What are we looking for?
What the fund pros are buying.
Investors can get stock tips or gain insight about a fund by checking its biggest holdings. Today, we look at the 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, Mr. Chin is finding it tough to find bargains in Canadian market. 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 Mr. Chin, a manager with Vancouver-based Mackenzie Cundill Investment Management Ltd. "We think that this is one of the lowest-risk times to buy U.S. banks."
Within Canada, he likes lumber stocks because he expects they will benefit from rising Chinese demand and an eventual rebound in the U.S. housing market. Natural gas is also an attractive sector in which to stake out positions while waiting for the price of the commodity to recover, he added.
What did we find?
An eclectic mix of downtrodden stocks. ranging from Bank of America to tech giants Microsoft and Dell, waiting for their day in the sun again.
Bank of America, which was hard hit during the financial crisis, is a compelling buy because it trades 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."
U.S. banks have raised a lot of capital since the crisis and decreased leverage on their balance sheets, while the ratio of their 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 $2.70 of net cash per share on its balance sheet and no debt. If you take the cash out, Celestica trades at seven times free cash flow." The firm has a strong management team focused on return on invested capital and shareholder value, he added. "Over the past year, they have bought back close to 8 per cent of their shares."
TOP 10 EQUITY HOLDINGS FOR MACKENZIE CUNDILL CANADIAN SECURITY AT APRIL 30
|Company name||Symbol||$ Price (May 24)||52-wk high $||52-wk low $||YTD % price chg||1-yr % price chg||3-yr % price chg||Yield %||P/E||Market cap ($-mil)||Volume|
|Bank of America*||BAC-N||11.46||16.20||10.91||-14.1||-25.6||-66.2||0.4||n/a||116,110.4||129,513,380|
|West Fraser Timber Co.||WFT-T||48.90||62.86||32.18||4.4||21.4||40.1||1.2||12.6||2,094.6||40,787|
|Dell Inc. *||DELL-Q||15.45||16.96||11.34||14.0||15.0||-27.1||0.0||9.3||29,459.3||24,198,188|
|*In U.S. dollars. Source: Globe Investor|
© 2007 The Globe and Mail. All rights reserved.
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