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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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.

Top Stock Picks – Michael Sprung on BNN Market Call Tonight

Top Stock Picks

Manulife Financial Corporation, MFC-T, Owned personally and by clients

Manulife is a leading Canadian-based financial services group with operations in Asia, Canada and the United States. Over the past five years, the company has made tremendous strides in de-risking the balance sheet and improving profitability through increasing wealth management operations as well as redirecting the mix of products sold. Recent quarter results disappointed as negative policyholder experience in the firm’s US Long Term Care(LTC) Business overshadowed positive developments elsewhere. Excluding the LTC hit, results from the US divisione were inline with expectations. Canada and Asia reported favourable trends in earnings. The market reacted negatively to these results. MFC has the strongest capital base of the insurers. Going forward, we expect the problems within LTC will be dealt with and at current levels, the shares represent good value and yield 4.2%

Top Stock Picks Michael SprungManulife, MFC, Suncor, SU, HudBay, HBM

Top Stock Picks from Michael Sprung: Manulife, MFC, Suncor, SU, HudBay, HBM

Suncor Energy, SU-T, Owned by clients

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 latest quarter exhibited mixed results, partially as a result of the wildfires in Northern Alberta that affected both production and operating expenses. We anticipate that production will increase both organically and perhaps through acquisition. Suncor has a strong balance sheet to support and expand operations. At current levels, the stock yields 3.2%.

HudBay Minerals, HBM-T, Owned personally and by clients

HudBay Minerals is one of Canada’s leading producers of zinc, copper and precious metals with operations in Canada, Peru and the US. While the share price has appreciated significantly in the past few months, positive developments are still on the horizon that will enhance the underlying value of the company. Delayed shipments impaired sales in the latest quarter that should be made up going forward. Liquidity has been improved as the large Constancia mine is now commissioned and additional credit facilities have been of this site is possible obtained. Mill throughput in Constancia was constrained by liner wear in the mill that has now been repaired. Further development in Peru is a possibility. Improvements in Manitoba at Lalor and Reed are also noted.

Outlook:

North American markets have continued their upward trajectory despite a growing list of negative geopolitical and business risks, particularly those stemming from the surprising vote in the UK to “Brexit“. At the same time, the global bond markets appear to be signalling an expected decline in economic activity. Governments out side of North America continue to attempt to stimulate economies through quantitative easing and proposed infrastructure spending. Over US$13 Trillion of sovereign debt is now at negative interest rates and the total continues to grow.

Politicians in North America and Europe are exploiting the public’s unrest through fear-mongering on the issues of globalization and free trade as was most evident in the Brexit vote and continues in the US presidential race. As the US election draws nearer, more noise from the political pundits will distract attention from the longer term fundamentals.

After a number of years of expansion fueled by debt, we could be entering a period of deleveraging that will stall global economic growth for a period and potentially cause markets to decline and volatility to increase. Investors should concentrate on the longer term issues and be prepared to take advantage of current circumstances to invest in well financed, well managed companies.

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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.