Lorne Steinberg is president of Lorne Steinberg Wealth Management. His focus is value stocks and high-yield bonds.
Goldman Sachs (GS.N)
With global investment banks reducing exposure to proprietary trading and related businesses, Goldman Sachs stands out as remaining committed to these areas. Reduced competition will lead to expanding margins which should drive earnings growth over the next few years, despite the difficult low interest rate environment. Goldman Sachs is a global market leader whose shares are on sale.
Most recent purchase: July 7, 2016 @ $147.50
Koninklijke Philips N.V. ADR (PHG.N)
Philips recently completed an IPO of its lighting business and is showing impressive growth in its health technology segment. Margins are rising and revenues are growing, which should lead to healthy earnings improvement. We anticipate EPS growth of 15 per cent in each of the next 3 years, which suggests that these shares are very cheap. The dividend yield is 3.2 per cent.
Most recent purchase: July 12, 2016 @ $25.43
KOA Corporation (6999.TSE)
KOA is a 75-year-old Japanese company which manufactures specialized resistors, sensors and other electronic components for a variety of industries including the telecommunications, auto and energy efficiency sectors. The company is global and is a leader in its niches. The shares offer outstanding value, trading at less than working capital , a 50-per-cent discount to tangible book value with a 3.5-per-cent dividend yield. The company is generating excellent cash flow, and earnings will benefit if the yen weakens.
Most recent purchase: July 9, 2016 @ 789 yen
Past Picks: October 5, 2015
Cisco Systems (CSCO.O)
Cisco had another good quarter and continues to deliver increasing free cash flow. The company is trading at a very cheap valuation, especially adjusting for its net cash, and we expect ongoing earnings growth and healthy dividend increases for years to come.
Then: $26.85 Now: $31.01 +15.49% Total return: +18.57%
Corning's earnings are somewhat cyclical, but its free cash flow generation is impressive, The company has bought back a significant amount of its shares over the past few years while maintain revenue growth. It is a global leader in high-tech specialty glass — which is a growing industry — and the company is well-positioned for significant earnings through 2020.
Then: $17.64 Now: $22.80 +29.25% Total return: +31.92%
ING Groep (ING.N)
ING is in far better shape than the rest of the European banking sector, with a pristine balance sheet and a strong capital position. Earnings growth has been impressive and we anticipate rising profits over the next several years. The shares trade at less than 10 times earnings, a 20-per-cent discount to tangible book value and pay a sustainable 6.3-per-cent dividend – compelling value with a great yield.
Then: $14.78 Now: $11.78 -20.30% Total return: -17.27%
Total Return Average: +11.07%
Zero-interest-rate policy is impacting equity markets as corporate earnings have declined while equity markets have been stable. Therefore, valuations are getting expensive, as evidenced by the S&P 500 P/E ratio of 20. The utilities, pipeline and consumer sectors are overvalued as investors are paying hefty valuations for stable dividend-paying companies. Central banks are in no hurry to raise rates, and bond yields keep declining, but these yields are not sustainable. More than ever, investors need to focus on value. Buying indexes is a losing strategy in this market.