Jennifer Radman is vice-president and senior portfolio manager at Caldwell Investment Management. Her focus is on U.S. large caps.
Top Picks:
Mentor Graphics (MENT.O)
Mentor Graphics provides software and hardware design solutions that are used in the design, development and testing of electronic products. Their products are used by engineers to execute increasingly complex electronic designs as technology becomes increasingly embedded in everything we touch. Clients include the major players in the semiconductor industry, as well as companies involved in transportation (BMW, Hyundai, Honda, Boeing, Airbus, Honeywell, GE, Johnson Controls). Investment Thesis: Like most software, there is a stickiness to Mentor's products given these are highly complex software tools. Once engineers spend the time to learn and become proficient in the software, there is a strong preference to continue using it over switching to another product. There is also a secular growth story to electronics becoming increasingly embedded in transportation, including automotive, aerospace, trucking, farming and construction. This is an area where Mentor has built a strong offering over the past several years and is seeing strong growth rates above its traditional semiconductor business.
Omnicom Group (OMC.N)
OMC is the largest advertising and communications agency holding company in the U.S. and second largest in the world. Omnicom's agencies provide advertising, strategic media planning and buying, digital and interactive marketing, direct and promotional marketing, public relations and other communications services to more than 5,000 clients in over 100 countries. Investment Thesis: Marketing is undergoing tremendous change, with big data facilitating new insights into consumer behaviour and social media increasing the number of consumer touch points. However, data and touch points alone are not enough. Omnicom provides the talent to turn data into actionable consumer insights and create campaigns that effectively communicate the desired message to elicit consumer response. Customer relationships have historically been sticky given integration with clients' internal marketing teams and increasing complexity is driving customers to consolidate to multi-disciplinary providers, such as Omnicom.
Cognizant Technology Solutions (CTSH.O)
Cognizant provides IT/business process consulting and outsourcing. While the focus has historically been on cost efficiencies, clients are increasingly looking to Cognizant for how to use technology to generate revenue, differentiate product offering and bring product to market more effectively. Cognizant is focused on the financial and health care verticals where recent regulatory changes (ObamaCare and Dodd-Frank) are forcing companies to re-think how they operate. We believe this provides multi-year opportunity for Cognizant.
Past Picks: April 14, 2014
KKR & Co. (KKR.N)
Then: $21.76; Now: $23.24 +6.80%; Total return: +16.09%
Varian Medical Systems (VAR.N)
Then: $80.66; Now: $94.82 +17.56%; Total return: +17.56%
Kohl's Corp. (KSS.N)
Then: $53.56; Now: $71.10 +32.75%; Total return: +36.36%
Total return average: +23.34%
Market Outlook:
The market is currently digesting Q1 corporate earnings, which are being heavily impacted by large currency and commodity price movements. Underlying earnings continue to improve and demand seems to be picking up, especially in the U.S. economy. Market returns over the past several years have been strong as valuations expanded from recessionary lows. Going forward, we expect returns to be less robust given valuations we are seeing across the market. We also expect volatility to revert to historic averages after several years of low levels. Our focused investment process, in which we target a portfolio of 25 stocks, is well positioned in this environment.