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.

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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 Outlook and Top Picks on BNN Bloomberg’s Market Call

Outlook:

After a dismal end to last year, global stock markets rebounded in the first quarter making up much of the ground lost in the final quarter of 2018. The underpinnings of this sudden reversal in sentiment are less clear. There appears to be a disconnect between the direction of the stock markets and the direction of the global economies. Economists continue to moderate the outlook for future economic growth. The issues that vexed the markets in 2018 remain and in many cases, those issues have deteriorated even further.

After a dismal end to last year, global stock markets rebounded in the first quarter making up much of the ground lost in the final quarter of 2018.

Helicopter governments and their agencies have managed to postpone a recession for some time and may do so for awhile yet. Eventually, the capitalist forces of creative destruction will take hold and the excesses of the past ten years will be dealt with.We view this as a time to be very cautious. Investments in companies with strong financial positions and strong management are the order of the day.

Top Picks:

Royal Bank of Canada, RY-T, Owned by clients and personally, Last Purchase March 14, 2019 $102.71
The Royal Bank is Canada’s largest financial institution with a market capitalization around $150 billion. The scale of the bank is an advantage in mass-market banking. Management is intent on maintaining their lead and improving market share through investing heavily in technology and its distribution network. Investment is also being directed towards retail growth in the US. As these investments mature, the bank should benefit from positive operating leverage leading to greater profitability and future dividend increases. The current yield of 3.8% is attractive and longer term capital appreciation will accrue to patient investors.

Encana Corporation, ECA-T, owned personally and by clients, Last Purchase April 30, 2019 $9.44
Encana has refocused its operations over the last few years and the company is now a North American oil and gas producer with major interests in Canadian Montney fields and the US in the Permian Basin, Eagle Ford, Andarko and Duvernay plays. The recent acquisition of Newfield enhances the company’s opportunities to create value. We expect further dispositions of non-core assets, dividend increases, share buybacks will coincide with future production growth.

HudBay Resources Inc., HBM-T, owned by clients and personally, Last Purchase September 8, 2017 $9.41
Hudbay provides investors with strong leverage to copper and zinc, both of which have strong longer term supply/demand fundamentals. Hudbay’s flagship copper mine Constancia is performing well and expectations are Pampacancha will start contributing materially in 2019. Growth in the next few years will stem from expanded copper, zinc and precious metal production. Gold production is anticipated to improve at Lalor as exploration and mine optimization continue. Rosemont permitting continues with construction anticipated 2019 to 2021 possibly with a joint venture partner. At current levels, HBM is selling at a significant discount to its peers. However, recent shareholder activism has over-shadowed the strategic enhancement of the company’s operations in the last few years. We believe that the discounted price of the shares relative to its peers will narrow once the proxy battle is over.

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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.

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

Outlook:

Global markets were mixed in the second quarter of 2017. The US market recorded another positive quarter, albeit half as robust as the prior quarter. European markets managed to eke out a modestly positive quarter in spite of a large decline in June following the inconclusive UK election. Asian markets were very strong due to trade in information technology and a positive election result in South Korea. Resource heavy markets such as those of Latin America, Australia and Canada were not as fortunate and generally posted negative returns in the quarter.

Michael Sprung Top Picks AGT, AGT Food and Ingredients, ECA, Encana, Royal Bank, RY

Michael Sprung’s Top Picks: AGT Food and Ingredients, Encana, Royal Bank

Towards the end of the quarter, the Central Banks in Canada, Europe and the US were taking a more hawkish tone insofar as hinting that economic conditions have improved to the point where interest rates may be raised in the near future. It remains to be seen how the economies may react to rising rates. Recessions are more often than not predated by rising interest rates. 

As we enter the third quarter, investors are focusing on the the global trade dynamics. The US has made it clear that they are not happy with the current terms of trade worldwide. Europe is also facing negotiations with Britain on trade policies as their departure from the European Union nears. The recovery since the end of the last financial crisis ten years ago has been slow and tepid while the duration has been much longer than most. Markets have generally performed very well throughout the period without a major correction. In fact, it has been over a year since we have seen a 5% pullback. Given all of the dynamics of rising rates, trade policies and othe geopolitical issues, we would suggest that this is a time to be very cautious.

Top Picks:

Royal Bank of Canada, RY, Owned personally and by clients, Last purchase September 16, 2016, $74.45
The Royal Bank is Canada's largest financial institution that ranks within the largest twenty banks in the world with extensive domestic and wealth operations as well as global banking, capital markets, custody and brokerage networks. Highly profitable domestic operations are funding both domestic and global expansion as well as greater returns to shareholders. At current prices, the stock carries a yield of 3.7%

Encana Corp, ECA, Owned by clients, Last purchase September 15, 2016, $12.70 
Encana is a leading North American energy producer focused on a diverse portfolio of resource plays producing natural gas, oil and natural gas liquids. Over the past four years, Encana has improved operational efficiencies, focused on capital allocation and costs and carried out over $20 billion in acquisitions and divestitures. The asset base has been significantly upgraded and the balance shhet is stronger. Over the next five years, Encana has ambitious goals to increase production and profitability. Much has been accomplished to reposition the firm to compete in a lower pricing environment.

AGT Food and Ingredients, AGT, Owned personally and by clients, Last purchase December 12, 2014, $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. AGT has been expanding its pulse handling and food ingredient production capability. India has extended, for the fifth time,  AGT's ability to import wheat/pulses to December 31. While pulse markets have been less robust than anticipated thus far in 2017, this is a short term issue. As the market normalizes and management exploits opportunities in bulk handling and food, we anticipate that the stock will recover and prosper.

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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.  

Encana Corp (TSE:ECA) to raise US$1bn for Permian expansion

Canadian oil and natural gas producer Encana Corp (TSE:ECA, Mkt cap 9.57B, Div/yield 0.02/0.65, EPS -4.41, Shares 849.89M) has announced a public offering of common shares which it hopes will raise gross proceeds of just over US$1bn.

Encana TSE:ECA Permian

Encana Corp (TSE:ECA) to raise US$1bn for Permian expansion

The Calgary-based company said late Monday that the offering of 107,000,000 shares, underwritten by Credit Suisse Securities (Canada), Inc. and J.P. Morgan, was priced at US$9.35 per share. An additional 16,050,000 shares are available as part of an over-allotment option.

Encana intends to use about half of the net proceeds to help fund its 2017 capital program, which is focused on growing its production in the Permian Basin in West Texas. The company hopes to double the number of wells it has in the oilfield in 2017 by increasing the number of drilling rigs operating there.

The remaining proceeds from the share sale will be used to repay debt.

Encana established its presence in the Permian Basin in 2014 with its acquisition of Athlon Energy Inc. for US$7.1bn, which gave the company a 140,000 net acre position.

The company says on its website that it “believes the Permian’s unconventional production potential will exceed the Eagle Ford and the Bakken combined”.

Bloomberg reported that Encana joins other producers including Crescent Point Energy Corp. in selling shares in recent weeks to fund drilling as oil prices rebound. U.S. crude is up 65% from its February low, the news provider said.

The offering is expected to close on or about September 23, 2016.

Encana Corp (TSE:ECA) is a Calgary, Alberta based company engaged in the exploration, development, production and marketing of natural gas, oil and natural gas liquids. Encana operates 3 business segments: Canadian Operations, which includes the exploration for, development of, and production of natural gas oil and NGLs and other related activities within Canada; USA Operations, which includes the exploration for, development of, and production of natural gas oil and NGLs and other related activities within the United States and Market Optimization, which includes third-party purchases and sales of products that provide operational flexibility for transportation commitments, product type, delivery points and customer diversification. Market Optimization sells all of the Company’s upstream production to third-party customers. More from Reuters »

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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.

 

Encana to sell its DJ Basin assets for US$900m

Encana Corporation (TSE:ECA, Mkt cap 9.25B, P/E – , Div/yield 0.09/3.36, EPS -0.14, Shares 842.50M) has announced the sale of all of its oil and gas assets in Colorado’s Denver Julesburg Basin to a joint venture owned by Canada Pension Plan Investment Board (CPPIB) and Denver-based private firm Broe Group.

Stock Encana Corporation sell DJ Basin assets

Encana Corporation will sell its DJ Basin assets for US$900m

The Calgary-based firm said the decision was taken in order to balance the books and “create greater flexibility in this market environment”.

The deal is said to be worth somewhere in the region of US$900 million, with 95% of the entity to be owned by CPPIB and the remaining 5% held by Broe Group.

The sale of the 51,000 net acres of the Denver Julesburg field, located in northeast Colorado, streamlines Encana’s oil and gas ventures to four regions.

“As we advance our strategy we continue to focus our portfolio and capital on our four most strategic assets, the Permian, Eagle Ford, Duvernay and Montney,” said Encana chief executive Doug Suttles.

“Our efforts to transform our portfolio, improve efficiency and grow margins are increasing returns and strengthening our balance sheet, positioning Encana for success throughout the commodity cycle. The new entity is acquiring a quality asset along with a highly talented team.”

Encana highlighted how it has netted a profit of approximately $2.7 billion this year from combined sales of assets, while it aims to have reduced its debt by around $3 billion by the end of the year.

This latest announcement comes only two months after Encana agreed to sell $850-million worth of its natural gas assets in northern Louisiana.

The deal is expected to close in the fourth quarter of 2015, subject to regulatory approvals.

Encana Corporation is a Calgary, Alberta based company engaged in the exploration, development, production and marketing of natural gas, oil and natural gas liquids. Encana operates 3 business segments: Canadian Operations, which includes the exploration for, development of, and production of natural gas oil and NGLs and other related activities within Canada; USA Operations, which includes the exploration for, development of, and production of natural gas oil and NGLs and other related activities within the United States and Market Optimization, which includes third-party purchases and sales of products that provide operational flexibility for transportation commitments, product type, delivery points and customer diversification. Market Optimization sells all of the Company’s upstream production to third-party customers. More from Reuters »

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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.

 

Stockwatch – Encana pressing ahead with shift to oil with Athlon purchase

Canada’s largest natural-gas producer, Encana Corporation (TSE:ECA, Mkt cap 17.78B, P/E 48.95, Div/yield 0.08/1.29, EPS 0.49, Shares 740.96M) has announced it will spend US$5.93 to acquire Texas-based Athlon Energy Inc. The move is in line with plans to boost its output of lucrative oil and natural-gas liquids.

Stockwatch Encana Corp purchase Athlon Energy Inc

Stockwatch – Encana pressing ahead with shift to oil with Athlon purchase.

Reports suggest that the cash deal – which is expected to close before the end of 2014 – is the largest of the year in the Canadian energy sector. It will see Encana assume the oil-weighted producer’s US$1.15-billion debt.

The deal would give the Calgary-based company control of about 140,000 acres in the oil-rich Permian Basin, Texas, where Encana says it can increase liquids output by two thirds, to 50,000 barrels per day, within 12 months.

Encana’s announcement follows an agreement to sell its remaining 40% interest in PrairieSky, but president and CEO Doug Suttles said the timing of the two was “just fortuitous”.

The deal values Athlon shares at US$58.50 each, which is a premium of around 25% on the company’s closing share price from last week.

The purchase sees Encana add another core region to the six shale fields in Canada and the United States in which it focuses its spending. It also accelerates Encana’s transition from a gas-heavy company to a major oil producer – a move initiated by Suttles last year.

Suttles outlined in November 2013 the company’s aim to derive 75% of its operating cash flows from liquids production by 2017. The acquisition of Athlon’s assets will boost its production by 30,000 barrels of oil equivalent per day.

“We’ll hit that next year now,” Suttles said in a conference call following the announcement.

Encana’s net income grew by 63%, year over year, to $0.37 per share during the most recently completed quarter. This was among the highest growth seen by any company in the energy industry.

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Stockwatch – Encana To Raise C$2.6bn From Sale Of Remaining Stake In PrairieSky

Calgary-based natural gas exploration and production company Encana Corporation (TSE:ECA, Mkt cap 18.35B, P/E 51.52, Div/yield 0.08/1.21, EPS 0.48, Shares 740.96M) has announced that it has signed a deal with a syndicate of underwriters to sell its stake in PrairieSky Royalty Ltd.

Stockwatch - Encana Sale Stake PrairieSky

Stockwatch – Encana To Raise C$2.6bn From Sale Of Remaining Stake In PrairieSky

The deal is said to be worth C$2.6 billion to Encana and the secondary offering is expected to close around 26 September, the company outlined in a statement.

The remaining 54% stake in PrairieSky is to be purchased by the underwriters, which will then be offered in shares to investors. The stake representing 70.2 million common shares, at C$36.50 per share, is approximately 30 percent higher than what investors paid in the initial public offering (IPO) in June.

Encana generated C$1.67 billion in the IPO, nearly twice as much as was originally anticipated. The shares sold at C$28 each and immediately spiked. The deal was the largest initial public offering in Canada in over a decade.

According to the latest data, Canadian energy companies sold roughly C$3.7 billion worth of equity in the second quarter of 2014. A figure that stands at more than three times higher than what companies raised in the same quarter in 2013.

PrairieSky operates by generating revenues through royalties obtained from other oil and gas exploration firms that function in its properties.

Encana did not give any clues as to how the proceeds will be used, but it is likely, given the company’s present strategy to move away from natural gas, that the funds will likely be used expand oil-driven operations.

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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.

Stockwatch – Canadian Gas Company Encana Reports Sharp Fall in Q2 Operating Profit

Stockwatch – Canadian gas producer Encana Corporation (TSE:ECA, Mkt cap 17.34B, P/E 20.49, Div/yield 0.08/1.30, EPS 1.14, Shares 740.90M) closed the second quarter of 2014 with a sharp drop in operating profit to $171 million, or $0.23 a share, down from $247 million, or $0.34 a share, in the corresponding period of the previous year.

Stockwatch Encana Bighorn

Stockwatch – Encana reports Q2 profit drop

The company, which is in the midst of a business overhaul aimed at ending its dependence on low-value natural gas, reported $271 million in net income attributable to common shareholders, or $0.37 per share. The company posted a net income of $730 million a year earlier

Encana said its cash flow came in at about $656 million in the period, or $0.89 per share, bringing the year-to-date figure to $1.8 billion.

Following a good first quarter, the second quarter saw the company making great progress when it came to targets, it said in a statement. Encana exceeded the business goals it set for itself as part of the new strategy it adopted eight months ago, the company’s president and CEO Doug Suttles added.

The company’s cash flow is now expected to reach between $3.4 billion and $3.6 billion for the entire 2014, up from its previous target of $2.9 billion to $3 billion, Suttles told a conference call. Production of liquids is also expected to outstrip previous forecasts, coming in at between 86,000 to 91,000 barrels per day as opposed to the 68,000 to 73,000 barrels per day projected previously.

During the second quarter, Encana managed to make its business model simpler and keep its undivided attention on opportunities expected to bring high value. The company enjoyed stable liquids growth from the five growth areas introduced by its new strategy. Oil production marked a 49% year-over-year increase, with the company producing 34,200 barrels per day in the three-month period. Natural gas liquids production showed growth of 38% to 34,000 barrels per day.

A key moment during the second quarter was the company’s acquisition of Eagle Ford assets for a sixth growth area. This has helped push the company’s liquids production growth further and as a result, the company’s current oil production is expected to double.

Successful execution of the company’s strategy and achieving key targets will continue to be the company’s course in future months, Suttles said.

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

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Exchange Traded Funds Expose Investors to Unexpected Risks. Read more here>>

Investment Management – Risk vs. Return. Read 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.