Lorne Steinberg is president of Lorne Steinberg Wealth Management. His focus is deep value global equities.
Alcoa has transformed itself from a commodity-based aluminum producer, into a company focused on delivering value-added engineered aluminum products. Alcoa's earnings over the next few years will benefit from increased demand from the auto sector, as well as from recent acquisitions. The aluminum sector is in the early stages of recovery, and Alcoa's share price offers an excellent entry point.
Xerox has emerged as a major player in the business process outsourcing industry, while maintaining its presence in document management. This company generates significant free cash flow, which has been used for acquisitions, share buybacks and dividends. At the current share price, Xerox trades at only nine times free cash flow, a cheap valuation in the present environment. We expect that earnings will rebound in the second half of this year, and accelerate into 2016.
Takasago (4914 – Tokyo Stock Exchange)
Takasago manufactures flavours and fragrances for the food, beverage and cosmetics industries. The company has grown its revenues over the past several years through international expansion, which should continue for the next several years. This is another compellingly cheap Japanese company trading at a steep discount to tangible book value, with significant upside from the current share price.
Past Picks: April 23, 2014
Manulife Financial (MFC.TO)
Manulife is delivering double-digit earnings growth, and still looks attractive at the current valuation.
Then: $20.60; Now: $23.00; +11.65%; Total return: +15.65%
Cisco Systems (CSCO.O)
Although not the growth stock of past days, Cisco offers investors steady dividend and earnings growth, while maintaining its huge cash hoard. A premiere technology company trading at a cheap valuation.
Then: $23.50; Now: $29.08; +23.74%; Total return: +27.45%
Topre (5975 – Tokyo Stock Exchange)
This boring manufacturer of electrical components has become a growth story. An example of the changing nature of many Japanese companies. Shares still trade at only 11 times earnings.
Then: JPY 1048.00; Now: JPY 2157.00; +105.82%; Total return: +108.71%
Total Return Average: +50.60%
I would like a moment to add a few words about "The importance of asset allocation in the present environment", as we have just written a report which is available to subscribers to our website. Asset allocation is often a misunderstood concept and investors often base asset allocation on the recent past which is usually a big mistake.