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

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MARKET OUTLOOK

Market participants are becoming more cognizant of the possible negative economic outcomes surrounding many of the political and geopolitical issues facing the world today. As a result, market volatility is increasing as speculators bounce between risk-on and risk-off stances. Investors' concerns are very much centered around the ongoing international trade negotiations and the impact that they may have on future economic growth prospects. 

The uncertainty regarding the positive and negative consequences of changes to trading patterns will cause investors to focus more on the fundamental drivers of the companies in which they invest in order to minimize downside risk.

Investors should continue to seek well financed, well managed companies that are selling at attractive price levels.

UPDATES

• A client was raising cash and we sold down positions in AD, SU, ARX, HBM and NWC. PD was sold for an account requiring tax loss.
• We sold Aecon (ARE) late November at $19.55. Our average cost was $12.35.
• Another client raising cash sold down AD, CNQ, CVE, ECI, HCG, SOX and TRI.
• In March, we sold a portion of our exposure to NFI at $58.60.
• In June, asset mix rebalancing triggered some minor sales of RY, BNS, MFC, CAE and SU.
• Sold ECI on Aug. 1 at $28.87 when BPI offer emerged.

TOP PICKS

SCOTIABANK (BNS.TO)
Last purchase on September 2016 at $69.85.

Scotiabank is the most international of the Canadian banks with branches in the Caribbean, Central and South America. Loan growth in the Latin American markets has been robust. While exposed to Mexico (6 per cent of profits), the future of NAFTA could be of some concern, but to date there hasn’t been any apparent deterioration in credit quality. Given Scotiabank’s geographic footprint, operations are in areas sensitive to commodity prices that have recently exhibited higher levels of volatility. The current yield of 4.2 per cent is attractive as are the relative valuation parameters to its peers.

CANADIAN NATURAL RESOURCES (CNQ.TO)
Last purchase on August 2015 at $25.54.

Canadian Natural resources is one of Canada's leading senior producers of oil and gas. The company is one of the best managed and best capitalized companies in the energy sector with a diversified base of long-life assets. As such, Canadian Natural Resources has weathered the seismic swings in energy prices and has a strong balance sheet that enables management to take advantage of opportunities. The dividend yield is 2.7 per cent.

GEORGE WESTON (WN.TO)
Last purchase Jan. 9, 2015 at $96.88.

George Weston operates fresh and frozen bakery operations in the U.S. and Canada and food distribution through Loblaws, Canada's leading food retailer. Bakery volumes have been depressed as management is in the process of rationalizing product offerings and optimizing production processes. Weston's ownership of Loblaws has been creeping up to the 50 per cent level as share buybacks in the market have reduced the float. Weston has a strong balance sheet. The current dividend yield is 1.8 per cent. From time to time, Weston has been known to pay a special dividend.

PAST PICKS: JULY 21, 2017

ROYAL BANK (RY.TO)

• Then: $94.75
• Now: $103.97
• Return: 10%
• Total return: 15%

ENCANA (ECA.TO)

• Then: $12.34
• Now: $16.82
• Return: 36%
• Total return: 37%

AGT FOOD AND INGREDIENTS (AGT.TO)

• Then: $26.00
• Now: $18.29
• Return: -30%
• Total return: -27%

Total return average: 8%

TWITTER: @SprungInvest
WEBSITE: Sprunginvestment.com