Investor 500 2014: Top 3 stock picks from Sentry Investments’ Aubrey Hearn

“We focus a lot on companies that are under-followed”

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Sentry Investments vice president and senior portfolio manager Aubrey Hearn with stock pick Cinemark (CNK)

In a mature industry like movie theatres, Aubrey Hearn likes Cinemark for its healthy margins. (Harmin Lee; Charlie Essers)

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

HNZ Group

Chart showing trailing 12-month stock performance for HNZ Group

TSX: HNZ.A
P/E: 6.9
Yield: 4.9%
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.”


Cinemark

Chart showing trailing 12-month stock performance for Cinemark

NYSE: CNK
P/E: 16.1
Yield: 3.4%
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.”


Penske Corp.

Chart showing trailing 12-month stock performance for Penske Corp

NYSE: PAG
P/E: 14.6
Yield: 1.6%
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.”

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