Michael Sprung, president, Sprung Investment Management 

FOCUS: Canadian large cap stocks

MARKET OUTLOOK:

After two long years of constrained economic and social activity, everyone was looking forward to a move towards more normalized conditions. It was apparent that not all things would go back to the way they were as geopolitical tensions increased in the past two years and many industries were severely impacted by the crisis. Supply chains have been disrupted and issues regarding security of supply have come to the forefront. Peoples' working habits have been interrupted, and the norms that replace the old habits will inevitably reflect some compromise between pre and post-COVID conditions. Already, shortages in goods and services are reflected in inflation. Global debts soared during the pandemic so we were already facing the prospect of inflation at a time when economic activity was constrained. Then Russia attacked Ukraine.

Global trade has been severely impacted as Russia and Ukraine are major sources of energy and commodities. Many countries around the world have responded by weaponizing trade and financial interactions with Russia. Inflationary conditions are further exacerbated, and central banks are responding by raising interest rates. 

Under these circumstances it is our view that economic recovery is going to take a longer period of time. After the last few years of robust market returns, driven primarily by growth oriented securities, the focus will now be on companies supplying needed energy, materials and financially secure firms.

TOP PICKS:

Sun Life Inc. (SLF TSX)

Sun Life is one of Canada's largest insurance companies with operations in Canada, the US, the UK and Asia. SLF has consistent earnings growth above its 8 per cent to 10 per cent target and has above average return on equity. COVID-related losses on disability and mortality should wane as pandemic conditions recede. The company has a very strong excess capital position. A return to positive flows at MFS, a large US mutual fund company, would be a catalyst to SLF's valuation. At current price levels the stock yields around 3.8 per cent and future dividend increases are likely.

Suncor Energy Inc. (SU TSX) 

Suncor is Canada's largest integrated oil and gas company with operations in Alberta, the North Sea and Canada's East Coast. In the company's downstream operations, Suncor operates four refineries in the US and Canada. In addition, investments have been made in emerging energy companies in biofuels, sustainable aviation fuels and renewable diesel as well as carbon capture technologies. Suncor is well positioned to improve cash flows through operational improvements and return considerable amounts to shareholders. The current valuation is attractive with a yield around 4.4 per cent.

Enbridge Inc. (ENB TSX) 

Enbridge operates an extensive network of crude oil, liquids and natural gas pipelines, gas distribution utilities and renewable power generation. Enbridge facilities move some 62 per cent of US-bound Canadian crude oil and 18 per cent of all natural gas consumed in the US. Cash flows will continue to increase as new projects are completed and returns to shareholders are anticipated to grow through dividend increases and share buybacks. The balance sheet is strong and the dividend currently supports a 6.2 per cent yield.

PAST PICKS: March 9, 2021

Arc Resources (ARX TSX)

• Then: US$7.97
• Now: US$15.16
• Return: 90%
• Total Return: 94%

Hudbay Minerals (HBM TSX)

• Then: US$8.71
• Now: US$9.90
• Return: 14%
• Total Return: 14%

NFI Group (NFI TSX)

• Then: US$30.95
• Now: US$15.47
• Return: - 50%
• Total Return: - 47%

Total Return Average: 20%