Full episode: Market Call for Monday, June 29, 2020
Michael Sprung, president of Sprung Investment Management
Focus: Canadian large caps
The economic damage resulting from the response to COVID-19 will not be tallied for some time. The sudden collapse in business activity will bankrupt many companies and industries. Reverberations from the disruption to global trading patterns and the reconfiguring of supply chains will take place during an extended period of weakened consumer and business demand. Going forward, expansionary fiscal policies will continue to exacerbate massive debt burdens and increase sovereign risks. The stock market has been relatively buoyant since the initial shock of the economic shutdown, but the stock market is not the economy. As Warren Buffett once stated, “in the short term the market is a voting machine; in the long term it's a weighing machine."
In this environment, investors will have to determine those companies and industries that have the greatest chances of survival and potentially gaining advantages from those that will fail or become zombies. Strong fundamental characteristics such as good balance sheets, low relative debt and savvy management are going to be paramount in security selection.
ALARIS ROYALTY CORP (AD TSX)
Last purchased on March 27, 2020 at $7.96.
Alaris' management recently provided some good news. In areas that have begun to allow more businesses to restart, there has been a vast improvement in receiving distributions from several partner companies. Body Contoures has opened all 30 of its locations and 75 per cent of Planet Fitness locations are now open. Other partners have also been positively impacted. Alaris has announced its intention to convert to an income trust which will be a positive to the company resulting in a lower tax burden. At current levels, the stock yields 8.8 per cent.
TFI INTERNATIONAL INC (TFII TSX)
Last purchased on March 27, 2020 at $28.12.
TFI International is a diversified transportation and logistics company. It is the largest trucking company in Canada and the fourth largest truck for hire in North America. In the current environment, TFI has reduced capital expenditures and implemented other cost controls. The firm has a strong balance sheet. It is in a good position to take advantage of M&A opportunities. Even in this depressed market, we anticipate that TFI will remain cash flow positive in this fiscal year. At current levels, the stock has a yield of 2.3 per cent and it is well priced to benefit from improvements in economic conditions.
CVS HEALTH CORPORATION (CVS NYSE)
Last purchased on March 27, 2020 at US$62.17.
CVS Health is one of North America's largest providers of health care services, including pharmacy benefit management, retail and specialty pharmacies, disease management programs and retail clinics. While the current environment may impede volumes and enrollment in benefit management services, CSV's retail and pharmacy services have been performing well. As the pandemic fears diminish, benefit management will see higher utilization. The stock currently yields 3.2 per cent and is modestly priced at current levels.
PAST PICKS: JUNE 17, 2019
SUN LIFE FINANCIAL (SLF TSX)
- Then: $52.84
- Now: $48.74
- Return: -8%
- Total return: -4%
GEORGE WESTON (WN TSX)
- Then: $102.23
- Now: $98.25
- Return: -4%
- Total return: -2%
ENBRIDGE (ENB TSX)
- Then: $45.94
- Now: $41.20
- Return: -10%
- Total return: -4%
Total return average: -3%