Weekly Market Update
Dow 10,000
It doesn’t seem long ago that we stared into the Abyss at Dow 6,500 (7 months ago), but here we are at that headline milestone (for the 27th time). So what if it is exactly the same value ten years ago (Dow 10,021 October 15 1999). The point is that we have seen a powerful cyclical rally off depressed levels. The question is there value left?
It is true that many company’s strong returns were due to them being at severely depressed values. It is also true that the rally has been mainly cyclical in nature via commodities, industrials, and materials. However, in all the excitement there has been a basket of companies which have been largely ignored, namely non-cyclical companies. In some instances, these companies are quietly doing a great job at the company level, but attention has been pointed elsewhere. Thus, today’s note highlights a few companies that we like and which offer excellent absolute and relative gains going forward as attention begins to be paid.
At Van Arbor, we aim for a highly selective portfolio with only high conviction ideas. This allows us to derive the maximum benefit from the best opportunities rather than mix in mediocre ideas. From our perspective, many of these companies below have very stable and visible earnings which we believe the market is undervaluing. Also, if the market were to flatten out, these companies will become even more attractive with their dividend yields and thus would perform relatively well.
Safeway (World Fund)
Keys: Management & operational restructuring complete, excellent value (sitting at 10 year lows)
Catalysts: profit margins improving, low earnings expectations.
Japanese Utilities (World Fund)
Keys: Tremendous Value (multi decade lows from many angles), Steady dividend yields
Catalysts: Yen is topping out which should rev up exports/electricity demand
Shaw Communications (Canadian Fund)
Keys: Cash Cow, big dividends
Catalysts: Growth, bought wireless spectrum in recent auction, starting to get some attention.
Shopper’s Drug Mart (Canadian Fund)
Keys: Relatively cheap
Catalysts: ignored, yet earlier expansion is starting to contribute to earnings
