Michael Sprung’s Outlook
We are only a few days away form the US Presidential election and what a tumultuous campaign period it has been! While the Americans will decide which candidate is disliked the least, investors hoping for a calmer period post election may be sadly disappointed. We have observed some disturbing trends in the current global political environment calling into question the merits of free trade and globalization as politicians exploit unrest in the electorate. This trend has been evident during the Brexit campaign and the American election. This backlash has also been evident in the coverage of trade negotiations, notably CETA and TPP. Geopolitical tensions continue to fester in many parts of the globe: Euro disputes and financial instability in addition to the migration crisis, tension in the Middle East, Russian hegemony in the Ukraine and Syria, Chinese hegemony in the South China Sea, etc.
Within this environment, asset prices have been bid up on the back of easy money and debt as central banks have intervened in the economy through maintaining low interest rates. Governments have reacted with more regulation and interventions as we have witnessed in the Canadian housing market. For the most part, stock markets have exhibited great resiliency in the face of anaemic growth, rising protectionism and increasing regulatory constraints.
All of these factors lead us to be cautious in the current market environment. Investors can best position themselves in well diversified portfolios consisting of financially strong, well managed companies. Technology will continue to generate great opportunities and great dislocations. Rapid technological advances are reshaping many industries. These changes will cause greater stress as the skills required for employment evolve and leave many people behind. It is during these periods of great uncertainty and disequilibrium that investors must direct their efforts towards enhancing portfolio positions as opportunities are identified.
Michael Sprung’s BNN Stock Picks
Home Capital Group Inc., HCG-T, Owned personally and by clients, Last Purchase December 18, 2015 $27.08
Home Capital Group through its principal subsidiary, Home Trust Company, offers deposit, mortgage lending, retail credit and credit card issuing services across Canada. The stock has pulled back as the company has been impacted by new regulatory restrictions and operational issues with some loan origination issues. Management has been proactive with the origination issues and capital is being deployed to position the firm going forward with a focus on cost control as well as systems. The impact of the regulatory changes are going to have an impact on the whole industry that may temper the near term growth prospects. HCG is well financed and at current levels the stock has a yield of 3.7%.
Cenovus Energy Inc., CVE-T, Owned by clients, Last Purchase March 3, 2015 $22.05
Cenovus is an integrated oil company focused on the development of bitumen assets in Alberta. It has a 50% interest in a joint venture with ConocoPhillips as well as 50% interests in two oil refineries. The company has a strong balance sheet, disciplined expense control and great operating leverage to on improved commodity environment. In the interim, Cenovus has the wherewithal to continue with the enhancement of its properties.
The North West Company, NWC-T, Owned by clients, Last Purchase March 3, 2016 $31.79
The North West Company is a leading retailer of food and everyday products to rural communities and urban neighbourhoods in Canada, the Caribbean, Alaska and the South Pacific. NWC’s core markets in Northern Canada have been challeged recently by stagnant consumer incomes. This should be relieved to some extent as higher universal child care benefits are paid and the roll out of Nutrition North Canada which will occur in 22 of NWC’s markets. Competition remains strong in Giant Tiger’s markets. Alaskan stores were impacted by a reduction in 2016 Permanent Dividend Fund payouts but this should be a one time item. Going forward, we expect some recovery in the north and Alaska. The company is well financed and currently has a yield of 5%.
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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.