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number cruncher

What are we looking for?

What the fund pros are buying.

Investors can get stock tips or gain insight about a fund by checking their top securities. Today, we look at top equity holdings in Mackenzie Cundill Canadian Security at mackenziefinancial.com.

More about the fund

The $1.6-billion Canadian-focused equity fund has been run by Lawrence Chin since 2008. The fund's A-version posted an 18.3-per-cent return for the year ended April 30 compared with 17.2 per cent for the S&P/TSX Total Return Index. Over three years, it has an annualized 8.9-per-cent return versus 3.1 per cent for the index.

As a deep-value investor searching for stocks trading below intrinsic value, he finds it tougher to find bargains in Canadian market, which has largely been fuelled by commodities over the past decade. That's why he has boosted the foreign stocks in his fund to 36 per cent, while holding 9 per cent in cash.

U.S. bank stocks, which got beaten up during the 2008 credit crisis, are attractive because they trade well below book value compared with major Canadian banks at two times book value, said the manager with Vancouver-based Mackenzie Cundill Investment Management Ltd. "We think that this is one of the lowest-risk time to buy U.S. banks."

Within Canada, he likes lumber stocks because he expects they will benefit from rising demand from China and an eventual rebound in the U.S. housing market. Natural gas is also an attractive sector to stake out positions for a longer-term recovery in commodity prices, he added.

What did we find?

An eclectic mix of stocks with U.S. financial names such as Bank of America and tech giants Microsoft and Dell waiting for their day in the sun again.

Shares of Bank of America, which was hard hit during the financial crisis, are compelling because they trade at half of book value, said Mr. Chin, who also owns Citicorp, which trades at nearly 70 per cent of book value. "There have not been many times in U.S. history where banks traded below book value. …The last time was during the savings-and-loan crisis in the early 1990s."

But U.S. banks have now raised a lot of capital and decreased leverage on their balance sheets, while the ratio of loan-loss provisions to loans is near all-time highs, he said. "We think they have been very conservative in their provisions, and that number can come down over time, which will add back to earnings."

In Canada, he still likes West Fraser Timber Co., saying it will benefit from an eventual recovery in lumber prices. The forestry company's shares trade at 1.3 times book value, he said. "We like it because it is a low-cost producer in North America and has a good balance sheet. We think management is one of the best in the industry."

Shares of electronics contract manufacturer Celestica Inc. are also attractive, he said. "The company has about $2.70 of net cash per share on its balance sheet and no debt. If you take the cash out, Celestica trades at seven times free cash flow." The firm has a strong management team focused on return on invested capital and shareholder value, he added. "Over the past year, they have bought back close to 8 per cent of their shares."

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