Michael Sprung, president of Sprung Investment Management
FOCUS: Canadian large caps
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MARKET OUTLOOK

As 2017 comes to a close, global stock markets have continued their ascent throughout the fourth quarter of 2017. Many economists pontificate on the synchronized global recovery underway, evident from improving employment levels and some muted signals of inflationary growth. Commodities have been on a roller coaster as perceived demand has spiked up and retreated over the course of the quarter. Wage demands exhibit some signs of accelerating but remain largely tempered by companies shifting to larger expenditures on technology as a means of enhancing productivity. We have yet to see a significant correction in the markets as investors appear to be complacent or unaware of the rising valuation levels and the growing geopolitical tensions in the world.

A number of factors could come into play that would precipitate a more meaningful market correction than we have seen in the last 10 years. In Canada, concerns remain centered around the NAFTA negotiations. Since the Brexit vote and the start of the Trump presidency, a backlash against global free trade has been growing, causing uncertainty in the business community, thus dampening the appetite for capital investment. Other geopolitical factors are also of concern. North Korea's nuclear threat and heightened discord with the U.S. has been prominent in the headlines, as have tensions in the Middle East, Venezuela, Spain, Russia and the Ukraine. Monetary concerns in Greece, Italy, Spain and Portugal have not gone away.

All of these factors lead us to exercise caution and prudence in our investment stance. Investors have to look hard to find well-financed, well-managed and reasonably priced companies.

TOP PICKS

ALARIS ROYALTY (AD.TO)
Alaris Royaly invests in a diversified range of North American private companies with the objective to generate cash flows to support dividends to shareholders. Problems within a number of investees over the past year have hindered progress. Many of these concerns have largely been dealt with and now the company is poised to enter a renewed period of growth. Alaris is deploying capital in new partners and has made their largest investment to date in Sales Benchmark Index, LLC of US$85 million. Alaris Royalty is well-positioned for modest capital deployment in 2018 that should result in cash flow growth and a lower payout ratio. Last purchased on November 7, 2016 at $19.84.

HUDBAY MINERALS (HBM.TO)
Hudbay's flagship copper mine Constancia is performing well and expectations are that zinc production in Manatoba will ramp up in 2018. Longer term, the Rosemont copper mine in Arizona offers more growth. Hudbay has been improving the balance sheet, paying down debt providing greater liquidity for future investment. Last purchased September 8, 2017 at $9.41.

GEORGE WESTON (WN.TO) 
Recent setbacks in frozen foods and the cautionary outlook in the grocery industry have resulted in an opportunity for longer term investors, as the shares now trade at attractive valuation levels. We expect the incoming president, Richard Dufresne, will continue to focus on very tight expense control and operational efficiencies in Weston Foods and Loblaws. Weston's ownership in Loblaws will surpass the 50 per cent level in 2018. Last purchased September 9, 2016 at $74.59.

PAST PICKS: FEBRUARY 1, 2017

MANULIFE FINANCIAL (MFC.TO)

• Then: $24.98
• Now: $26.72
• Return: 6.96%
• Total return: 10.53%

AGT FOOD & INGREDIENTS (AGT.TO)

• Then: $35.71
• Now: $20.40
• Return: -42.87%
• Total return: -41.84%

FORTIS (FTS.TO)

• Then: $41.47
• Now: $47.25
• Return: 13.93%
• Total return: 18.14%

TOTAL RETURN AVERAGE: -4.39%

TWITTER: @SprungInvest
WEBSITE: www.sprunginvestment.com