Apr 16, 2018

Michael Sprung's Top Picks: April 16, 2018

BNN Bloomberg

Michael Sprung , BNN

Michael Sprung, president of Sprung Investment Management
Focus: Canadian large caps

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MARKET OUTLOOK

Despite a strong start in January, global stock markets became unnerved in the latter part of the first quarter of 2018. Rising trade tensions contributed to the unease investors exhibited as the U.S. took a stronger stance on bilateral trade negotiations through the enactment of targeted tariffs. In addition, inflation and rising interest rates caused concern amongst investors.

The dominant technology stocks that had been largely contributing to the markets’ advance came under pressure as political scrutiny prompted calls for greater regulation in the industry.

Whether or not the above factors are indicative of a protracted market downturn remains to be seen. Certainly we've been of the opinion that valuations have been stretched following ten years of market advances. In this environment, value rather than momentum will become more important in stock selection. Investors should continue to seek well financed, well managed companies that are selling at attractive price levels.

UPDATE: Since my last appearance, a client raising cash sold down Alaris Royalty (AD.TO), Canadian Natural Resources (CNQ.TO), Cenovus Energy (CVE.TO), Enercare (ECI.TO), Home Capital Group (HCG.TO), Stuart Olsen (SOX.TO) and Thomson Reuters (TRI.TO).

TOP PICKS

ROYAL BANK (RY.TO)
Last purchase on Sep.16, 2016 at $80.55.

Royal Bank is Canada's largest financial institution ranking within the largest twenty banks in the world. They have extensive domestic and wealth operations as well as global banking, capital markets, custody and brokerage networks. Highly profitable domestic operations are funding both Canadian and global expansion as well as greater returns to shareholders. In the most recent quarter, the dividend was increased by 3 per cent. With the recent pullback in the price of the stock, the yield is currently 3.9 per cent.

VERMILION ENERGY (VET.TO)
Last purchase on March 2, 2018 at $40.85.

Vermilion Energy has interests in oil and gas producing properties in Western Canada, France, Germany, the Netherlands and Australia as well as a substantial non-operated interest in the Corrib natural gas field off the northwest coast of Ireland. Vermilion is well managed with a solid balance sheet. At today's commodity prices, Vermilion generates free cash flow that supports the current yield of 6.3 per cent. The dividend was recently increased by 7 per cent to $0.23 per month. Its geographically diversified operations should contribute to a growing production profile over the next few years.

ENERCARE (ECI.TO)
Last purchase on March 7, 2018 at $18.16.

Enercare is a leading provider of water heaters, water treatment, furnaces, air conditioners and other HVAC rental products, plumbing services, protection plans and related services. With operations in Canada and the U.S., Enercare serves approximately 1.6 million customers annually. Enercare is also the largest non-utility sub-meter provider, with electricity, water, thermal and gas metering contracts for condominium and apartment suites in Canada and through its Triacta brand, a premier designer and manufacturer of advanced sub-meters and sub-metering solutions. With the recent increase in the dividend by 4 per cent to $0.0832 per month, the stock yields 5.8 per cent at current prices.