. have helped offset that weakness. We think that this current weakness in the energy area has given investors a buying opportunity in the stock. While originally bought as an income stock, its current yield is 1.2 per cent.
SGS (SGSN Swiss Exchange) (SGSOY.PK)
SGS, based in Geneva, Switzerland, is the world's leading inspection, verification, testing and certification company. It has over 80,000 employees and 1,650 offices and laboratories around the world. It is quite possibly one of the world's largest companies you have never heard of. This is a turnaround story. The former CEO was ousted in Q1 and replaced by a Swiss-Chinese national who has a long tenure with the company and was involved in the launch and rapid growth of its fast-growing consumer business segment. The company should become more cost-focused under him and he should aid the company in its quest to expand into the poorly penetrated Chinese market. As mining and energy constitute 32 per cent of revenue, the stock has suffered along with commodity stocks. As this is a temporary phenomenon and has nothing to do with how the company is managed, it provides a buying opportunity for long-term investors.
Past Picks: June 23, 2014
Kone OYJ (KNEBV Helsinki) (KNYJY.PK)
Then: €31.50; Now: €39.10 +24.13%; Total return: +27.84%
CCL Industries (CCL.B-T)
Then: $103.02; Now: $144.74 +40.50%; Total return: +41.61%
Pall Corporation (PLL-N)
Then: $86.43; Now: $124.81 +44.41%; Total return: +46.34%
Total return average: +38.60%
Not much has changed since my last BNN Market Call appearance. Ultra-low interest rates and even negative interest rates in some countries are fuelling stock markets around the world as investors are desperate for returns. We find valuations generally on the high side, and find it much easier to sell stocks than to buy them at current prices. That is usually a warning sign for us. In Canada in particular, the recent rally in oil stocks has run its course (as has, we believe, the rally in oil) and we would be lightening positions in that area. We have been building cash in anticipation of spending it on stocks we like at lower prices in the future. That said, we are finding values in Europe and Asia are currently more attractive than those in North America.