Lorne Steinberg's Top Picks for November 11, 2024

Lorne Steinberg, president of Lorne Steinberg Wealth Management, discusses his outlook for the markets.

Lorne Steinberg, president, Lorne Steinberg Wealth Management

FOCUS: North American, global stocks, fixed income

Top Picks: Adobe,Becton, Dickinson and Co. Techtronic

MARKET OUTLOOK:

The recent U.S. election combined with the U.S. Federal Reserve rate cut, has provided another boost for markets. The inverted yield curve suggests further easing by central banks, as inflation is under control. At the same time, it appears that the Fed has achieved its desired soft landing - slowing growth but no recession.

This is normally a perfect backdrop for equities. Rate relief will benefit consumers, and economic growth will help boost corporate profits. The big question for investors is how much of this is already factored into stock prices.

Despite the fact that markets are at all-time highs, the reality is that a small number of stocks have driven the performance over the past few years, while much of the rest of the market has been ignored. The result is that there are many opportunities still to be found.

One risk that should be noted is that the slowdown in China is impacting the profits of most multinationals, and it remains to be seen how effective the recent stimulus efforts by the Chinese government will be. China is the second largest economy in the world, and further slowdown would be a negative.

Discipline is key. Investors should be focused on trimming or selling positions where share prices no longer offer adequate upside and replacing them with companies that offer more compelling value.

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TOP PICKS:

Adobe (ADBE NASD)

Adobe’s shares have underperformed much of the large cap tech sector, despite delivering double-digit revenue growth while investing heavily in research and development. It is already incorporating AI into its core offerings, and we expect that these enhanced products will drive subscription growth and pricing increases over the next few years.

The company generates significant free cash flow (25 per cent of revenues) which has been used for share buybacks and strategic acquisitions. The company is poised to accelerate growth going forward and offers a compelling opportunity given the recent share price performance.

Becton, Dickinson and Co. (BDX NYSE)

BDX is a global medical technology company, manufacturing a broad range of supplies, devices and lab equipment (syringes, catheters, drug-dispensing systems) sold to hospitals, physicians, pharma companies and others. The company has about a 25 per cent share of its addressable market and spends about six per cent of revenues on research and development to maintain its leading position. About 90 per cent of sales are recurring, as many of its products are disposable.

Growth should accelerate over the next few years, leading to improving earnings and free cash flow growth. The balance sheet is in good shape and the company has been taking advantage of its cheap share price by starting to buy back shares. For a company of this quality, the valuation is very cheap, trading at a price to earnings ratio (P/E) of 17, with a healthy growth profile going forward.

Techtronic Industries (TTNDY - ADR)

Techtronic is the global leader in power tools (brands include Milwaukee, Ryobi, AEG, Homelite) as well as such floor care brands as Dirt Devil and Hoover. The company’s growth soared during COVID-19, and then decelerated, but market conditions have normalized, and the company is poised to resume a healthy growth rate of around 10 per cent revenue growth.

There is some sensitivity to the construction market, but the company has an outstanding track record of growing earnings and cash flow through market cycles.

This global market leader is trading at a steep discount to its underlying value and should reward shareholders in the coming years.

DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDADBE NASDYYYBDX NYSEYYYTTNDY-ADRYYY

Past Picks: SEPTEMBER 6, 2023

Allstate (ALL NYSE)

Then: US$107.93Now: US$199.97Return: 85%Total Return: 89%

CVS Health (CVS NYSE)

Then: US$65.51Now: US$56.15Return: -14%Total Return: -10%

ING Groep NV (ING NYSE)

Then: US$13.80Now: US$16.10Return: 17%Total Return: 25%

Total Return Average: 35%

DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDALL NYSEYYYCVS NYSEYYYING NYSENNN