Full episode: Market Call for Wednesday, April 21, 2021
Michael Sprung, president of Sprung Investment Management
FOCUS: Canadian large cap stocks
In the first quarter of 2021, the availability of vaccines to combat the COVID-19 pandemic began to roll out in earnest in much of the developed world, raising expectations for a return to more normal social and economic conditions. Investors began to focus more on sectors that will see greater demand as economies reopen. Along with expectations for improving economic conditions, fears of renewed inflationary trends also began to percolate, although uncertainty remains as to the degree to which the economy will ultimately recover and the sustainability of those gains.
In any event, this is not going to be your typical economic recovery following a recession or financial crisis. The global economic shutdown (with the possible exception of China), has been devastating to many of the service industries. Vast numbers of businesses have not survived and many have barely hung on given whatever life support has been provided. Many of the displaced workers have dropped out of the labour force altogether. In our opinion, the global economies will improve, as more people are immunized and business activity increases. This growth will be somewhat deceptive, as comparisons over the past year will reflect the fact that much of the improvements are coming off a low level of activity. The International Monetary Fund recently increased their forecast for global GDP growth to six per cent.
As expectations of better economic times have built, there has been a perceptible shift in investor sentiment towards more traditional value characteristics in security purchases. Canada is well positioned to participate in this recovery given the proximity to the large U.S. market.
Manulife Financial Corporation (MFC TSX) - Last purchased August 27, 2019 at $21.687
Manulife is a leading provider of financial protection and wealth management services with operations in over 20 countries. Over the past decade, Manulife has built a strengthened balance sheet and currently has a large excess capital position. The company is well positioned in the fast growing Asian market. Going forward, we anticipate continued dividend increases and share buybacks and improving profitability as the company exits some less profitable legacy businesses and redeploys capital in higher margin businesses. At current levels, the stock trades near book value and carries a four per cent yield.
Suncor Energy Inc. (SU TSX) - Last purchased August 29, 2019 at $37.26
Suncor is Canada's largest integrated oil and gas company with operations in Alberta, the North Sea and Canada's East Coast. In the company's downstream operations, Suncor operates four refineries in the US and Canada. In addition, it has invested in emerging energy companies in biofuels, sustainable aviation fuels and renewable diesel as well as carbon capture technologies. By 2025, management sees cash flow increasing by an incremental $2 billion. As a precaution, management cut the dividend by 55 per cent due to concerns regarding weaker downstream fundamentals as well as operational pressures in oil sands operations. As the recovery takes hold, we anticipate that there will be dividend increases and reinstating share buybacks. The stock has lagged its peers over the past year and currently yields around 3.2 per cent.
BCE Inc. (BCE TSX) - Last purchased February 26, 2020 at $63.02
BCE is Canada's largest media and communications company. The company is rapidly expanding its fiber and 5G footprint. The communications business has been relatively stable during the pandemic and the media business will benefit as the economy rejuvenates. BCE has consistently increased dividends and currently yields six per cent.
PAST PICKS: June 29, 2020
Alaris Royalty Corp (AD-U TSX)
- Then: $12.10
- Now: $15.20
- Return: 26%
- Total Return: 34%
TFI International Inc. (TFII TSX)
- Then: $46.50
- Now: $96.84
- Return: 108%
- Total Return: 111%
CVS Health Corporation (CVS NYSE)
- Then: $64.42
- Now: $77.27
- Return: 20%
- Total Return: 23%
Total Return Average: 56%
Twitter Handle: @SprungInvest
Company Website: Sprunginvestment.com