Don Lato is president of Padlock Investment Management. His focus is North American equities.
Apple's valuation continues to be compelling as the stock is held back by the market's desire for new product categories which have not yet arrived. An expected dividend increase in the next few days should help, but the true catalyst will be new products and/or services promised in 2014 – a very reasonable assumption given that arguably the world's best engineering teams has been spending records amount of capital on R&D for the last few years.
Bauer Performance Sports
This company has dominated the hockey category for many years but recent diversification efforts into lacrosse and team apparel have provided a further boost to earnings. The acquisition of Easton's baseball and softball business will close this month and will be immediately accretive to earnings and provide another platform for this excellent management team to continue to grow earnings. Valuation of 11.5X May 2015 is extremely attractive for a world class company with earnings growth expected in the low teens.
From its roots as the National Cash Register Company, the efforts to diversify into a products and services company create a very good business model. Point of sale terminals (primarily self-serve) and ATM machines continue to provide modest growth but recent acquisitions of enterprise software companies such as Radiant, Retalix and Digital Insight provide complementary ongoing service revenues with higher growth potential. Trading at less than 10.0X December 2015 earnings more than adequately compensates for the increased debt load resulting from the most recent Digital Insight acquisition.
Past Picks: March 27, 2013
Dick's Sporting Goods
Then: $47.11 (U.S.); Now: $52.18 +10.76%; Total return: +11.84%
Then: $22.94; Now: $19.89 -13.30%; Total return: -13.30%
New Flyer Industries
Then: $10.19 (Cdn); Now: $11.29 +10.79%; Total return: +16.95%
Total return average: +5.16%
"Now" figures are intraday from the date of the analyst's appearance on BNN Market Call.
In spite of the recent volatility in the equity markets, Padlock remains constructive for the balance of the year. After a very strong year last year for equities, investors should expect more muted but positive returns for the balance of the year. Valuations remain favourable, as do monetary conditions. It may be five years from the market bottom but overall equity market conditions do not suggest a market top but rather the continuation of a long term secular bull market.