Darren Sissons is managing director of Portfolio Management Corp. His focus is on global large caps.
Corning Inc.
Corning has a progressive dividend currently yielding 2.9 per cent; a very strong balance sheet; a $1.5-billion (U.S.) share buyback recently completed; and a new buyback authorization likely. All of the company's major product lines (TVs, adhesives and solar) are at the bottom of the cycle. Any recovery in consumer demand will push revenue and earnings up. Longer term, fibre-to-the-home will drive higher telecom revenue and this business unit's revenues are effectively tied to a multiyear, global upgrade cycle of inner city and suburban fibre optic loops.
Callaway Golf Co.
Callaway offers a modest dividend and a reasonable balance sheet and is attractively priced as the recession has negatively affected most U.S. retailers. The recovering U.S. consumer will help drive an improved operating performance moving forward. The new CEO's turnaround strategy has refocused and revamped the company's product line, reduced head count, improved operational efficiencies, and is cleaning up the balance sheet. We should see tangible evidence of the turnaround early in 2013.
Wm. Morrison Supermarkets PLC
The chain has a progressive dividend currently paying 4.3 per cent and a €1-billion share buyback is almost completed. It has a strong balance sheet including owning +90 per cent of its real estate assets. It is currently inexpensive as many investors have the exited the U.K. market due to the negative impacts of the continuing European recession.
Past picks: March 01, 2012
Carlsberg Group
Then: DKK 442.30
Now: DKK 590.50
Total return: +35.12 per cent
MTR Corp. Ltd. (Hong Kong)
Then: $27.35
Now: $31.85
Total return: +19.72 per cent
Corning Inc.
Then: $12.97
Now: $12.78
Total return: –0.55 per cent
Total return average: +18.10 per cent
Market outlook:
The markets started well this year, as they typically do. The run won't last and it will likely lose steam after the conclusion of the RRSP/401K seasons. The U.S. will continue grinding higher but news headlines and a poor political environment will support continuing U.S. market volatility.
Europe is taking the medicine required to fix its ailing economy. Banks must be recapitalized, austerity programs have been introduced and taxes will rise so companies with euro zone exposure will see a decline in earnings over the next three years.
Growth will continue across Asia but will be flat or modestly weaker than in prior years as the region's major trading partners are either recovering from or declining into recession.
Canada is likely to see flat to lower commodity prices but this weakness will be somewhat offset by opportunities created by a continuing U.S. recovery.
Latin America is growing but inflation and government interference are still major problems. The weaker outlook for agricultural commodities may also be a concern.
The wild card is when the grinding impact of low interest rates finally will drive investors en masse back into equities. When this switch from debt into equities broadly occurs, stocks will rally substantially higher.