Ask Aubrey Hearn, vice president and senior portfolio manager for Sentry Investments, about his investing philosophy and the first thing he’ll tell you is that he’s a big fan of Warren Buffett. He’s a value investor, in other words, someone willing to dig through years of balance sheets to unearth the kind of steady, underpriced stocks he believes in. “We focus a lot on companies that are under-followed,” Hearn says. That means he’s often on a plane, checking out factories and meeting executives, trying to find the opportunities others have missed.
Ideally, what he’s looking for are dividend-paying companies with significant market share in businesses that are hard for others to enter. “So from that perspective we tend to avoid commodity-type business,” he says. “We gravitate more toward oligopolies where there’s just a few players.” So far, it appears to be working. In 2010, the small/mid-cap fund he manages won a Canadian Lipper Award for best risk-adjusted returns over three years. In 2012 he was part of the Sentry team that won a Morningstar Award for best Canadian dividend and equity fund. And last year, the Sentry Small/Mid Cap Income Fund was selected as the best of its kind in Canada by Morningstar.
Aubrey Hearn’s Picks
1-yr total return: 7.5%
Formerly known as Canadian Helicopter Group, HNZ changed its name in 2011 after buying a New Zealand rival. With a major U.S contract in Afghanistan set to expire soon, many in the market are bearish on the company’s prospects. But Hearn believes it still offers significant value. “They’re very cash-flow generative. They’re making a lot of money,” he says. Just as important, Hearn believes in the company’s CEO, Don Wall. “He’s done a very good job at making acquisitions and creating shareholder value over the years.”
1-yr total return (C$): 5.3%
A U.S. theatre chain that pays a dividend in the range of 3.5%, Cinemark is Hearn’s pick for a company likely to maintain its value in good times and bad. “It’s in a mature industry in the U.S.,” he says. “They’re the third-largest player, and they’re by far, at least in our view, the best operator. They have the best margins. They have best attendance.” They also have a significant Latin American business. “They’re the No. 1 player in Brazil, in Argentina, in Colombia,” he says. “They’ve been in these markets, in some cases, for 20 years. They have all the best real estate.”
1-yr total return (C$): 42.6%
Best known for its NASCAR racing team, Penske is actually a worldwide conglomerate that operates car and truck dealerships, car rental and leasing agencies and a logistics company, among other units. Hearn likes the fact that, for an automotive company, Penske doesn’t have much exposure to the Detroit Three automakers. It also has a significant European business. “We’re of the belief that Europe is slowly healing,” Hearn says. “So we like the fact that you’re not really paying a high multiple for Penske.”