BNN Bloomberg Market Call – Michael Sprung’s Top Picks and Outlook, July 24, 2019

MARKET OUTLOOK

Global trade conflicts are beginning to impact economic outcomes in very fundamental ways. The disruption is evident in both the bond and equity markets.

In the second quarter, markets reflected the fear and uncertainty investors are facing. This has been most evident in bonds, with 10-year U.S. Treasury notes repeatedly indicating expectations of economic growth are diminishing. The equity markets have reacted with greater volatility in pricing, as market participants continuously adjust directions to often conflicting data.

We’re in the eleventh year of what has been the longest economic expansion in modern history. In part, credit must be given to the overly accommodative monetary policies of the global central banks following the financial crisis. These policies have allowed the developed economies to partake of a sustained period of tightening labour markets in an environment of low inflationary pressures. While politicians may have thought that they’ve discovered the elixir to defeat the business cycle, there have been excesses and imbalances percolating below the surface, not the least of which are massive debt levels in both the public and private sectors. With the prospect of slower economic growth, central banks are likely to continue to restrain rates.

A big concern is that if central banks in developed nations respond to a recession threat with massive fiscal and monetary stimulus, it could lead to a result similar to Japan in the ‘90s: three decades of low growth, low rates and even larger deficits (this would still be preferable to a total meltdown). While we don’t believe the business cycle has been defeated, we don’t think that a protracted period of stagnant growth needs result from policy initiatives. Technology is accelerating change and productivity enhancements are likely to follow.

TOP PICKS

ENCANA, ECA

Encana is a leading North American oil and gas producer focused on the Montney, the Permian and the STACK/SCOOP resource areas. Since closing on the Newfield acquisition earlier this year, investors will be focused in the company’s expertise in exploiting these assets. Encana continues to make progress in shedding non-core assets. Over the past few years, management has drastically reduced operation expenses and improved efficiencies. The stock is severely undervalued in the market as investors have all but abandoned the energy sector over the past few years. Eventually, we believe they’ll recognize the company’s ability to throw off free cash flow from its extremely well managed assets.

ALARIS ROYALTY, AD 

Alaris invests in a diversified range of North American private companies with the objective to generate cash flows to support dividends to shareholders. Over the past few years, the company has worked through a number of issues with a few investee firms that presented some challenges. During this period, investors became concerned as to whether these workouts were taking the focus away from capital deployment. Despite these issues, the dividend was maintained. Alaris is back on track, deploying funds in new opportunities. We anticipate that the payout ratio will decrease over the next few years as cash flows increase. The stock is attractively valued and yields around 8.1 per cent at current levels.

TC ENERGY, TRP

TC Energy is one of the largest energy infrastructure companies in North America, focusing on natural gas and liquids pipelines and energy (mainly power generation). Its key gas pipeline assets of over 67,000 km include the main Alberta gas gathering system (the NGTL), the Canadian Mainline, ANR, Columbia Gas and Mexico. Its liquids pipeline network includes the Keystone pipeline system. The company’s energy business consists of 10,000 megawatts of generation capacity in Canada and the U.S. and 118 billion cubic feet of unregulated gas storage. That said, it has announced the sale of its U.S. merchant power portfolio. The recent sale of its stake in the Northern Courier Pipeline further adds to TC Energy’s progress in deleveraging the balance sheet. The company is working to develop $25 billion of near-term secured growth projects. It sees an 8 to 10 per cent dividend growth per year out to 2020. At current prices, the stock is yielding 4.5 per cent.

You can watch the complete Market Call interview here>>

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

The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

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.

Visit Investor’s Digest of Canada here>>

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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.

 

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

Outlook

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 SmallCapPower.com. 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 SmallCapPower.com

    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.