BNN Market Call – Michael Sprung Interviewed by Michael Hainsworth – Sept 4, 2013

BNN Market Call – Michael Sprung Interviewed by Michael Hainsworth

Michael Hainsworth:  Hello and welcome to ‘Market Call Tonight’! I am Michael Hainsworth. It’s the one hour edition with Michael Sprung, President of Sprung Investment Management, we’re taking your calls, emails, and tweets on Canadian Equities. If you’ve got a question, call us, toll free. We’ve opened up the lines at 1-855-326-6266. You can email [email protected], if you prefer or if you would like to follow me on Twitter, you can send up a question that way. Mr. Sprung is on Twitter as well. Aren’t you sir?

Michael Sprung:        Yes, we are. Our handle is @SprungInvest

Market Call Michael Sprung Michael Hainsworth BNN

Market Call – Michael Sprung Interviewed by Michael Hainsworth on BNN: “disciplined investors will be taking advantage of market setbacks” despite Mideast, tapering.

Michael Hainsworth:  Tell me about the environment in which we’re investing in right now. We’ve got Syria to contend with, we’ve got the top prospect of tapering by the U.S. Federal Reserve, and then the debt ceiling conversation will kick back in again.

Michael Sprung:        That’s going to come back again. So I think that the remaining months of 2013 are going to be fairly uncertain for investors. We’ve got, as you say, escalating conflict in the Middle East together with slowing down in the emerging economies or the apparent slow down thereof, which has affected Canadian commodities to some extent, held them back to some degree.

And then, in the U.S. as you say, we’ve got the debt ceiling, we’ve got the change of guard that the federal reserve is going to happen, and all of that is uncertainty. Investors don’t like uncertainty. But I think that this is going to be a period where — if you follow your discipline you are going to be looking for those opportunities to jump in, because you must be looking at the next business cycle and I think underpinning everything else in the U.S. at least, we are seeing signs of a recovery, slow but it’s progressing, and even though the emerging economies are slowing down. They are still going at over twice the rate of the developed economies, and there is going to be more-and-more demand for commodities and so on.

So I think over the next business cycle we’re going to see some fairly good returns on Canadian stocks as well as U.S.

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We are pleased to offer qualified* investors our free portfolio review. It will help you to understand if your portfolio matches your personal risk tolerance. Ask us how>>

*Canadian residents with a minimum $500,000 portfolio.

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Michael Hainsworth:  Well, also though in what is at least for two out of every three Septembers the worst month of the calendar year for investors. When we see the weakness, do we treat that as a buying opportunity or do you want to wait until the leaves turn before getting into this market again?

Michael Sprung:        No, I don’t think you want to wait. I think you want to be prepared to step in. I think if you have cash, you don’t have to jump in all at once, you can weigh it in and as you see prices falling, you can establish positions in what you think are better companies with better earning prospects.

I think really you want to pay close attention to balance sheets in this environment, because if for whatever reason the economy does falter, you want to have companies that can wait through a period of slower growth.

Michael Hainsworth:  Talking today with Michael Sprung of Sprung Investment Management about Canadian Equities at 1-855-326-6266. That’s how John got a hold of us. He is in Kingston, this afternoon. Good afternoon, John!

John:                      Good afternoon! Thank you for taking my call.

Michael Hainsworth:  You bet!

John:                      I am an investor looking for dividends and it would be nice the dividend has some possibility of growth. So in general, what do you think of the Canadian Pipelines and in specific Interprovincial IPL, would it be say better than Pembina and would this be a decent time to get in or would I wait a while? Thank you!

Michael Hainsworth:  All right! Pembina has a higher dividend.

Michael Sprung:        Yes, and we are entering an environment here where in rising rate environment some of the dividend stocks might be a little bit more sensitive to change than others. So what you want to look for, is pipelines that have an expanding rate base going forward, a rate base that is going allow them to earn more on whatever the allowed return on equity is going to be in their environment, and I think that Interprovincial Pipe Line is not a bad place to look. I think their dividend although compared to some of the others is sort of modest or in the middle of the pack.

They do have a rate base that looks like it should be able to expand. I think that when Curl comes on stream and so on, we are going to see more cash flow coming from, they have just converted into the corporate entity. I think their payout is sustainable at current level, so from what I have seen, it’s covered and at least by cash flow right now, and I think that it’s not a bad place to consider investing.

Michael Hainsworth:  It’s up to 21% over the course of the last year already and the street consensus is it will be north of $27 in a year. Do you see a climbing an 11 additional percent from here?

Michael Sprung:        It could possibly but I think that’s going to depend a lot on the environment, how fast some of these things come into play.

Michael Hainsworth:  John, thank you for joining us from Kingston. Let’s go to Calgary. Good morning, Tony!

Tony:                     Good morning! Thanks for taking my call!

Michael Hainsworth:  I’d like to ask the guest about ShawCor, as the owner, 25 years, they are in a sweet spot if you are looking to who they are and what they do. Thanks!

Michael Sprung:        $41.44 today.

Michael Hainsworth:  Yeah, and I think it’s not a bad environment for ShawCor. I think over the next cycle we were somewhat bullish on the prospect for energy companies and those companies that service energy, and I think we have seen already the drillers have begun to move up fairly considerably. Those drills are going to require pipe and coded pipe and so on that ShawCor produces. So I think that for a longer term player, it’s not a bad place to look to invest at the moment.

Michael Hainsworth:  Okay. Thank you for joining us from Calgary there, Tony. Let’s go back to the local line. We are in Toronto for Ed. Hello Ed, welcome to Market Call!

Ed:                        Yes, good afternoon Michael and Michael. Thanks for taking my call!

Michael Hainsworth:  You bet!

Ed:                        I have Baytex and what I don’t understand with what is going on at the moment in Syria and in here, oils are going up, Baytex, supposedly a very good stock is not moving up at all, and I don’t understand it. I will hang up and listen. Thank you!

Michael Hainsworth:  Thank you!

Michael Sprung:        Well, I think when we are looking at the oils to just look at the movement of the prices day-to-day is not very useful. I mean Baytex Energy, we had an email question about that one and how it compares with Crescent Point Energy, for instance. Two of them very similar companies; Baytex of course being about the third the size of Crescent Point, I think one thing that would be of some concern in both instances that if you look at their distributions or their dividends and you look at the amount that takes, and if you subtract out capital expenditures, and then you look at what their cash flow is, there is a bit of a deficit. The question is, how do these companies finance that deficit? Crescent Point to a large extent, does so by issuing shares through their Dividend Reinvestment Plan.

I think, Baytex, if you look at their balance sheet, they are a little bit more levered than a Crescent Point so that would sort of imply to me anyways that they are using a little bit more a debt to finance that differential.

The other thing I’d consider too is looking at their finding development costs. Crescent Point seems to be a little bit more efficient in that regard, but then again Baytex being a smaller company and a little higher level, levered if you look at return on capital employed, they tend to do a little bit better.

Longer term, I don’t think either of them is a bad place to be, but I would like to see them covering their distributions with cash flow at some point.

Michael Hainsworth:  All right! Now Tony, thank you for that, and we’ve got an email on this as well. Thank you very much for that message from Fredericton.

On the 10th of September we’ll have two big things happen in the investing world. One; Apple is supposed to release some new product, and two; the Peterson Company Energy Conference will be on, and Baytex will be presenting. What’s the biggest question you would want to have James Bowser answer for you?

Michael Sprung:        Well, I think as I said, what is their longer term plan for growth? Again, if you look at Crescent Point, they have all kinds of land which they have acquired for potential development. Baytex being smaller, they’ve got to be a little bit more nimble, I think cost-control is a bigger concern with Baytex.

So I’d be really interested in what are they going to do in an environment where admittedly costs have been rising, margins on the commodity have been somewhat squeezed. We could see higher oil prices, that would alleviate everything for all these companies, but barring that in this environment, what are they going to do?

Michael Hainsworth:  All right! And Ed, if you can’t make it down, there will be a live webcast to the presentation as well, just go on to Google machine and punch in the details. Let’s go to Fredericton now. Hi Chris! Thanks for holding!

Chris:                     Manulife, I hold it, should I possibly increase on it, what’s Michael’s idea of that like company? Thank you!

Michael Sprung:        All right! Well we have just come through the period with all the bank’s reporting and we are just about to enter the period with the life insurers and I expect we are going to see some fairly good results from the life insurers. They tend to do fairly well in environments where rates are moving up and so I don’t think that Manulife is going to be any exception there. I think that Manulife has well capitalized. Over the last number of years they have done so much to de-risk that company.

I should say upfront that Manulife is a holding of ours, one of our primary holdings in the financial services group, and despite of the fact that it has done fairly well over the last year or so, we expect that it could continue to do fairly well.

Michael Hainsworth:  Okay! Thank you very much, Chris, for that. We are going to take a brief break; when we come back, back to your questions, for Michael Sprung, President of Sprung Investment Management. We are talking about Canadian Stocks at 1-855-326-6266.

When we come back, we’ll grab an email message, we’ve got some of the questions here about the telecom sector.

Michael Hainsworth:  Michael Sprung is our guest from Sprung Investment Management. We’re talking today about Canadian stocks at 1-855-326-6266 at [email protected].

So Terry got a hold of us today, asking about Rogers Communications writing. What do you think of Rogers? Is it worth selling now? I bought it in around $40, let’s pull up RCIBs right now. I am looking at $43.99 today.

Michael Sprung:       Yeah, I wouldn’t be in a rush so what we have seen the telecom’s part particularly since the announcement by Verizon the other day. I think what might be — what’s good news for the telecom industries, not necessarily good news for the consumer, but I think for people that are looking for dividends and dividend growth it’s not a bad place to look, and Rogers, they’ve done a lot to improve their balance sheet over the last number of years.

They are certainly one of the dominant players at any point in time now I think you’ve got to consider where would you rather be between, say the BCE, the Rogers, and the Telus, and at various points in time one is a better buy than the other. I’d say, from a growth aspect people are perhaps looking for a little.

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We are pleased to offer qualified* investors our free portfolio review. It will help you to understand if your portfolio matches your personal risk tolerance. Ask us how>>

*Canadian residents with a minimum $500,000 portfolio.

See Michael discuss these stocks with Michael Hainsworth on BNN Market Call here>>

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