Michael Sprung, president at Sprung Investment Management

Focus: Canadian large caps


MARKET OUTLOOK

Global economic growth will continue to deteriorate over the remainder of 2019 as trade conflicts are having an effect on fundamental economic events. Evidence of the impact of the disruption caused by these trade concerns can be seen in the bond market where rates are reflecting higher expectations of a slowdown and in the increasing volatility in the equity markets. The diminished pace of global expansion is also evident in stagnant manufacturing output and slower trends in service delivery.

In the U.S., the first quarter exhibited some respite from the market fallout of the fourth quarter of 2018. However, this was largely the result of inventory accumulation that overshadowed the slowdown in business investment and capital expenditures. Europe also continues to struggle with a weakening outlook for exports and capital investment as trade issues cloud the horizon for improvement and manufacturing is depressed. Brexit continues to confound the outlook for the U.K. as trade and business investment is concerned.

Overall, the advanced economies are getting by as labour markets are tight, inflation has been moderate and monetary policies have been very accommodative. With prospect of slower economic growth, central banks are likely to continue to restrain rates but there are limits to how long this can last in the face of ever increasing debt loads.

In this environment, investors are advised to be very cautious but remain cognizant to opportunities that will strengthen portfolio profiles.

TOP PICKS

Michael Sprung's Top Picks

Michael Sprung, president of Sprung Investment Management, shares his top picks: Sun Life Financial, George Weston Limited and Enbridge.

SUN LIFE FINANCIAL (SLF.TO)

Last purchased in February 2016 at $37.20.

Sun Life Financial operates in Canada, the U.S., U.K. and Asia. SLF has a very strong balance sheet with industry leading excess capital of some $3 to $3.5 billion. We anticipate reasonable growth in earnings over the next few years that should result in expanding dividends. The stock currently yields 4.0 per cent and represents good defensive value in the current environment.

GEORGE WESTON LIMITED (WN.TO)

Last purchased in January 2015 at $96.88.

Weston's operates fresh and frozen bakery operations in the U.S. and Canada and food distribution through Loblaws, Canada's leading food retailer. Volumes in the bakery business have been depressed as management goes through the process of rationalizing product offerings to be more in line with consumer trends and optimizing production processes. Going forward, we anticipate that margins in the bakery business will improve as a result of these efforts. 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 2.1 per cent.

ENBRIDGE (ENB.TO)

Last purchased in June 2019 at $45.39.

Enbridge is a leading energy generation, distribution and transportation company in the U.S. and Canada. Its pipeline network includes the Canadian Mainline system, regional oil sands pipelines and natural gas pipelines. The company also owns and operates a regulated natural gas utility and Canada's largest natural gas distribution company. Additionally, Enbridge generates renewable and alternative energy with 2,000 megawatts of capacity. Export pipe capacity is tight and ENB has the ability to supply some incremental relief through Mainline at modest capital cost. The company's stepped up asset monetization program has reduced leverage ahead of schedule. ENB has a highly contracted cash flow profile, financial flexibility and a secured $22-billion growth program. At current prices, the stock yields 6.5 per cent. The stock has been under pressure due to recent challenges with respect to capacity expansions in the US providing a good entry point.

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SLF Y N Y
WN N N Y
ENB Y N Y

PAST PICKS: MAY 30, 2018

Michael Sprung's Past Picks

Michael Sprung, president of Sprung Investment Management, reviews his past picks: Sun Life Financial, Precision Drilling and Hudbay Minerals.

SUN LIFE FINANCIAL (SLF.TO)

  • Then: $53.60
  • Now: $53.05
  • Return: -1%
  • Total return: +3%

PRECISION DRILLING (PD.TO)

  • Then: $4.63
  • Now: $2.24
  • Return: -52%
  • Total return: -52%

HUDBAY MINERALS (HBM.TO)

  • Then: $8.43
  • Now: $6.83
  • Return: -19%
  • Total return: -19%

Total return average: -23%

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SLF Y N Y
PD Y N Y
HBM Y N Y

TWITTER: @SprungInvest
WEBSITE: Sprunginvestment.com