by Scott Ronalds
You’ve probably been hearing it again. “The market is at an all-time high.” Better get out, right?
Not so fast. Timing the market is a mug’s game. Nobody can do it successfully over time. And while “the market” may be at an all-time high, there are plenty of stocks and industries that are well below their peaks or have simply been treading water. Although some stocks appear expensive, others are downright cheap.
The U.S. market (which is the proxy for most commentary on stocks) has been driven by a group of fast-growing companies, largely in the tech space. Sure, there have been big winners in other sectors that have contributed to the market’s fantastic rise over the past several years, but it hasn’t all been roses. Just ask an oil & gas analyst. Or a deep value investor.
Nevertheless, the media loves this phrase. It makes for a great headline and is a good scare tactic, as I wrote in the fall of 2017 — when the market was at an all-time high.
In our funds, we certainly hold some stocks that are trading at or near all-time highs. These include great companies like Visa, Microsoft, Cargojet and Disney, which are still reasonably valued in our managers’ views. But we seek a balance between faster-growing businesses and those that are growing at a slower pace or have run into a temporary hiccup and offer good value as a result. These are stocks in industries such as forestry, energy, auto parts and healthcare. Below are a few examples.
Interfor is one of North America’s largest and best financed lumber producers. It has 18 mills that produce over 3 billion board feet of lumber. Although Interfor is headquartered in Vancouver, two-thirds of its productive capacity is in the U.S., meaning the company is much less exposed to trade disputes than its purely Canadian peers. Yet, being in an unloved industry, the stock has declined 50% over the last year. Our Small-Cap manager feels Interfor’s upside potential is significant and purchased the stock in our Small-Cap Equity Fund last quarter.
Northern Drilling is a Norwegian company that was established in 2017 by an industry veteran to exploit the unprecedented offshore drilling downturn. It bought up a fleet of some of the world’s most advanced oil rig assets at half their replacement cost. Northern Drilling’s strategy is simple: to acquire high-quality assets at distressed prices and wait for a recovery in the offshore drilling market. It’s the type of investment that requires patience (as demonstrated by the stock’s bumpy ride over the past year) but its upside potential is substantial. We own the stock in our Global Equity Fund.
CIE Automotive is a Bilbao, Spain based supplier of automotive parts. It supplies subcomponents and small parts to larger “Tier 1” suppliers. It’s not a sexy business, but the company has fantastic margins and one of the most highly automated factories in the business. Despite its many positive attributes, at the end of the day CIE operates in the auto parts business, which is under pressure due to the uncertainty around tariffs and a slowing global economy. The stock has fallen over 35% from its high last year, marking an attractive buying opportunity in the eye of our global small-cap manager. The stock was added to our Global Small-Cap Equity Fund last quarter.
Attendo is the leading private player in the Swedish and Finnish elderly care markets. Unlike the industries mentioned above, nursing care is a booming business, driven by an aging population and a shortage of care homes. Attendo, however, has seen a dramatic sell-off since the start of the year for reasons related to its rapid expansion in Finland (where occupancy levels have dropped), and its investment in increasing its staff (which are costs that won’t be immediately recouped). The manager of our Global Fund believes investors have overreacted to these issues and feels the stock is trading at a significant discount to its underlying value. Attendo was added to the Global Equity Fund last quarter.
So, while the market may be at an all-time high, there are still plenty of opportunities beyond the well-known group of companies that have been driving the gains. Unless your portfolio is overloaded with expensive stocks trading at fresh peaks, you shouldn’t be prompted to run for cover the next time you see this headline.
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