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.
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.
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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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.