Top Picks & Outlook – Michael Sprung on BNN’s Market Call Tonight

Outlook:

Global stock markets generally continued their upward bias in  the third quarter of 2017. This bias was supported by strengthening economic growth in both the developed and emerging economies although at subpar levels compared with traditional recoveries. As central banks have cautiously raised interest rates, bond prices have come under pressure. Wage demands in the developed countries have not accelerated as inflationary expectations have remained low and productivity improvements have been driven by technology. In this environment, central banks may temper their enthusiasm to normalize interest rates and reduce their bloated balance sheets.

Michael Sprung Top Picks Sun Life Financial, SLF, Suncor, SU, Aecon Group, AR

Michael Sprung’s Top Picks: Sun Life Financial, SLF, Suncor, SU, Aecon Group, ARE

Against this backdrop, stock markets have continued to advance. The S&P 500 in the US has hit new highs surpassing levels from before the financial crisis. Valuations have also hit high levels making the search for new investment ideas challenging.

A number of factors could come into play that would precipitate a more meaningful market correction than we have seen in the last ten years. In Canada, concerns are centered around the NAFTA negotiations. Since the Brexit vote and the start of the Trump presidency, a backlash against global free trade has been evident, causing uncertainty in the business community, thus dampening the appetite for capital investment. Other geopolitical factors are also of concern. North Korea’s nuclear threat and heightened discord with the US has been very prominent in the headlines as have tensions in the Middle East, Venezuela, Spain, Russia and the Ukraine. Monetary concerns in Greece,Italy, Spain and Portugal have not gone away.

All of these factors lead us to exercise caution and prudence in our investment stance. Investors have to look hard to find well financed, well managed and reasonably priced companies.

Top Picks:

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. 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.

Suncor, SU-T, Owned by clients, Last Purchase March 2016 at $32.94

Suncor is Canada’s largest integrated oil and gas company. Suncor has a strong production base with quality long-term assets, a strong balance sheet, and an integrated business model that smooths to some extent the cash flow from the various business segments. Management has been focused on increasing efficiencies and positioning the company for future growth. Over the remainder of the year, Fort Hills and Hebron will be coming online. Suncor has a strong balance sheet to support and expand operations. At current levels, the stock yields 3.1%.

Aecon Group Inc., ARE-T, Owned by clients, Last Purchase March 2016 at $16.00

Founded in 1910, Aecon Group is one of Canada’s largest construction companies.   Aecon’s backlog in other infrastructure, transportation and nuclear projects has been growing. The more sophisticated projects should result in higher profitability. The environment for increased public spending in Canada is robust. The company has announced that is considering a possible sale that caused an initial bounce in the share price. Since then, the price has receded somewhat giving a current yield of 3.0%. If a sale occurs, we anticipate that it would happen at higher prices.

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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.

 

Stockchase Top Picks – Michael Sprung on BNN Market Call

Stockchase Top Picks

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. We anticipate reasonable growth in earnings over the next few years that should result in expanding dividends. At just under $50 the stock currently yields 3.4% and represents good value in the current environment.

stockchase top picks michael sprung bnn market call

Stockchase Top Picks – Michael Sprung on BNN Market Call

Precision Drilling Corp., PD-T, Owned by clients, Last Purchase September 2015 at $5.00

Precision Drilling is Canada's leading contract drilling company with growing operations in the Middle East. During the downturn in energy prices, management has upgraded assets and improved efficiency. Earnings and cash flow will be very reactive to an improved environment. Recent signs that conditions are improving come from longer contracts and rising day rates. 

George Weston Ltd., Owned by clients, Last Purchase January 2015 at $96.88

Weston's operates fresh and frozen bakery operations in the US and Canada and food distribution through Loblaws; Canada's leading food retailer. Recent capacity additions are complete and greater volumes should lead to better margins in the bakery business. Weston's ownership of Loblaws has been creeping up  as share buybacks in the market have reduced the float, Weston has a strong balance sheet. The current dividend yield is 1.6%. From time to time. Weston has been known to pay a special dividend.

Outlook:

The US market has continued to rise in the first two months of 2017 as investors anticipate a better business climate under the Trump administration and the Federal Reserve has indicated more confidence in the economic recovery through yet another interest rate hike. The Canadian market has been less directional as commodity prices have fluctuated and economic activity remains comparatively weak. Low interest rates have attracted Canadian consumers to increase debt loads to levels that would be difficult to sustain in a rising interest rate environment. There is no shortage of global geopolitical concerns in the Middle East (particularly Syria), the South China Sea, Russian interventions in the Ukraine and Syria, etc. The populist culture continues to threaten the status quo and more particularly free trade and globilization.

Over the past eight years, multiples have expanded driving valuations to higher levels. We would suggest that this is a time for caution and vigilance in terms of security selection.

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We believe clients are more concerned about losing money than making speculative gains. Like to learn more? Please contact us here>>

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.