Lorne Steinberg's Top Picks
Lorne Steinberg, president, Lorne Steinberg Wealth Management
FOCUS: Global value stocks and high yield bonds
As we enter 2022, the pandemic remains a fact of life, with its evolving strains presenting challenges. At times, it seems that the cycle of on-again/off-again lockdowns will be with us for years. However, science is catching up and there are presently over 100 COVID-19 vaccine candidates undergoing clinical trials. The following quote from Churchill may offer an apt description of the current situation:
“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Despite the impact of COVID, the world has adapted, and we expect another year of strong economic growth. The same should be true for corporate profits. Companies are benefitting from strong demand and consumers are in very good financial shape. Although supply chain issues remain a negative in the short-term, this should prove to be transitory as we are already seeing signs that the worst is over.
Most of the businesses we have invested in will continue to grow in spite of the pandemic. The reality is, regardless of how long COVID stays with us, we still must use banks and insurance companies, go to the pharmacy, use Microsoft Windows and search on Google. Even Disney, with its theme parks, was able to pivot by quickly expanding its streaming platform.
Alphabet’s share price has been under pressure due to the recent sell-off in tech stocks, and this provides an excellent opportunity to buy a market leader on sale. The company continues to benefit from the ongoing shift to online advertising where it is the market leader, as advertising accounts for over 80 per cent of revenues.
Despite its size (annual revenues are over $200 billion), Alphabet should continue to grow its top line by 15-20 per cent per year, and its earnings should rise at an even faster pace. At the current price investors can buy a growth stock at a value price as the P/E is only 20, and the shares offer significant upside from here.
Universal Music Group (UMG AMS)
UMG is the global leader in music – both recorded and publishing with more than 50 labels. It is home to many of the greatest selling artists of all-time (The Beatles, Rolling Stones, U2, Lady Gaga, to name a few). Streaming and subscription services now account for about 50 per cent of revenues. There are only three major companies of size and UMG is 50 per cent larger than the next largest competitor.
This company was recently spun out of Vivendi, so it has a new public company, but we anticipate 10 per cent revenue growth, healthy profit margins which should translate into rising profits for years to come. A number of well-known artists have recently sold their catalogues at hefty valuations which gives some idea of the underlying value of this unique business.
Viatris is a relatively new company formed by the merger of Mylan and the Upjohn division of Pfizer. About half of its revenues are from branded drugs (Lipitor, Xanax and Viagra), with the balance from generics, biosimilars and OTC products. The company is using its significant cash flow to develop its pipeline, as well as paying a dividend.
In terms of valuation this is by far, the cheapest stock we own, as it trades at a P/E of only four! Despite a disappointing couple of quarters in the first half of 2021, recent results have been encouraging and we anticipate strong results in 2022. At the current price, investors should be very well rewarded in the coming years.
PAST PICKS: January 22, 2021
CVS Health (CVS NYSE)
- Then: $74.12
- Now: $105.80
- Return: 43%
- Total Return: 46%
Electronic Arts (EA NYSE)
- Then: $146.00
- Now: $131.69
- Return: -10%
- Total Return: -9%
Goldman Sachs (GS NYSE)
- Then: $289.39
- Now: $347.40
- Return: 20%
- Total Return: 22%
Total Return Average: 20%