Full episode: Market Call for Wednesday, May 30, 2018
Michael Sprung, president of Sprung Investment Management
Focus: Canadian large caps
Since the end of the first quarter, North American markets have trended up as the U.S. economy continued to exhibit positive momentum and the Canadian market reflected strength in commodities, particularly energy-related commodities until most recently. Volatility in the markets has been the result of continuing concerns regarding inflationary pressures and the potential negative impact that rising interest rates could have on the outlook for sustained economic expansion. Geopolitical tensions have also had an effect on investor confidence. Internationally, the discourse between the U.S. and North Korea and some political chaos in Europe have been unsettling. From Canada's perspective, the trade negotiations surrounding NAFTA combined with the dysfunctional political environment with respect to the Trans Mountain pipeline are eroding investor confidence.
We've been of the opinion that valuations have been stretched following ten years of market advances. In this environment, value rather than momentum will become more important in stock selection as investors seek to minimize risk on the downside. Investors should continue to seek well-financed, well-managed companies selling at attractive price levels.
SUN LIFE FINANCIAL (SLF.TO)
Last purchase on February 2016 at $37.20.
Sun Life Financial operates in Canada, the U.S., the U.K. and Asia. Insurance companies will benefit from a rising interest rate environment. Sun Life has a very strong balance sheet with industry-leading excess capital. We anticipate reasonable growth in earnings over the next few years that should result in expanding dividends. The stock currently yields 3.5 per cent and represents good value in the current environment.
PRECISION DRILLING (PD.TO)
Last purchase on September 2015 at $5.00.
Precision Drilling is Canada's leading contract drilling company. Over the last few years, it upgraded its rigs. The company offers leading technology. with a push into analytical platforms offering greater efficiencies. Pricing in the U.S. has improved. Management is very focused on capital discipline and debt repayment is a priority.
HUDBAY MINERALS (HBM.TO)
Last purchase on Sept. 8, 2017 at $9.41.
Hudbay's flagship copper mine Constancia is performing well and expectations are that Pampacancha will start contributing in 2019. Growth in the next few years will stem from expanded copper, zinc and precious metal production. Recent updates at Lalor indicate greater gold production possibilities by Q3/18. Rosemont permitting continues with construction anticipated 2019 to 2021. At current levels, the company is selling at an attractive discount to its peers.
PAST PICKS: APRIL 28, 2017
- Then: $110.25
- Now: $112.47
- Return: 2%
- Total return: 7%
SUNCOR ENERGY (SU.TO)
- Then: $42.78
- Now: $51.81
- Return: 21%
- Total return: 25%
- Then: $19.02
- Now: $18.37
- Return: -3%
- Total return: -3%
Total return average: 10%