Since the end of the first quarter, North American markets have trended up as the US economy has continued to exhibit positive momentum and the Canadian market has 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 US and North Korea has been unsettling as well as some political chaos in Europe. From Canada’s perspective, the unsettled trade negotiations surrounding NAFTA combined with the dysfunctional political environment with respect to the Trans Mountain Pipeline are eroding investor confidence.
We have 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 that are selling at attractive price levels.
Sun Life Financial Inc., SLF-T, Owned personally and by clients, Last Purchase February 2016 at $37.20
Sun Life Financial operates in Canada, the US, UK and Asia. Insurance companies will benefit from a rising interest rate environment. SLF 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% and represents good value in the current environment.
Precision Drilling Corp., PD-T, Owned by clients, Last Purchase September 2015 at $5.00
Precision Drilling is Canada’s leading contract drilling company. Over the last few years, PD has upgraded their rigs and offers leading technology with a push into analytical platforms offering greater efficiencies. Pricing in the US has improved. Management is very focused on capital discipline and debt repayment is a prioritsuy.
Hudbay Minerals Inc., HBM-T, Owned personally and by clients, Last purchase September 8, 2017, $9.41
Hudbay’s flagship copper mine Constancia is performing well and expectations are 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 2018. Rosemont permitting continues with construction anticipated 2019 to 2021. At current levels, HBM is selling at an attractive discount to its peers.
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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.