Investor’s Digest of Canada – Best Buys from Michael Sprung

Investor’s Digest of Canada – Best Buys from Michael Sprung

Investor’s Digest of Canada has been named “The World’s Best Investment Advisory” — five times — by the Specialized Information Publishers Association of Washington, D.C. Published bi-weekly, this information-packed advisory is the key source of investment knowledge for individual investors in Canada.

While volatility since winter “may or may not be indicative of a protracted market downturn”, it does signal shifting investor priorities, suggests Michael Sprung, founder of Sprung Investment Management in Toronto. He is a chartered financial analyst who serves as president and one of the portfolio managers at his namesake boutique investing firm.

Elaborating on the shift, Mr. Sprung explains, “I’d very much describe the last year as price-driven markets.” That is, investors largely put money into companies simply on the basis that their shares were rising, thus further inflating prices. Expressed as price-to-earnings, the portfolio manager notes that the major technology companies and other, more speculative corners of the economy (such as medical marijuana) had driven most of the increases over the last couple of years up to January, despite relatively negligible or even negative earnings. Investors during the period chose to bet on future growth.

Investors Digest Canada Best Buys Michael Sprung

Investor’s Digest of Canada – Best Buys from Michael Sprung

By contrast, the recent ups and downs are “forcing people into more higher-quality securities,” says Mr. Sprung. “It’s going to be much more of a ‘show-me’ kind of a market where people are going to want to see the road to earnings and the road to profitability,” he predicts before adding, “Quality of earnings is going to become much more important.”

The analyst advises against holding shares of the major technology companies, as well as stocks in emerging industries, given their room to fall.

He further recommends that investors avoid taking long positions in fixed-income investments, especially as interest rates rise and capital moves to other areas of the market in anticipation of growth. “We are very short in almost all of our fixed-income investments.”

Generally speaking, the larger economic outlook remains healthy, with a caveat. Mr. Sprung recalls that before the pullback in winter, “Everybody was talking about synchronized global growth from an economic point of view.”

Key to this rosy prognosis was simultaneous growth in both emerging and developed economies. In fact, the consensus expected better worldwide economic expansion this year than in the last five. However, Mr. Sprung admits, “A lot of that future will be dependent on the global trade issues.”

In Canada, the picture is also sound. “The country is very well-positioned to participate in a global economic recovery,” says the analyst. If NAFTA (North American Free Trade Agreement) negotiations are positive, closeness to U.S. growth further sweetens prospects back at home.

The analyst argues that the energy sector offers the best domestic potential for share prices to rise. After years in the doldrums, the energy sector is rising again. Because of the previous slump, many oil and gas names offer good value to shareholders, Mr. Sprung argues.

“Those that have had stronger balance sheets and better management have been able to take advantage of some of the opportunities that have come up.”

Reflecting this view, his first “best buy” pick is Vemilion Energy Inc. (VET-TSX, $44.97; VET-NYSE, US$34.92).

The oil and gas company is very well-diversified with operations in Canada, Australia, France, the Netherlands, and more.

Vermilion is able to generate free cash flow at current energy prices and its balance sheet is “very solid”, enough to recently hike up its dividend by seven per cent to $2.76 a share annually.

“Given their position, this is a company that has proven itself to be very savvy,” says Mr. Sprung. He praises Vermilion’s investment in Spartan Energy Corp. assets on “very, very advantageous terms” and points out that its Australian presence means it can serve emerging markets in the Far East. “It is one that people should seriously consider.”

Both Vermilion and Alaris Royalty Corp. (AD-TSX, $17.45), Mr. Sprung’s second “best buy”, boast very high dividend yields, at six per cent and 9.3 per cent (as of April 24), respectively, meaning that shareholders can look forward to being paid nicely even if the wait for price gains turns out to take longer than hoped.

The analyst says of Alaris, “It’s a company that’s selling at a compelling valuation.” He explains that shares took a lasting hit because of issues at several underperforming companies in the Alaris stable. (The company makes capital investments in other firms in exchange for ownership of preferred shares.)

Its lofty dividend yield stoked further share-depressing fears of a cut. However, only five out of 16 Alaris partners were underperforming, and Alaris has already largely resolved the underperformers’ cash flow problems, according to Mr. Sprung.

“As they deploy more funds going forward, they will create more cash flow and there will be more dividend increases possible,” he predicts, leading the market to notice the positive trend coming into play.

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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.


Michael Sprung’s Top Stock Picks on BNN’s Market Call Tonight, December 13, 2017

Michael Sprung’s Outlook

As 2017 comes to a close global stock markets have continued their ascent throughout the fourth quarter of 2017. Many economists pontificate on the synchronized global recovery underway, evident from improving employment levels and some muted signals of inflationary growth. Commodities have been on a roller coaster as perceived demand has spiked up and retreated over the course of the quarter. Wage demands exhibit some signs of accelerating but remain largely tempered by companies shifting to larger expenditures on technology as a means of enhancing productivity. We have yet to see a significant correction in the markets as investors appear to be complacent or unaware of the rising valuation levels and the growing geopolitical tensions in the world.

Michael Sprung Top Picks BNN Market Call

Michael Sprung’s Top Picks BNN Market Call: December 13, 2017

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 remain centered around the NAFTA negotiations. Since the Brexit vote and the start of the Trump presidency, a backlash against global free trade has been growing, 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 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.

Michael Sprung’s Top Stock Picks

Alaris Royalty, AD-T, Owned personally and by clients, Last Purchase November 7, 2016, $19.84

Alaris Royaly invests in a diversified range of North American private companies with the objective to generate cash flows to support dividends to shareholders. Problems within a number of investee’s over the past year have hindered progress. Many of these concerns have largely been dealt with and now the company is poised to enter a renewed period of growth. Alaris is deploying capital in new partners and has made their largest investment to date in Sales Benchmark Index,LLC of US$85 million. AD is well positioned for modest capital deployment in 2018 that should result in cash flow growth and a lower payout ratio.

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 that zinc production in Manatoba will ramp up in 2018. Longer term the Rosemont copper mine in Arizona offers more growth. Hudbay has been improving the balance sheet paying down debt providing greater liquidity for future investment.

George Weston Limited, WN-T, Owned by clients, Last Purchase September 9, 2016, $74.59

Recent setbacks in frozen foods and the cautionary outlook in the grocery industry have resulted in an opportunity for longer term investors as the shares now trade at attractive valuation levels. We expect the incoming president, Richard Dufresne, will continue to focus on very tight expense control and operational efficiencies in Weston Foods and Loblaws. Weston’s ownership in Loblaws will surpass the 50% level in 2018.

You can view the complete interview here>>

What is Successful Investing? Learn more here>>

We believe that investment management is about managing risk, not chasing speculative returns. 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.


Canadian Stock Picks – Michael Sprung on BNN Market Call Tonight


2016 has been a year to remember for investors. The UK vote to leave the European Union came as a surprise to the pundits, media and the investment community only to be shocked again as Donald Trump won the presidential race in the US. Then, despite all the opinions to the contrary, the US stock market did not go down but recorded the longest running post election rally in history. While all of this was occurring, the European migrant crisis persisted causing vexation within the local populations and spurring more radical political movements. A disturbing trend from an investor’s point of view has been the rising volume of anti free trade and globalization rhetoric. The underlying financial problems within the European Union with respect to Portugal, Italy, Greece and Spain remain unresolved as if politicians are hoping that a “deny and delay” policy will push these crises onto future governing bodies. Other issues that continue to persist include disturbances in the Middle East (particularly Syria), Chinese hegemony in the South China Sea, Russian incursions into the Ukraine and Syria (and maybe even US politics), etc.

Canadian Stock Picks Alaris Royalty ADARC Resources ARX, AGT Food and Ingredients

Canadian Stock Picks – Alaris Royalty Corp, AD, ARC Resources Ltd, ARX, AGT Food and Ingredients Inc, AGT

As we head into 2017, we will carry all of this baggage with us as well as face many new, yet unknown disruptions as we do every new year. While it is not known what the longer term consequences of a Trump presidency will be, the US economy is expanding and it is unlikely that policies would be introduced to intentionally stunt that growth. While investors played a waiting game with the Federal Reserve in 2016, it appears that there is now confidence in the strength of the US recovery to allow interest rates to increase. In Europe, despite problems in a number of areas, the overall economy is exhibiting signs of more stability and even some growth. While growth in the emerging economies has slowed, growth relative to the developed world is robust producing greater wealth and higher demand for goods and services.

Technology continues to reshape our world in an ever accelerating fashion. There will be winners and losers in this trend, but change is inevitable. 2016 is still fresh in our minds. 2017 will bring its own shocks and surprises. Investors will prosper if they stay fast with their discipline and do not get distracted by the turbulence that surrounds them. We wish everyone a healthy and prosperous New Year.

Canadian Stock Picks

Alaris Royalty Corp, AD-T, Owned personally and by clients, Last Purchase November 2 2016 at $19.84

Alaris has undergone a challenging year. Since the beginning of 2016, problems in some of the companies in which Alaris had invested dragged on without satisfactory resolution . Since July, more problems came to light with some write-downs. The share price declined steadily as investors became concerned with the sustainability of the dividend and Alaris’ debt coverage ratios. Throughout this period, management was negotiating workouts with the companies with issues. At this time, positive resolutions to many of the issues appear to be in sight. The Company has expanded its financial capacity and successfully initiated investments from a new small cap division. The dividend appears more secure now and we anticipate that upward revisions to the dividend will be forthcoming in the years ahead.

ARC Resources Ltd., ARX-T, Owned by clients, Last Purchase March 9 2016 at $18.72

ARC in one of Canada’s leading conventional oil and gas companies with operations in Western Canada. The recent sale of assets in SE Saskatchewan at Weyburn and Midale will act to further strengthen an already strong balance sheet as well as free up capital to be deployed in the acceleration of 2017 drilling plans in the Montney region. ARC has been disposing of non-core assets as management concentrates on more profitable production opportunities. Management has been diligent in capital management throughout the commodity price downturn. A dividend increase by late next year may be forthcoming with the balance sheet improvement.

AGT Food and Ingredients Inc., AGT-T, Owned personally and by clients, Last Purchase December 18 2014 at $26.50

AGT is a leader in pulse processing for export and domestic markets. The company has had notable success in diversifying into food ingredients, an area that is facing increasing global demand. 2016 was declared by the United Nations to be the International Year of the Pulse, highlighting the growing global demand for pulses. Although pulse production in 2016 has been at record setting levels, harvesting has been later than anticipated pushing revenues forward. Export demand is growing, and AGT has been expanding its pulse handling and food ingredient production capability. Ingrdion, a distributer of AGT’s pulse base flour and ingredients, has made two significant acquisitions in the specialty ingredients portfolio lending confidence to AGT’s expansion in his area.

What is Successful Investing? Learn more here>>

Download Our Free Special Report – How to Hunt For Value Stocks. Michael Sprung will share with you 5 stocks set for long-term gains here>>

We believe that investment management is about managing risk, not chasing speculative returns. 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.


Market Outlook & Top Picks – BNN Market Call Tonight

Market Outlook:

2015 was a tough year to be an investor, particularly if you were in a country where the economy and stock markets were exposed to energy and other commodities that suffered sharp price declines resulting from oversupply and slowing demand. Geopolitical instability weighed on investors’ concerns as tensions in the Middle East escalated causing mass migrations that elevated discord in the European Union that was already present from the debt crisis in several of the member countries and caused further friction between the US, Russia and China. In addition, investors waited with trepidation for the Federal Reserve in the US to hike interest rates despite high debt levels, slowing global economic activity and an already highly valued US dollar. As a result, investors are extremely wary of the economic environment that we enter into at the start of 2016.

While there is much to be concerned about, there are some potentially positive undercurrents that are running throughout the global economy. Within the energy and metal markets, producers have cut back capital expenditures to a significant degree. Consolidation is beginning to occur within these industries along with increasing asset dispositions at distressed prices. The oversupply stemming from Saudi Arabia will test the fortitude of the authorities as taxes are increased to cover large budgetary deficits that will serve to cause displeasure in the general population. These actions will serve to re-balance the supply/demand issues in the energy industry. Lower capital expenditures in both metals and energy will defer future production.

Market Outlook energy commodities.

Market Outlook – 2015 was a tough year to be an investor in a country where the economy and stock markets were exposed to energy and other commodities.

The strong US dollar will impact will put pressure on the profitability of US companies doing business abroad. Furthermore, margins will come under pressure as wage demands increase while low inflation diminishes the ability to increase prices, especially with the growing substitution from countries with weaker currencies. Shareholders are likely to demand that more capital be deployed in businesses and research and development to regain longer-term competitive advantage.

In Canada investors are concerned that new provincial and federal governments are advancing tax and spend policies. At least at the Federal level, we enter into this period in a strong fiscal position. In the interim, Canadian industry should benefit from the low value of the Canadian dollar to the extent that they export products and services.

We have witnessed a correction in many sectors of the Canadian market. Those companies with the financial and managerial wherewithal will take advantage of current conditions and prosper.

Top Picks:

Alaris Royalty Corp., AD-T, Owned personally and by clients, Last purchase August 26, 2015, $26.08

Alaris Royalty is a unique investment firm that invests in a diversified range of private companies with solid long term histories and stable management teams. The nature of the investment allows Alaris to participate in future growth while the entrepreneurs maintain control provided certain agreed upon benchmarks are met. Management has had a successful track record in identifying good investment opportunities. Since first recommending this company in June, the performance has been disappointing due to some operational problems at several of their investments, one of which resulted in a write-down. These issues now appear to be largely behind and Alaris has an expanding pipeline of deal flow with an expanded credit facility. We anticipate that profitability will increase as activities get back on track and dividend increases will follow.

Suncor Energy Inc., SU-T, Owned by clients, Last purchase December 21,2015, $35.00

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 smoothing to some extent the cash flow from the various business segments. The recent pressure on energy prices has caused the energy related stocks to pull back significantly. Suncor has the financial strength and diversified base of operations to do well in this environment as evidenced by the opportunistic bid for Canadian Oil Sands. The dividend currently produces a 3.4% yield.

Stuart Olsen Inc., SOX-T, Owned by clients, Last purchase October 5, 2015, $5.49

Stuart Olson Inc, formerly The Churchill Corporation, is one of Canada’s largest construction firms providing general contracting and electrical building systems contracting in the institutional and commercial construction markets as well as
electrical, mechanical and specialty services in the industrial construction markets. The stock has underperformed the market and its peers as investors have focused on its exposure to Western Canada. Going forward, there are plans by the governments of Alberta, Saskatchewan and BC, as well as the Federal government, to dramatically increase spending on infrastructure. Stuart Olsen’s Bulidings group has a $1.4 billion backlog and is well situated to get a share of the spending on social infrastructure. The Industrial Services Group while exposed to the oil sands, derives its revenue from maintenance, repair and operations in the energy, mining and hydro industries. Stuart Olsen has a good balance sheet The dividend currently yields 9.0%.

Watch Michael Sprung interviewed on BNN Market Call Tonight here>>

What is Successful Investing? Learn more here>>

Download Our Free Special Report – How to Hunt For Value Stocks. Michael Sprung will share with you 5 stocks set for long-term gains here>>

We believe that successful investors focus on the quality of the assets they buy. Speculators focus on guessing the future prices. 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.


BNN Market Call Interview: Market Outlook and Top Picks

Market Call Outlook

Global markets have exhibited high volatility as concerns regarding the health of the global economy have persisted. While much of the international focus has centered around the slowing economy in China, not many markets escaped the negative pressures in the third quarter of 2015.

Economic factors were not the only factors weighting on investors’ concerns in the third quarter. Continuing strife in Syria and the resultant mass emigration into Europe, the build up of Russian and US tensions, Chinese displays of military might and the ongoing political issues in Europe all played a role in stocking investors’ fears.

Through much of the quarter, the US market remained positive as signs of economic expansion continued. Then, the Federal Reserve elected not to increase interest rates at this time casting doubts in investors minds as to the underlying integrity of the recovery.

Canadian investors have been caught up in a tediously long election debate. The uncertainties resulting from the threat of a change of government are adding to the concerns stemming from the collapse in energy prices and the waning demand for base metals.

What we are witnessing is a period of adjustment after seeing markets increase since 2008. While there are legitimate concerns that economies are slowing down, the decline in many markets has over reacted. Some of the downward pressure may be attributable to the high degree of margin that had built up over the last few years. However, many of the factors affecting the markets are transitory. It is during these periods that the stocks of good companies get driven down with those of weaker companies. Investors should be using this period of adjustment to upgrade their security positions in stronger, better managed companies in order to participate in the profits to be derived over the next business cycle.

Michael Sprung BNN Market Call Interview Market Outlook Top Picks

Michael Sprung BNN Market Call Interview: Market Outlook and Top Picks

Market Call Top Picks:

Alaris Royalty Corp., AD-T, Owned Personally and by Clients: Last Purchase August 26, 2015, $26.08

Alaris Royalty is a unique investment firm that invests in a diversified range of private companies with solid long term histories and stable management teams. The nature of the investment allows Alaris to participate in future growth while the entrepreneurs maintain control provided certain agreed upon benchmarks are met. Management has had a successful track record in identifying good investment opportunities. With growth, the number of opportunities presented to management has increased dramatically however, management has exhibited tremendous discipline in being selective with whom they partner. As investments and cash flow have grown, dividends have increased. We anticipate that investors will continue to participate in Alaris’ growth.

HudBay Minerals Inc., HBM-T, Owned Personally and by Clients, Last Purchase August 26, 2015: $5.81

HudBay Minerals is one of Canada’s leading producers of zinc, copper and precious metals with operations in Canada, Peru and the US. Constancia, a major copper-molybdenum-silver mine in Peru, has been ramping up production over 2015. It is expected that recoveries will improve as mill throughput and head grades have exceeded expectations. Transportation issues are being addressed and should be resolved by year end. With other projects coming on stream over the next few years, we anticipate that valuation levels will increase.

Aecon Group, ARE-T, Owned by clients, Last Purchase June 16, 2015, $12.50

Aecon Group is one of Canada’s largest construction companies. A large portion of Aecon’s business is related to the energy sector and the company’s stock price has been under pressure as a result. However, Aecon’s backlog in other infrastructure transportation and nuclear projects has been growing. The more sophisticated projects should result in higher profitability. Over the last number of years, management has taken steps to strengthen the financial position of the company. At current prices, the stock presents good value to investors for longer term appreciation.

Watch Michael’s complete Market Call Interview with Amber Kanwar on BNN here>>

What is Successful Investing? Learn more here>>

Download Our Free Special Report – How to Hunt For Value Stocks. Michael Sprung will share with you 5 stocks set for long-term gains here>>

We believe that clients gain from our focus on the long-term fundamentals and not chasing short-term trends. 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.


BNN Market Call Tonight Interview: Market Outlook and Top Picks

Market Call Outlook:

After a number of years of positive performance, North American markets are looking a stretched. In Canada, the retreat in energy prices continues to reverberate through the economy. In the US, valuations are appearing somewhat on the high side and investors are wary of any impending interest rate hikes. Given the strength of the US dollar, we do not believe rate hikes are likely in the immediate future. Despite the slower rate of growth in China, the market there continues to reach new highs despite falling export and import levels.  Commodities have been constrained by the anticipated lower demand levels from China. The European economy appears to be stabilizing to some degree with the obvious problems in Greece, Portugal and Spain still weighing on investors concerns. In this environment, we would not be surprised to see a pullback in the markets that would afford investors the opportunity to find better values.

Market Call Top picks Michael Sprung Alaris Royalty ARC Resources CAE Inc

Market Call Top picks from Michael Sprung: Alaris Royalty, ARC Resources, CAE Inc

Market Call Top Picks:

Alaris Royalty Corp. (TSE:AD, Mkt cap 993.91M, P/E 17.42, Div/yield 0.12/4.86, EPS 1.77, Shares 32.18M) Owned by Clients: Last Purchase May 28, 2015, $31.62
Alaris Royalty is a unique investment firm that invests  in a diversified range of private companies with solid long term histories and stable management teams. The nature of the investment allows Alaris to participate in future growth while  the entrepreneurs maintain control provided certain agreed upon benchmarks are met.  Management has had a successful track record in identifying good investment opportunities. Last week, management announced the largest investment to date in a construction firm in  Texas. As investments and cash flow have grown, dividends have increased. We anticipate that investors will continue to participate in Alaris’ growth.

ARC Resources Ltd (TSE:ARX, Mkt cap 7.42B, P/E 19.82, Div/yield 0.10/5.50, EPS 1.10, Shares 340.03M) Owned by Clients: Last Purchase May 28, 2015, $22.80

ARC Resources is a Canada-based oil and gas company. The Company’s business activities include the exploration, development and production of crude oil, natural gas and natural gas liquids in five core areas across western Canada. The Company is also engaged in the Sunrise gas plant construction. Its operations are focused in five core areas across western Canada. ARC Resources has a strong balance sheet and the dividend is well covered even at current commodity prices. The shares offer an attractive yield of 5.5% at current prices.

CAE, Inc. (TSE:CAE, Mkt cap 3.98B, P/E 19.72, Div/yield 0.07/1.88, EPS 0.76, Shares 267.18M) Owned Personally and by Clients, Last Purchase August 21, 2014, $13.45

CAE Inc is a Canada-based company that provides modelling, simulation and training for civil aviation and defence. The Company has a good balance of customers between military and civil applications. CAE has invested over the last few years in expanding training facilities in anticipation of a pending higher turnover in pilot retirements over the coming years resulting in greater demand for training services. As such, utilization rates should increase as capital expenditures are reduced. CAE is well financed and managed.

You can view the complete video here>>

What is Successful Investing? Learn more here>>

Download Our Free Special Report – How to Hunt For Value Stocks. Michael Sprung will share with you 5 stocks set for long-term gains here>>

We believe that clients gain from our focus on the long-term fundamentals and not chasing short-term trends.

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.

    StockWatch – Five Stock Picks from Michael Sprung of Sprung Investment Management

    StockWatch – “We are still finding relatively good value in the energy sector,” says  Michael Sprung, President of Sprung Investment Management Inc., in an interview with Mr. Sprung provides some insight into corporate Merger & Acquisition activity and mentions five stocks that he likes currently, including two small-cap names.

    Mark Thorburn: Founded in 2005, Sprung Investment Management help clients moderate swings in market volatility through a “value investing” approach. Aimed at preserving wealth and providing a real rate of return after fees and inflation, they are known for employing philosophies that run contrary to current investment trends.

    Sprung is different from other investment management firms and that they make a deliberate attempt to minimize trading and transaction costs. They make decisions based on due diligence and staying in the course rather than reacting to market volatility.

    In June 2014, we asked Michael Sprung about his current view of the economy.

    StockWatch – See the interview at SmallCapPower here>>

    Michael Sprung: Well, I think right now we’re at a very interesting crossroads. Gwyn Morgan was writing the other day in the Globe and Mail, He noted that Der Spiegel had an article about a week or so ago and the headline was, “Troubled Times: Developing Economies Hit a BRICS Wall.” He’s referring of course to the BRICS, Brazil, Russia, India and China. The fact that those economies to some extent seem to have stalled. Particularly Brazil which we have seen their problems lately in getting the Olympics together, Russia of course facing all the sanctions, India primarily lots of potential bad loans there and corruption and China of course the slowdown in the economy and the overbuilding of infrastructure and so on of the last number of years some of it not in such great quality and so on.

    Where as what we’re seeing in the U.S., the economy is actually an expanding economy now. On an absolutely basis, the U.S. is likely to contribute more to global GDP this year than China. So, where the BRICs had a large surplus contribution before, now the sort of developed economies including Britain and Germany and the U.S. and so on, are actually going to have more of a contribution.

    So I think this is quite interesting because it affects Canada in a lot of ways. It affects Canada in terms of demand for resources. We’re seeing more manufacturing in the U.S. Now, the U.S. is still our largest export partner, but we are depending more and more upon the emerging economies. You wouldn’t know that to look at the stock markets today. To the end of last week, the total return on the TSX was still over 9%. Now, we’ve pulled back a little bit since then. Whereas the U.S. they have been closer to four and the emerging economies you are likely to see two.

    In terms of the stock market reaction, I think we’re in a very interesting time here. Our view is that particularly in Canada perhaps the stock markets are a little bit of ahead of the fundamentals. So we would not be surprised to see a pause. Now, if we did see a pause due to the fact that the U.S. is picking up to the extent that it is, we think that could be an opportunity for investors to step in.

    Mark Thorburn: What is your view on the new strategy at Rogers Communications Inc. (TSE:RCI.B)?

    Michael Sprung: I think Rogers faces a number of issues and problems to get over. One of them is the backbone of their infrastructure in terms of technological ability; it appears to have stalled out relative to some of the newer things that are available such as fiber. They do compete in the wireless world, but they’ve been having trouble. They’ve defined their new strategy in terms of trying to get back both business and retail confidence to try to reestablished themselves as technological leaders and to try to just regain some of the share that they’ve lost over the years.

    I think that they’re going to have a tough time achieving that. Now, they’re adapting a structure that is not unlikely see in other telcos, but they’re still going to have an awfully large executive suite. They’re not only going to have sort of consumer enterprise and media but with that, they’re going to have all of the other sort of corporate human resources, legal, accounting, and so on. So it ends up with about 12 or more people still in that executive suite. So I think it’s going to be a very difficult for them to achieve the turnaround that they’re looking for particularly in a short period of time.

    Mark Thorburn: There have been a number of Canadian banks that have reported strong earnings this quarter, are there any other banks that you think will surprise on the upside?

    Michael Sprung: Well, we’re certainly hoping that tomorrow this Canadian Imperial Bank of Commerce (TSE:CM) will surprise on the upside. Now, so far we’ve seen Bank of Nova Scotia, Royal, TD and National Report. Certainly, with the exception of the National, I think the results were far ahead of expectations and more of the real surprises came in.

    A lot of people have been talking about the head winds and credit and the debts of consumers and yet we’re seeing provisions for credit losses at least the ratios remained relatively low. So credit has been surprising on the upside.

    Net interest margins in this environment to a great extent have been expanding. We’re seeing great results out of international banking and capital markets have surprised more on the upside than the downside particularly with respect to trading and so on.

    Now, we own exposure to Royal Bank and Nova Scotia and CIBC. I think tomorrow when CIBC reports, people are going to be looking very closely not only at the credit situation but also the success of their new credit card programs since they lost Aerogold to the TD. Aerogold did contribute somewhat to TD’s results, but I think this new Aventura Visa card that CIBC has coming out is going to surprise people on the upside as well. So overall, we’re expecting to probably have fairly healthy results out of the CIBC tomorrow and we look forward to seeing that when it happens.

    Mark Thorburn: Do you anticipate that merger and acquisition activity is going to pick up in 2014?

    Michael Sprung: Yes, we do. We anticipate that M&A activities going to pick up for a number of reasons. We’re in a slower growth world than we were in previous cycles. In order for companies to grow, I think they’re going to depend more and more on M&A activity to achieve that incremental growth. I think we’re already seeing it in a number of areas, energy being one. But we’re also seeing it amongst pharmaceuticals and other companies today. In a world where GDP growth is going to be much slower around 2.5% to 3% in order to achieve that, and I think beyond organic growth we are going to see a much more dependence on mergers and acquisitions. So that should make the investment bankers quite happy.

    StockWatch Michael Sprung

    StockWatch – “We are still finding relatively good value in the energy sector,” says Michael Sprung

    Mark Thorburn: What sectors do you currently like?

    Michael Sprung: Well, in terms of places where we continue to find value, I’d have to say that despite the fact that energy is been amongst the best performing sectors of the TSX so far this year, we’re still finding relatively good value. I mean energy as a whole has been up about 14% year-to-date. And despite the fact that we’ve seen natural gas prices increased by both 12% which I think has surprised people on the upside, however, West Texas Intermediate for instance is only up about 3.5% year-to-date. We’ve seen a lot of the stocks beginning to run. I think largely as a result of the production increases that we’re beginning to see particularly in the U.S. and that is also contributing to the efficiencies in the economy to some extent particularly on the manufacturing side.

    So in terms of exposure, we still today like in Canada for instance. Now, and Canada has really, really surprised people with some of these things that they have done in terms of the recent of issue of PrairieSky by Encana Corporation (TSE:ECA) at prices above what anybody thought that they might be able to sell that at. That’s been a great surprise spinning out of the royalty business in Clearwater. The purchase of the large chunk in Eagle Ford I think has also been particularly a positive surprise to the market. We expect going forward that that will continue to be reflected in positive results in the share price at least over the next number of years.

    We also think that the dependence on natural gas make it down on the next couple of years to both 75% of production from the 85% where it currently is.

    We also like Cenovus Energy Inc (TSE:CVE) because that’s a company where you have fairly predictable production increases over the next number of years. The capital goes again to it. Again, they manage to maintain the cost of that oil sands development to a great extent. It’s a very efficient company, a very efficient management and they do have a both upstream and some downstream assets as well.

    Finally, of course, Suncor Energy Inc. (TSE:SU) which has been a long-term holding of ours which is more of a fully integrated play but again good balance sheet, great management, and again expanding production over the next number of years. So we like all three of those and we’ll continue to hold them.

    Mark Thorburn: Do you have any favorite small cap companies you’d like to mention?

    Michael Sprung: Yes, occasionally we do go down into the smaller cap and in fact what people might even consider almost micro cap. One exposure we have is Temple Hotels Inc. (TSE:TPH). Now, eight of the twenty-one hotels that Temple owns are in the Fort McMurray area. Given the limited expansion available there, they have quite a lock on the market. They also have been very aggressive acquirers of hotels in other areas primarily in the west.

    We see this is a company that, today you can buy for roughly eight times available funds from operations that used to be a unit trust, so we still tend to look at it that way. Yet, it carries a very healthy yield around 8.5% which reflects a payout ratio of about 75%, so I think that’s quite sustainable. So there is a company that we’ve done very well on that I think we will continue to hold unless it appreciates quite dramatically from here.

    Another example would be Alaris Royalty Corp. (TSE:AD) which is a more recent purchase of ours. This is almost like a private equity firm but rather than take equity interest directly in companies, they issue preferred shares which escalate in terms of their payouts provided certain benchmarks are made and if they don’t, then it can convert into real equity.

    So they have had an expanding dividend over the last five years and we suspect that that will continue to expand. They currently have 12 investment partners, the largest of which represents both 17% of their funds coming in. They plan to reduce that to about 10% into not too distant future. So we’re seeing a diversification amongst health care, industrial, retail other areas, they tend only to invest into private companies which have good long-term tenure track records at least. So I think it’s been so a very, very smart management team that is designed to this company which is very, very lean at head office.

    So again, it’s currently selling under $29 I think. Anything under that level it certainly could represent a good longer term purchase.

    Mark Thorburn: Thank you for taking the time for the interview today, Michael.

    Michael Sprung: Thank you.

      Stock Watch – Michael Sprung on BNN Market Call with Mark Bunting

      Stock Watch – Michael Spung on BNN Market Call discussing his market outlook and top stock picks – Alaris Royalty, Cascades Inc and George Weston

      Stock Watch Michael Sprung BNN Market Call Alaris Royalty Cascades Inc George Weston

      Stock Watch – Michael Sprung on BNN Market Call discussing Alaris Royalty, Cascades Inc and George Weston

      Stock Watch – Market Outlook:

      We anticipate that the US economy will continue to accelerate as the year progresses, barring any major geopolitical disruption. Canadian markets have thus far outperformed many of their international counterparts, propelled in part by greater activity in the energy sector and strong agricultural commodity prices. Fears of slower growth have negatively impacted the emerging markets, while European markets have been shaken by events in the Ukraine. Going forward, we would not be surprised to see a pullback in Canada as fundamentals catch up with valuations. Such a pullback will be an opportunity for prepared investors.

      Stock Watch – Top Stock Picks:

      Alaris Royalty Corp. (TSE:AD, Mkt cap 836.96M, P/E 24.08, Div/yield 0.12/4.94, EPS 1.21, Shares 28.72M), owned by clients, last purchase April 22 2014, $26.73

      Alaris Royalty is a unique investment firm that invests in a diversified range of private companies with solid long-term histories and dedicated management teams. The nature of the investment allows Alaris to participate in future growth while the entrepreneurs maintain control provided certain agreed upon benchmarks are met. Management has had a successful track record in identifying good investment opportunities. We anticipate this trend will continue and the stock will provide investors a means by which they can participate in a growing cash flow.

      Cascades, Inc. (TSE:CAS, Mkt cap 599.12M, P/E 67.84, Div/yield 0.04/2.51, EPS 0.09, Shares 93.91M), owned by clients, last purchase February 28 2013, $4.43

      Cascades is a producer, converter and marketer of tissue and packaging materials in North America and Europe.   As the economy expands, the price of packaging material will increase. In recent years, management has taken steps to realign the company and address any balance sheet concerns. The recent pullback in the stock’s price affords a good entry point for investors,

      George Weston Limited (TSE:WN, Mkt cap 10.43B, P/E 18.02, Div/yield 0.42/2.06, EPS 4.53, Shares 127.91M), owned by clients, last purchase December 18 2013, $75.74

      Weston will continue to benefit from their 46% ownership of Loblaw as it generates more reach through their innovative extensions into cultural markets as well as product delivery through the integration with Shoppers Drug Mart. The WN Food division is currently facing some pressures that should see some benefits before year-end as new plants come online and efficiencies are gained through their relentless focus on optimizing the production platform. The commodity input hedging should also lead to more stable cost control.

      You can see Michael on BNN’s Market Call by visiting our Video Page

      Here is a transcription of the complete BNN Market Call broadcast:

      Mark Bunting:          Tonight on Market Call, we have Michael Sprung, the president of the Sprung Investment Management and he’ll be taking your questions on Canadian Large Caps.


      Hello and welcome to Market Call Tonight. This is the Thursday edition, thanks a lot for joining us. Canadian Large Caps is the topic, Michael Sprung is the guest as you saw and see now. We have three ways to — you can contact with us here, email address: [email protected] Here’s our toll free number: 1855-326-6266 or tweet us if you like @marketcall. Hello!


      Michael Sprung:        Hello!


      Mark Bunting:          It’s nice to see you.


      Michael Sprung:        It’s good to be back, thanks!


      Mark Bunting:          Would you say that the investors need to exercise a bit of precaution right now?


      Michael Sprung:        Yes, I think so. The markets were good last year, they continue to forge ahead and particularly in Canada, I mean we’ve got markets. Well, I mean today, we’re off a bit but still on total return basis. We’re probably up about 9% on a year; the U.S., not so much, closer to 1% or 2%. I just think that the fundamentals aren’t moving forward that quickly; the economies are not expanding that quickly.


      People are looking for 2% to 2.5% GDP growth in a lot of instances and I think that at some point, the markets got to take a pause here. But when they do, that will probably be an opportunity. Let’s face it, we’ve been in a “bull market” now for a number of years and they just don’t go straight up all the time. I think people should be prepared for a pause here.


      Mark Bunting:          Do you think Toronto Stocks are valued sort of ahead of their fundamentals?


      Michael Sprung:        Yes, I do.


      Mark Bunting:          Across the board?


      Michael Sprung:        Oh, pretty much. I mean it’s getting much harder to find things that you’re really comfortable stepping in and buying unless your outlook is extremely long-term, but we always try to evaluate a stock when we’re looking at it. We’re looking for more potential upside than what we see on the downside. And usually, some sort of ratio of two or three to one upside versus downside risk on percentage basis and that’s getting more and more difficult to find those stocks that you really think that, “Gee, if I buy it today at 10, it’s likely to go to 7, as it is to go to 12 or 13.”


      Mark Bunting:          Right.


      Michael Sprung:        The risk reward is just not enough unless you’re just buying it to carry the dividend yield, which I think is what caused the market to maintain the strength that has. I mean, given the alternatives and fixed income, investors are largely just buying for yield.


      Mark Bunting:          Are there certain stocks, Michael, though in certain sectors where there are areas of opportunity? Maybe they’ve lagged a little bit?


      Michael Sprung:        We don’t look at sector specific basis. We look at it stock-by-stock. But in terms of where can you find the things that maybe you feel more comfortable, I think the Energy areas, one where perhaps we can identify one or two more stocks. Materials actually are becoming more interesting in here, I think, because they have certainly lagged significantly given commodity prices where they are.


      Should we have a bit of a pause and then the economy begins to build again, that’s where you’re going to make money because particularly in materials, you want to buy them when they’re out of favor. You just have to have the holding power to wait out until the next run.


      Mark Bunting:          We have an email here from Albert and before I get to this on the Silver Wheaton, let me just tell you quickly here about Silver Wheaton. After hours, coming out with their numbers in the first quarter, earnings per share 22 cents revenue which I have estimates at $165 million. Analysts we’re expecting about $187 million. They’ve also instituted a dividend reinvestment plan.


      We’ll get Michael to talk about Silver Wheaton now. This is from Albert once again, could they get your opinion, is it a buy at this level?


      Michael Sprung:        Well, as I’m saying, there are some opportunities in Silver Wheaton and the royalty takers as they call them, they look still quite expensive. You’re still paying in the neighborhood of 25 times projected earnings for this year.


      Now, if you think there’s going to be a slight recovery here, yes, their royalties are going to go up fairly significantly. Silver Wheaton’s pulled back from a high of over $30 to close to where it is today $20, $23, $59. I think that it’s getting close to an area where — again, if you’re a longer term thinker, you could think about buying it. Certainly, with respect to some of its peers, I think it looks reasonably valued.


      Mark Bunting:          Do you hold anything in this area, Franco-Nevada or Sandstorm Gold?


      Michael Sprung:        No, we don’t know any of the royalty takers.


      Mark Bunting:          What about a Goldcorp?


      Michael Sprung:        Yes, we have Goldcorp and we do own Barrick as you know.


      Mark Bunting:          Right.


      Michael Sprung:        We tend to participate directly, I guess, rather than indirectly.


      Mark Bunting:          So that’s your precious metal exposure for the most part?


      Michael Sprung:        For the most part, we always limit precious metals to about 5% or less of the portfolio. We tend to run pretty conservative portfolios and it’s there usually more as a hedge against inflation or adverse geopolitical events or whatever. The thing with buying gold stocks, you’ve got to buy them when people just don’t want them.


      Mark Bunting:          A bear market for gold. Michael, we’ll talk more about it a little later on the show. Jim is in Massey, Ontario. Go ahead, Jim.


      Jim:                       Michael, do you like CIBC Bank and when do you think they’ll split the stock? Thank you.


      Michael Sprung:        Well, they’re getting close to $100 again. CIBC, was few years back over a $100. They’re finally getting back to that level. I wouldn’t be surprised to see them split it if it goes through that marker again. I like CIBC. It is one of our primary holdings in the banking group.


      The thing I do like about it is the fact that — I don’t think they ever get the appreciation for how much since McCaughey has been in charged — they’ve de-risked this bank. Yes, they still have one of the best capital ratios and yet, it earns one of the highest returns on equity. I think that’s a pretty safe bet. They are a little bit vulnerable being largely a Canadianized bank now. If one really believes the worries about the Canadian mortgage market and things like that, that would be one concern. But we think that’s a little bit overblown, we think that Canadian mortgages are much safer than people outside the country generally perceive them to be.


      So, no, we like CIBC. Even today, I think on a relative basis, it’s selling at a fairly reasonable, multiple relative to the other banks. It is slightly higher multiple of book value but it’s a lower multiple of earnings. You’ve got a trade off there.


      Mark Bunting:          Which other banks do you hold?


      Michael Sprung:        We hold the Royal and the Bank of Nova Scotia. Nova Scotia is probably our largest hold.


      Mark Bunting:          Okay, so those three. Jeff is in Toronto. Good evening, sir.


      Jeff:                      Hi, how are you?


      Mark Bunting:          Very well, how’s going on?


      Jeff:                      Good, I’d appreciate your comments on CGI group. It announced the strong earnings last week and it has been downhill ever since. I’d appreciate your comments of where you think the stock is going to be going from here. Thanks, bye.


      Michael Sprung:        Well, CGI group, they basically are a software firm that contracts out largely to governments and so on. They got badly tarnished with the Obama Care in the U.S. when that came out, and I think that was largely overblown and not really particularly germane just to them.


      Overall, I think that the company is very well-managed. It has a good long-term growth strategy. It has pulled back a little bit but it’s still relatively high over the last few years. I think on a multiple bases, it still looks somewhat expensive from our point of view. But if we were to pull back another 10%, I think we’d be quite interested in looking at it.


      Mark Bunting:          Let’s talk to Bob. He’s also in Toronto. Good evening, sir.


      Bob:                       Good evening! My question for Michael is on SNC-Lavalin. I bought this when — a while back as you say when “it was out of favor” and in the high 30’s. It’s now up about a third. My question is, is there anymore upside or would you sell this and buy something else in that area? Thank you.


      Michael Sprung:        Well in that area, you really have got sort of the engineering and then the engineering construction firms and so on. SNC, they are still negotiating with the government to see what the size of fines they might pay for the past transgressions with respect to getting contracts in foreign countries and so on.


      The recent sale that they made over $3 billion for that franchise, that was much more than people thought they would get and that should easily cover any sort of fines that might come up. I think SNC under Mr. Card, they have managed to sort of get their hands around management and straightening out procedures; if anything, they’re going to try to be cleaner than anyone else.


      I think that’s going to stand them well. I think they gained quite a bit in contracts going forward. On a multiple bases, I think that they do stock up pretty well relative to the competition. We don’t own it currently. We used to own Stantec in this area, but it got two levels where we thought that most of the gains have been already discounted into the stock. We don’t own that one any longer, but SNC is certainly one that I would look at today.


      Mark Bunting:          The company — with earnings today are raising their profit target after the AltaLink sale which you talked about and Robert Card, whom you alluded to, the CEO, saying that they’re going to look hard to find the next AltaLink project. So, they sold one, they’re going to look for another one. Let’s take a break here and we’ll get back to your questions after this.



      Mark Bunting:          We’ll get back to questions in just a second. A breaking news here on Apple, multiple reports here, including the Financial Times saying that the company is close to buying Beats, the headphone company that the rapper and producer, Dr. Dre, is behind. $3.2 billion would be the price tag. Interesting deal for Apple, not usually the kind of deal that it would make, but using that gigantic cash pile to buy Beats, it looks like $3.2 billion.


      Back to Canadian Large Caps, we have Anne in Edmonton kicking off a bunch of questions here on Energy. Go ahead, Anne.


      Anne:                     Good evening, gentlemen. Thanks for taking my call. I would like an opinion on Penn West, is there a whole sell or a look for a better stock. Thanks for your good service.


      Mark Bunting:          Okay. Thanks, Anne!


      Michael Sprung:        Well, I’ll admit I own Penn West, personally. I think it is a bit of a turnaround story, although it is a little higher risk than we might own in client portfolios in general. In their latest quarter, they really were showing higher capital efficiency, they’re under budget in a lot of areas, drilling cycle-times and the Cardium and Viking areas were improving.


      The big risk with Penn West is their balance sheet and the debt. I think that if they continue to take the steps that they have been taking lately, they can get through this period and hopefully, again, it is a little bit higher risk but hopefully, you will see a fairly good return.


      In the meantime, you’re being paid 5.6% on their dividend which that would be in jeopardy if their balance sheet got anymore in trouble, but they’ve already cut that distribution earlier. If you look at it in a portfolio context and this is what I always try to tell people, “If it’s not so big in your portfolio that it’s really going to hurt and you can afford to take a little bit of risk here, then this one is one that you could invest in.”


      Mark Bunting:          Would you say that they’re potentially here, if they get it right, this stock could really do well because it’s still under $10, it used to be a $38-stock back in the day.




      Michael Sprung:        Well, I don’t know if I’ll ever see $38. Certainly, if they really get it right and they really started to get this company going again, $20 wouldn’t be out of the question.


      Mark Bunting:          Okay, another Energy question here from Mark. He is in Vaughan, Ontario. Good evening, Mark.


      Mark:                     Good evening, how are you?


      Mark Bunting:          Very well.


      Mark:                     Today, Whitecap and Crescent Point came out with earnings and the questions on Crescent Point, of course — basically, production is up, numbers were up, net earnings were up and the stock pullback. Is this the selling news and would you use the weakness in the stock to be picking it up at this price?


      Michael Sprung:        Well, Crescent Point’s over $43, it’s almost $44 I think. At these levels, I don’t think I’d be jumping in right here. If it were under $40, I would certainly be taking a close look at it. We own it in a lot of accounts but we have owned it for a long time and have quite a good capital gain in it. In the meantime, it still pays that $2.76 a year.


      That used to be very, very dependent upon their dividend reinvestment plan. It’s not nearly as dependent upon that anymore and they are very good operators and they’re very good acquirers. My opinion would be — I don’t think it’s a sell here, but I wouldn’t be jumping in to buy it right now.


      There are earnings today. As you said, they beat people’s estimates of production, but I think that’s always somewhat suspicious because they always beat people’s estimates of production. So, you wonder if maybe they’re under estimating production to some extent ahead of time. I think that’s something you got to watch for.


      On a cash flow basis, I think they came in just about where people were expecting them to come in. As I say, it is one of the better managed companies in the oil patch. If you’re holding it for the dividend, that’s fine. In terms of great capital gain from here, I’ve seen some analyst estimates of $50. That’s possible but I wouldn’t expect to see it in the short-term.


      Mark Bunting:          A better entry points, 40, 41 maybe?


      Michael Sprung:        Forty would be good.


      Mark Bunting:          Forty, yeah. All right! Daryl is in Burnaby, B.C. Hello, sir.


      Daryl:                     Hi! How are you doing?


      Mark Bunting:          Very well, how’s it going?


      Daryl:                     Yeah, ShawCor. I bought it a few months ago. I was away last week and over the weekend, I came back and it was up 11% and I was quite happy, but I couldn’t figure out quite why — it looks like they have a good first quarter and then it stopped. They had about, I think, 5% or something. Yeah, just thoughts on the stock itself of where it might be going.


      Mark Bunting:          Okay. Thanks, Daryl.


      Michael Sprung:        Well, I think with ShawCor in particular, stocks tend to go up in sort of lumpy chunks here and there. With ShawCor, activity in the oil patch is picking up, activity in pipelines and so on. ShawCor is going to benefit from all that activity. They’re one of the major players in it, in providing services to the oil and gas companies. I think that from the point of view, that might explain why it shut up as it did. However, on a valuation basis, it’s discounting quite a good future in the short-term here. If I owned it, I think I would hold on to it, but I wouldn’t be surprised if there was a bit of a lull in the Energy stocks to see it pull back.


      Mark Bunting:          What do you prefer in the oilfield services sector?


      Michael Sprung:        Well, we own Precision Drilling and we think that they’re very good. Some of the drilling companies, I think, are well-placed to participate.


      Mark Bunting:          All right. We have another caller here. This is from Terry. He is in Sault Ste. Marie. Go ahead, Terry.


      Terry:                    Yeah, good evening! I love your show.


      Mark Bunting:          Thank you.


      Terry:                    I was just wondering about Tourmaline Oil. Now, they came out with their first quarter and here, they’re down $3 today. Maybe you can tell me a little bit more what’s going on.


      Michael Sprung:        Well, it was the natural gas liquid’s pricings that pulled them down. They got lower prices on that and people were expecting, which lowered the cash flow. Production was pretty much in line with what people were looking at. Tourmaline is a very, very well-run company and I would say a pullback like this could almost be looked at as an opportunity. It’s one that we’ve certainly been following for some period of time and just because they miss on a quarter due to lower pricing on NGL’s, that’s not a reason to really bail on the stock.




      Mark Bunting:          Do you love the management like everybody else seems to?


      Michael Sprung:        They are very good management, they are. Yes.


      Mark Bunting:          Okay, Michael, a short pause here. We’ll get to your “Past Picks” right after this break.




      Mark Bunting:          Let’s have a look at the “Past Picks” here of Michael Sprung, the president of Sprung Investment Management. April 26th of 2013, you recommended Barrick Gold. This one is flat but it’s been a rocky road as we know since then. There’s lots of news. What do you think of Barrick now?


      Michael Sprung:        Well, here’s a stock that a year or so ago, they talked about they’re going to concentrate on capital discipline and so on and so forth. And then, their changing of the old card with Peter Munk retiring and Brian Mulroney and some of the old members of the board retiring, and bringing a new fellow from Goldman Sachs. And then, you get close to the annual meeting and they talk about, “Hey, let’s merge with Newmont Mining and we’ll get a billion dollars worth of synergy.” And you just sort of say to yourself, “No. Concentrate on the efficiencies, capital discipline, spending money on your good projects — would’ve got shorter term profitability in line. Don’t look at the Pascua-Lama’s and so on, and so forth.”


      I think that given that the Newmont deal at least has been put off for now, I think that the stock should go up again. It should accelerate because certainly on a multiple bases relative to all of the other gold, this is still good earnings, cash flow producer. And so, I think that right now, it is undervalued and that’s why we were continuing to hold on to it. Let’s face it. The fellow now in charge is an investment banker. It wouldn’t be surprising to see them looking for deals.


      Mark Bunting:          Right. Although, you could argue that Don Lindsay is a former investment banker over Teck and since the Fording deal, he really hasn’t done anything in that area.




      Michael Sprung:        Yes. I mean, that was a huge deal and it came along just at a bad time, but they have managed to more than pull out of that. Their balance sheet is much better than it was and I think that they learned a lesson there. Again, I was on a few weeks ago when the Barrick-Newmont calls were coming in. I said, if there’s going to be a merger of this sort, it’s nice to see it happening when the stocks are somewhat depressed, when that industry, gold prices are down. What you hate to see is when the prices are really running and everybody says, “Oh, we’re getting lots of money. We better go buy so and so.”   They’re buying with very expensive currency and that’s usually not a formula for success.


      Mark Bunting:          Next stop as a past pick is Scotiabank. You mentioned you held this among the three of the big banks. Is this primarily because of the international exposure?


      Michael Sprung:        I would say it’s primarily because of all of the banks, Scotiabank has traditionally always had the best credit discipline. If you will look at their credit record and their provisions for credit losses over the years, this has always been an extremely disciplined bank and I think it’s a very smart bank, too. They are international. Diversification will pay off in the long run. I think under Brian Porter — we saw today the deal with Canadian Tire. That’s a smart move.


      Mark Bunting:          Maybe we’ll talk more about that a little later on at the bottom of the hour. We’re running out of time here. A quick thought on Encana?


      Michael Sprung:        Encana we like — Encana continues to surprise people almost daily lately. First of all, there is the sale off of Prairie Sky and then the next thing you know, they are buying a $3.1 billion worth of assets in the Eagle Ford. These are very smart operators. They are still primarily gas but they are diversified more into oil and liquids.


      Michael Sprung:        So, “Past Picks” from Michael: Encana, Scotiabank and Barrick. He is still holding them all. Just after this break, we will allow Michael to talk a little bit more about Scotia and maybe Encana as well and we will come back with your questions, too. Stay tuned.




      Mark Bunting:          Join us tomorrow on Market Call. We’ll have David Baskin on the show, the president at Baskin Financial. He will be taking your questions on North American Large Caps.


      Back to the phone calls in just a second but we got a little shortchanged on time there. Probably my fault asking a follow-up on Barrick, but give us 30 seconds each on Encana and Scotia, a little bit more information about your past picks.


      Michael Sprung:        Sure. Well, as I was saying, with respect to Encana, here is a company that was 85% gas and they talked about a year or two ago of diversifying more into oil and liquids. I think that this purchase will take them very quickly to maybe 25% liquids. The thing about the property in the Eagle Ford though is they’re paying $3.2 billion for something that on that price looks like it should be accrued(ph) of, but it’s a very short life asset. That’s asset of a three to five-year reserve life and it’s going to be very tight to really make that work but it should be incremental within that asset value of the company.


      Mark Bunting:          And then, give us your thoughts on the Scotia-Canadian Tire deal.


      Michael Sprung:        Again, as I said, I think this is a very smart deal. They are taking 20% of the financial services aspect of the Canadian Tire card receivables. They are providing credit backstops for the company. But Scotia now, some time ago that they were going to increase their credit card business and this was a very smart way of doing it. I think that they are sort of expanding their footprint. People won’t necessarily identify that right away that it’s Bank of Nova Scotia but maybe someday, they will be buying more of it in as time goes on and running up more efficiently. I think this is a very smart thing to do.


      Mark Bunting:          Okay. Johnson, thanks for holding on the line in Toronto. Go ahead with your question.


      Johnson:                 I’ve waited half an hour to get through.


      Mark Bunting:          You’ve waited for half an hour. Wow!


      Johnson:                 Is it worth it?


      Mark Bunting:          But in the meantime you’ve been enjoying the show, right?


      Johnson:                 I always watch it.


      Mark Bunting:          Go ahead.


      Johnson:                 Hello, what is your opinion on Potash? Is it a fair value or is it an overvalued stock or is it in the declining stock?




      Michael Sprung:        Well, I wouldn’t say it’s in the declining stock but I’d say that certainly potash and fertilizers have had their troubles this year whether they have been phosphates, nitrates or potash. We prefer Agrium because it’s a little bit more balanced. It’s not sort of involved in just one’s part of the commodity cycle but it’s also involved in the retail aspect as well. I think on a multiple bases too, potash still looks a little expensive to us at these levels.


      I think given the problems that they have been having in sort of the fertilizer agriculture markets right now and with the — particularly with respect to potash which has had more competition against Canpotex with Belarusian and some of the other, I guess, buying group or selling groups. It’s becoming much more competitive and let’s face it, Chinese are very, very smart buyers.




      The one thing about potash is it’s not that hard to get it out of the ground but it’s a very heavy material to ship to wherever you have to get it shipped to.


      Mark Bunting:          Next stop is an email from James on Thomson-Reuters. Is this a good time to sell? It seems to be ranged bound. Let me follow up with a question about Barclays cutting a 7,000 people or a third of their investment banking business. That’s the bread and butter to a degree of Thomson-Reuters. I don’t know if Barclays is a client or whether they’re with Bloomberg, but that kind of news can’t help?


      Michael Sprung:        Well, I would assume that Barclays — they might be primarily a Bloomberg client, but they’re probably also buying services from Thomson-Reuters. I think most of these large investments and banks around the world do subscribe to Thomson-Reuters in one fashion or another.


      Thomson has always been very smart. I mean they own a big chunk of the legal business as well through Westlaw and they’ve managed to diversify their sort of professional information services to a great extent. But they took a big bet on this revamp of the provision of factors in the financial services. They used to be primarily news and quotes and they’ve tried to upscale into a Bloomberg competitor. That has not gone as smoothly as it had originally been hoped and we’ve seen changes in this CEO of Thomson-Reuters since and the changes on the board.


      Let’s face it, this stock has now gone from — it was lingering in the $20’s for quite a while and now it’s up around $38, I think. I think it’s getting to the point where we own it and we’re sort of wondering, “Okay, where are we going to sell it from here probably,” because I think it’s come up a fair amount in the last year or so and it’s beginning to reflect full value.


      Mark Bunting:          All right, Michael, a short break here and we’ll get back to questions on Canadian Large Caps.




      Mark Bunting:          In Fredericton, here is Lewis. Hello?


      Lewis:                    Good evening, sir. May I please have your guest’s opinion on ATCO? Thank you!


      Michael Sprung:        ATCO is a very interesting company. We did own some about two years ago and sold it at that point in time and then saw it drift down. And since then, it’s going up and I think it’s probably even past where we sold it at, but you know as activity particularly, out west(ph) picks up, that’s going to be good for ATCO.


      They service a lot of industries, not just oil and gas and forestry and so on, but this is a stock that I think the Southern family has run very well over the years. It always looks a little bit expensive but for people that have held onto it for a long period of time; they’ve tended to do very well.




      Just on a valuation basis though, I would not be jumping in today but that’s where I sit on it anyway.


      Mark Bunting:          Okay, Audrey is next in Mississauga, Ontario. Hi, Audrey!


      Audrey:                  Hi, thank you for taking my call.


      Mark Bunting:          You’re welcome.


      Audrey:                  I hold a TransCanada Pipes in my TSSA, at a cost base of $32.50. It’s one of about six that I have but I want to add to it, but at what price should I jump in when it’s what it is today?


      Mark Bunting:          Thanks Audrey.


      Michael Sprung:        Yeah, well you know if you’ve owned it since $32.50 and we’re over $50 now, and the yield on TransCanada is about 3.8% at current levels. I don’t think TransCanada as dependent or hopeful about the KXL Pipeline as they would have been four or five years ago, but if that does come through, that will certainly be good for the stock and then that it would probably have a balance from there. It is a company that it continually adds to it and improves their base of assets and they are the primary pipeline facility through Canada.


      I think that at current levels, so I look at the multiples, it’s selling at roughly 20 times, 20 times current years expected earnings. That’s fairly expensive and I would be probably looking elsewhere. It’s on a cash flow basis, yes, and the dividend is likely to keep going up but I prefer one or two other stocks in that sector.


      Mark Bunting:          Which ones?


      Michael Sprung:        Well, Inter Pipeline would be one.


      Mark Bunting:          Okay, hold your thoughts. Let me just ask an email about that company because that’s next up. Habib – is it a buy at this price? Is the dividend safe? Is this overvalued here, do you think?


      Michael Sprung:        Well again, on the multiple bases, it looks somewhat similar but the thing about Inter Pipeline is they always seem to have a lot of projects. They’re getting better results in the oil sands and in their NGL projects right now. They’ve had some interesting possibilities with the expansions in Cold Lake and so on. I think that Inter Pipeline is going to have a continually expanding rate base from here and I think the dividend is safe here.


      Mark Bunting:          Okay, so that’s Inter Pipe hitting an all-time high today up by 17 cents to $30.37. Here is Richard. He is in Welland. Go ahead, Richard.


      Richard:                  Thank you very much for taking my call. I would very much appreciate your outlook on Painted Pony. Would it be a buy, sell or hold? Thank you very much.


      Michael Sprung:        Painted Pony is one that we don’t own and I haven’t followed too closely, but I do know some things about it and I have admired the progress that they’ve made over the last few years. I mean they’ve expanded their production and considerably, they’d seemed to be very efficient operators and very, very good buyers of assets.


      It’s certainly one that we’re constantly looking at and it’s one that we could certainly be buying in the near future. I think that it’s one of the up-and-coming companies in the oil patch and I would be certainly looking at it today.


      Mark Bunting:          It’s often said it has a nice parcel of land in Montney, in BC and it could be a Take-out Candidate. Do you see it as that as well?


      Michael Sprung:        Oh, I think it could be, yes. But buying a stock on the basis that it might be Take-out Candidate is always a little chance.


      Mark Bunting:          No, not the only reason, but one of the reasons.


      Michael Sprung:        But one of the reasons.


      Mark Bunting:          Yeah.


      Michael Sprung:        But I mean the reason it would be is because it is a very good company, very good assets and people are looking for good assets these days.


      Mark Bunting:          Let’s take a pause here and we’d get back to questions on Canadian Large Caps after this.



      Mark Bunting:          Let’s head out to Truro, Nova Scotia for David. Good evening, sir.


      David:                    Thank you again for taking my call. I have a question for your guest on Linamar. I recently sold some. We had a real good gain on it and then, I still had some more and I had an awesome pop today. I just didn’t know what your fumes were to let it cool off and look at, picking up a little more or just stay with what I got and let it run? I’ll hang up and listen, thank you.


      Mark Bunting:          All right thanks, David.


      Michael Sprung:        Well, I’ll say upfront, I own a stock personally but I’ve owned it for a long time. My cost base on this stock is negligible. I’ve always admired how well this company is run.



      What they have done recently, which I think really caused the pop today is when the earnings came out today, people looked at the margins and they were way above the normal level of margins for Linamar and that’s because they are going into products that take a lot more capital expenditures to build and therefore, they have to build in a lot more margins to make that up over the lifecycle of the project. Going forward, I think they are going to do more of that and so, what we’re seeing is a company transforming itself from a relatively low margin company into sort of a medium to medium margin company, I guess.


      It’s a new ballgame and that’s why the stock is as high as it is but I take your point, we saw a big jump today. The stock has gone pretty much up and up and up for the last while on a multiple bases. It better keep growing earnings at the rate it is in order to justify the valuation.


      On the other side today, we saw Magna with earnings that were known as robust. I think right now, we are in a fairly strong automotive cycle. Certainly, Linamar services more than just the automotive industry. I think that it’s such a well-run company that if I owned it, well I do own it, I will hold onto it.


      Mark Bunting:          Let’s just stay out of this for Mike who is in Dartmouth. Go ahead, Mike. Hi Mike, what’s your question?


      Mike:                      Yes, thank you, Mark! Sorry. Michael, my question is in reference to CN Rail. Certainly, it’s a very strong company with strong market capitalizations. I wonder how/what Michael feels with the progress will be for the company going to 12 months out. I appreciate your call. Thank you for calling. Goodbye.


      Michael Sprung:        Well, you know, I’m a little mystified by the valuations on the railroads these days. When we see the railroads trading at sort of 20 times earnings and significant multiples of cash flow, I think we’re seeing that more in CP and yet CN has always been sort of the benchmark railroad in North America.


      On a relative valuation basis, if I was buying one of them today, I would certainly be buying CN. But in the long run, you know, railroads can’t really grow any more than the economies in which they participate and yes, occasionally, you get bumps from all of a sudden in a commodity like oil, less pipeline capacity, therefore, more rail capacity. I think the regulators are going to step in and that’s going to slow down as they have to upgrade the cars that the oil is shipped in and so on.


      As the North American economy improves, I think CN overall stands to benefit a little bit more than CP. Therefore, on that basis, I think that I would be willing to buy CN today just on the participation in the overall economic recovery.


      Mark Bunting:          Across the country, in Vancouver, here is Pam. Hello, there!


      Pam:                      Yeah, hi there.


      Michael Sprung:        Hi, Pam!


      Pam:                      Yes, my question is on Kinross. I purchased it about two years ago and it has been going down and down. I was wondering when it’s going to pick up. Yeah, that’s my question.


      Mark Bunting:          All right, thanks Pam.


      Michael Sprung:        Well, a couple of years ago, they bought a mine, Tasiast, and it has been quite controversial but just lately, things have been improving in that mine. Certainly, the feasibility studies of building it out further have been getting better and the last feasibility study that just recently came out so that it’s possible for it to earn 17% rate of return on investment, I guess, going forward from here. That’s based on a lot of assumptions of scores and it doesn’t necessarily hold up. But just the latest quarter, they had which I think was — was it today?



      Mark Bunting:          Yesterday. I saw it.


      Michael Sprung:        Oh, yesterday. They did have better operating cost. They were getting higher grades at some of their mines. I guess within the gold sector as I mentioned earlier, we own some Goldcorp and we own some Barrick, and we would prefer those relative to Kinross ourselves. Another thing holding Kinross back right now is it does have some exposure to Russia and that’s sort of, I think, influenced investors and has held it back quite a bit.


      Mark Bunting:          Still with “Resources”, Bruce is in Edmonton. Hi, Bruce!


      Bruce:                    Hi, Mark! Thanks for taking my call. My question is on chemical. On the last couple of weeks, they have been trending downwards at a pretty good clip but they have been talking about with the Cigar Lake coming on line and demand in Japan and everything. I’m just kind of wondering what you feel the turning point would be on the chemical and do you feel it’s a buy? I’ll hang up and listen, thank you very much.


      Male:                      All right, thank you, Bruce.


      Michael Sprung:        Well, you know, it certainly has drifted down over the last while. I mean, it was well over 28 not too long ago and now we’re seeing it at about 21.5. I’ve always had trouble with uranium because it’s not just a supply-demand metal; it’s also a political metal. I’ve never been that successful myself in guessing where the uranium cycle is going to go and people talk about the increasing demand. A few years ago, Japan was going to get out of nuclear, now they’re going to get back into it.


      We just saw it recently, wherein in Ontario, they decided not to go ahead and expand some nuclear facilities or refurbish them. Even at today’s price, I just would be weary of it. I think that they certainly — lately, the spot prices have been weighing on the stock and the sector in general, but for uranium place, I’d almost rather find small companies or bodies that are likely to be takeovers in a way than look at just a big chemical.


      Mark Bunting:          Right. So maybe like a Denison?


      Michael Sprung:        Yeah. Maybe like a Denison or something like that.


      Mark Bunting:          All right, we have “Top Picks” coming up from Michael Sprung and he’s got some interesting ones here that you might not expect and we’ll look at those after this.



      Mark Bunting:          It is time for “Past Picks” with Michael Sprung, the President of Sprung Investment Management. Here is a new pick up for Mr. Sprung and his clients: Alaris Royalty Corp. He bought this just a few weeks ago at $26.73. You said you’ve been watching this for a while, why did you finally pull the trigger?


      Michael Sprung:        Well, for a long time, it just kept running ahead and ahead and ahead of where I felt comfortable buying it. Recently, we’ve seen it sell off. Now, it sold off for a couple of reasons. One of them was they’re having a dispute with CRA right now, so they’ve put up a deposit on that. I think they have more than enough.   This is going to take a while to sort it out and in the meantime, I think they’ll have more than enough cash flow to cover whatever liability might be there.


      They own a host of diversified investments. They invest in private companies but they do so in a very unique fashion and that they tend to invest by issuing preferred shares to those companies that under certain circumstances, the cash flow to Alaris keeps increasing and if they failed to meet certain benchmarks, then that can convert into equity at some point.


      Mark Bunting:          I see.


      Michael Sprung:        But they tend to look at companies that have got at least 10-year track records of solid management. Typically, they might be largely family-centered owned companies to some extent but they all tend to have very, very good positions in the industries.




      As time goes on, they are diversifying more and more of the industries that they’re in, so they’ve got selection of industrials from rebar to other and healthcare from mental health to other healthcare providers, physiotherapy and so on, and even into retail. Right now, their biggest investment is about 17% of their cash flow but that will be probably reduced down to 10 very shortly.


      Mark Bunting:          Cascades is a top pick as well, Michael. You bought this most recently in February at $4.43


      Michael Sprung:        Yes. You know, Cascades, I think is a company that a few years ago, people were very concerned about the balance sheet and so on. I think they’ve taken a lot of steps to address that. Their earnings today were a bit light on just lower tissue shipments and prices in tissue, but their packaging products as the economy is expanding are doing quite well. We’re seeing them do better in boxboard, in containerboard and so on. We’ve seen them invest in facilities, plant, and equipment over the last few years.


      I think to a great extent, they are addressing concerns about the balance sheets. It’s not pristine yet by any means, but it’s certainly getting better, slipped a little bit in the latest core. But overall, we think that Cascades has pulled back a little bit recently. It’s at a level where we’d feel comfortable buying it again because we can see a fairly significant capital appreciation potential.


      Mark Bunting:          And George Weston is a top pick as well. You’ve got about three seconds here.


      Michael Sprung:        Weston is one that we’ve owned for some time, too. I guess our main thesis there is, they will continue to participate with the things that Loblaws is doing. Loblaws has been very smart at expanding into ethnic food areas. They bought T&T with primarily Chinese food shops a few years ago. They just recently bought some Middle Eastern ones. There’s a lot of cross-fertilization they can have between the products there but they had to spin out of their choice properties.


      The bakery division right now is suffering a little bit with input cost and so on, but I think they are addressing that by investing a gain in plant and operations.


      Mark Bunting:          All right, very good. George Weston, Cascade and Alaris Royalty were the top picks this evening. Michael Sprung — good to see you, Michael!


      Michael Sprung:        Good to see you, thank you.


      Mark Bunting:          Okay. Michael Sprung, thanks to him. Thanks to you for all your questions. We have tomorrow night on Seasonal Investing & Technical Analysis. Get your questions ready for them and we’ll see you at that time. Take care.

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