Michael Sprung, president at Sprung Investment Management
Focus: Canadian large caps
Contrary to the negative views expressed by the media, U.S. investors have continued to embrace the policies of the Trump administration, as evidenced by the markets’ advances. This enthusiasm has been most evident in the larger capitalized companies that would stand to benefit the most from lesser regulation and lower taxes.
The Canadian markets have been less robust despite some positive economic indications that the Canadian economy has exhibited some positive growth of late with GDP that has been greater than that of the U.S. A lot of the Canadian media has caused concerns over the housing situation in Vancouver and Toronto as well as speculating on the uncertainties in renegotiating the NAFTA agreement.
The European economies have also exhibited some positive trends despite some political disruptions, as have a number of the Asian economies.
The markets have generally been in an uptrend since the financial crisis 10 years ago. Valuations are stretched but positive earnings surprises have kept the trend intact for the time being. It has been a slow, tepid cyclical recovery, which is often typical following a financial crisis. A wane in investors' confidence over the Trump administration's ability to deliver its agenda could have a negative impact on current valuations.
Politics and economic cycles are often out of sync. The politics of populism are not as accommodating to the concepts of free trade and globalization that have sown the seeds of the current recovery, yet those very politicians may point to the recovery and take credit where none is due. In fact, they may sow the seeds of the next downturn. However, economic forces tend to prevail over the longer term and investors should be prepared to take advantage of dislocations in the interim.
- Note that between February 2017 early April, most of the Top Picks of the last year (except George Weston Ltd. and ARC Resources Ltd.) were sold in small quantities for an estate wind-up.
- Hudbay Minerals Inc. was sold on September 22 2016 at $5.00: Raising cash for one particular client.
BANK OF NOVA SCOTIA (BNS.TO) – Owned personally and by clients; last purchased on September 16, 2016 at $69.85
The Bank of Nova Scotia is the most international of the Canadian banks with branches in the Caribbean, Central and South America. In the most recent quarter, record Global Banking and Capital Markets earnings reflected the benefits of management's investments in operational efficiencies and technology over the last few years. BNS has one of the strongest capital bases of the large banks. The stock currently yields 4.0 per cent.
CANADIAN NATURAL RESOURCES (CNQ.TO) – Owned by clients; last purchased on August 26, 2015 at $25.54
Canadian Natural Resources is one of Canada's leading senior producers of oil and gas. CNQ is one of the best-managed and best-capitalized companies in the energy sector. As such, CNQ has weathered the seismic swings in energy prices and has been in a position to take advantage of opportunities. The recent purchase of a large working interest in the Athabasca Oil Sands Project will decrease the overall production decline rate and add to earnings. The dividend yield is 2.8 per cent.
HUDBAY MINERALS (HBM.TO) – Owned personally and by clients; last purchased on April 7, 2016 at $4.24
Hudbay Minerals is one of Canada's leading producers of zinc, copper and precious metals with operations in Canada, Peru and the U.S. Constancia has made progress with addressing some equipment issues. The expected ramp-up of base metal production at Lalor, along with a mine plan for the gold zone resources and permitting later in the year for Rosemont, will provide positive catalysts going forward.
PAST PICKS: JULY 15, 2016
- Then: $98.49
- Now: $104.87
- Return: +6.47%
- TR: +10.15%
AGT FOOD AND INGREDIENTS (AGT.TO)
- Then: $33.96
- Now: $25.64
- Return: -24.49%
- TR: -23.50%
STUART OLSON (SOX.TO)
- Then: $6.78
- Now: $5.29
- Return: -21.97%
- TR: -17.16%
TOTAL RETURN AVERAGE: -10.17%