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

Outlook:

market call, michael sprung, top picks

MARKET CALL: Michael Sprung’s Top Picks: May 30, 2018

Since the end of the first quarter, North American markets have trended up as the US economy has continued to exhibit positive momentum and the Canadian market has reflected strength in commodities, particularly energy related commodities until most recently. Volatility in the markets has been the result of continuing concerns regarding inflationary pressures and the potential negative impact that rising interest rates could have on the outlook for sustained economic expansion. Geopolitical tensions have also had an effect on investor confidence. Internationally, the discourse between the US and North Korea has been unsettling as well as some political chaos in Europe. From Canada’s perspective, the unsettled trade negotiations surrounding NAFTA combined with the dysfunctional political environment with respect to the Trans Mountain Pipeline are eroding investor confidence.

We have been of the opinion that valuations have been stretched following ten years of market advances. In this environment, value rather than momentum will become more important in stock selection as investors seek to minimize risk on the downside. Investors should continue to seek well financed, well managed companies that are selling at attractive price levels.

Top Picks:

Sun Life Financial Inc., SLF-T, Owned personally and by clients, Last Purchase February 2016 at $37.20
Sun Life Financial operates in Canada, the US, UK and Asia. Insurance companies will benefit from a rising interest rate environment. SLF has a very strong balance sheet with industry leading excess capital. We anticipate reasonable growth in earnings over the next few years that should result in expanding dividends. The stock currently yields 3.5% and represents good value in the current environment.

Precision Drilling Corp., PD-T, Owned by clients, Last Purchase September 2015 at $5.00
Precision Drilling is Canada’s leading contract drilling company. Over the last few years, PD has upgraded their rigs and offers leading technology with a push into analytical platforms offering greater efficiencies. Pricing in the US has improved. Management is very focused on capital discipline and debt repayment is a prioritsuy.

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 Pampacancha will start contributing in 2019. Growth in the next few years will stem from expanded copper, zinc and precious metal production. Recent updates at Lalor indicate greater gold production possibilities by Q3 2018. Rosemont permitting continues with construction anticipated 2019 to 2021. At current levels, HBM is selling at an attractive discount to its peers.

You can view the complete interview 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.

 

Precision Drilling (TSE:PD) reports reduced Q3 loss, increased oilfield activity

Drilling rig contractor Precision Drilling Corporation (TSE:PD, Mkt cap 1.93B, EPS -1.49, Shares 293.24M) has reported a loss for the third quarter but expects rig bookings to improve in 2017.

Precision Drilling Corp tse:pd

Precision Drilling (TSE:PD) reports reduced Q3 loss, increased oilfield activity

The Calgary-based company announced on Friday that its net loss for the third quarter was C$47m, a decrease from the C$86.7m net loss reported for the same period last year. The loss amounted to 16 cents per share compared with 30 cents a year ago.

Revenue declined to C$202m, down 45% from $364m in the third quarter of 2015, with decreased activity in all of the company’s operations.

However, Precision Drilling’s president and CEO, Kevin Neveu, said that customer sentiment has improved as commodity prices have strengthened, supported by OPEC strategic intentions and improving supply and demand fundamentals.

“This improved outlook is evident in the conversations we are having with customers, but more importantly in our activity increases, recent contract bookings and improving pricing environment,” Neveu explained.

“During the third quarter, we gained visibility through rig commitments in both the U.S. and Canada and report seven rig years added to our 2017 contract book, bringing average rigs under contract for next year to 42.

“With 37 rigs operating in the U.S. today, our activity is up 70% from second quarter lows, while the industry increase is approximately 35%. We believe our market share increase and contract additions reflect both the desirability of Precision’s high performance Super Triple rigs and our customers’ improving outlook.”

In a further sign that oilfield activity levels are recovering, the company announced that it has brought back almost 1,000 employees.

Precision Drilling Corporation (TSE:PD) provides contract drilling, and completion and production services primarily to oil and natural gas exploration and production companies in Canada, the United States and certain international locations. It operates through two segments: Contract Drilling Services, and Completion and Production Services. The Contract Drilling Services segment includes Drilling rig operations in Canada, the United States and international, and Directional drilling operations in Canada and the United States. The Completion and Production Services segment includes service rigs and equipment rentals in Canada and the United States, and snubbing and coil tubing, camps and catering, and water systems in Canada. The Company’s operations in its segments are supported by business support systems, which include sales and marketing; procurement and distribution; manufacturing; equipment maintenance and certification, and engineering. More from Reuters »  

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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.

 

Market Outlook & Top Picks – BNN Market Call

BNN Market Call – Outlook

After a troubling start to the year, recent rallies have pulled North American markets into positive territory. The same cannot be said in much of the rest of the world. While this respite in North America, and particularly Canada, has given investors some relief, the outlook going forward is far from certain. Many geopolitical and economic factors have yet to play out and have the potential to bring both positive and negative market reactions. Just last week we were reminded that terrorism is still with us as the attack on Brussels illustrated. Unrest is not just confined to the Middle East. Europe is still contending with the mass influx of refugees as well as economic tensions threatening the very existence of the European Union. Tensions in Russia/Ukraine, China and its neighbours, Brazil and Venezuelan political instability continue to persist.

In Canada, we are fortunate to be situated so close to the United States as their economy appears to be stronger and growing. This benefit is evident in the improving export of goods and services from Canada to the US.

Michael Sprung BNN Market Call Interview Market Outlook Top Picks

Michael Sprung BNN Market Call Interview: Outlook and Top Picks

In this environment we would advise caution. In many cases, the rally in share prices has, from our view, caused us to stand back as we are confident that more opportunities will become available as the year progresses.

BNN Market Call – Top Picks

Royal Bank, RY-T, Owned by clients, Last Purchase January 28 2016 @ $67.75

The Royal Bank is Canada’s largest financial institution with extensive domestic and wealth operations as well as global capital markets, custody and brokerage networks.

In the last quarter, Royal completed its acquisition of City National Bank, which has contributed to higher earnings in wealth management. Royal’s diversified business model and strong capital base will support earnings and dividend increases going forward.

Precision Drilling, PD-T, Owned by clients, Last Purchase September 23 [email protected] $5.00

Precision is the largest oilfield services company in Canada with operations domestically, in the US and internationally. The company has a marketing alliance with Schlumberger, whereby Precisions Tier 1 drilling rig offerings are paired with Schlumbergers state of the art assembly and services. The high grading of the fleet over the past few years has left precision with the best fleet in Canada. The Company has a reasonably strong balance sheet that combined with the superior rig fleet and large geographic footprint, should sustain the company through the recent malaise in the industry. The stock is attractive at current levels.

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. At the end of the fourth quarter, SOX had a backlog of $1.96B(58% construction, 28% cost-plus, 5% design build and the rest in tenders). 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 7.2%.

You can view the complete Market Call interview here>>

You can view Michael’s past interviews 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.

 

Stockwatch – Michael Sprung on BNN Market Call – Market Outlook and Top Picks

Stockwatch – Market Outlook:

Market volatility is likely to continue as investors deal with the multiple geopolitical issues in the global environment as well as economic concerns, particularly in Europe, Japan and China. Canadian markets have been more vulnerable due to exposure to resources. The U.S. economy continues to exhibit signs of progress and relative stability resulting in investors pushing up the U.S. markets and currency. Recent pullbacks have been short lived, but investors should be prepared to take advantage of opportunities as they occur.

Stockwatch Michael Sprung BNN Market Call Market Outlook Top Picks

Stockwatch – Michael Sprung on BNN Market Call – Market Outlook and Top Picks

Stockwatch – Top Picks:

Stockwatch – Bank of Nova Scotia (Scotiabank)

Bank of Nova Scotia (TSE:BNS, Mkt cap 85.66B, P/E 12.02, Div/yield 0.66/3.75, EPS 5.86, Shares 1.22B) or Scotiabank is the most international of the Canadian banks with branches in the Caribbean, Central and South America. The Canadian banks have been impacted by recent market declines. Scotiabank is now selling at levels that long-term investors should find attractive, as the premium valuation has fallen. The dividend yield is now 3.8 percent. Last Purchase on September 19, 2014 at $71.75

Stockwatch – Precision Drilling

Precision Drilling Corporation (TSE:PD, Mkt cap 2.65B, P/E 12.31, Div/yield 0.07/3.09, EPS 0.74, Shares 292.78M) is Canada’s leading provider of drilling and industrial services and one of the larger land service providers in the US with presence in Mexico and the Middle East. The stock has reacted to the recent pull back in the energy sector. Given the strong balance sheet and 3 percent yield, the stock is attractively priced. Last Purchase on October 27, 2014 at $9.09

Stockwatch – New Flyer Industries

New Flyer Industries Inc (TSE:NFI, Mkt cap 723.79M, P/E 21.97, Div/yield 0.0488/4.37, EPS 0.61, Shares 55.50M) manufactures and assembles transit buses in Canada and the US as well as providing aftermarket services. Third quarter results were affected by fewer deliveries as a result of delays in inspections. The company has been a consolidator in North America and is well positioned to participate in fleet renewals. Last Purchase on September 9, 2014 at $13.70

You can see Michael discuss his outlook and top picks on our video page here>>

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

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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.

 

Investors Digest – ‘Best Buys’ from Michael Sprung

Investors Digest of Canada recently interviewed Michael Sprung. Here is the full text as published in this week’s issue.

You’ll often hear start-ups being touted as nimbler and more innovative than older companies. But there are advantages to a company having been around for a while. Just ask Michael Sprung.

Investors Digest - Precision Drilling Corp bench strength technical managerial

Investors Digest – Precision Drilling has bench strength from both a technical and managerial point of view.

Mr. Sprung is president of Sprung Investment Management in Toronto. And he’ll tell you that because Precision Drilling Corp. (PD-TSX, $11.36) has been in business for many years, it has bench strength from both a technical and managerial point of view.

Mr. Sprung is particularly impressed with Kevin Neveu, Precision’s president and CEO, as well as with Rob McNally, its executive vice president and chief financial officer.

But Mr. Sprung also lauds Precision’s decision to broaden its footprint, singling out the service and marketing deal it inked in July with Schlumberger, the world’s biggest oilfield services firm.

Not only, he says, does the deal give Precision more visibility, but it also gives it access to Schlumberger’s technology.

Mr. Sprung admits that since topping $15 a share in July, Precision has pulled back to where it’s now selling at roughly 1.5 times its book value.

But as oil drilling in North America picks up over the next few years, he believes Precision could potentially top $15 and even $17 a share. And since the company’s downside is roughly $9.50, it boasts very good upside relative to its downside.

Meanwhile, at 0.46:1, Precision has a good ratio of debt to equity. It’s also well capitalized. And at a little over two per cent, the company has a modest yield.

Headquartered in Calgary, Precision is Canada’s biggest drilling and oilfield services firm, as well as a big player in the U.S.

For the three months ended June 30, Precision swung to a net loss of $7.2 million or $0.02 a share, from net income of $473,000, or zero cents a share, for the similar period in 2013.

But revenue presented a brighter picture, increasing to $475.2 million from $378.9 million, while adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) grew to $129.7 million from $88.2 million.

For the six months ended June 30, Precision’s net earnings inched up to $94.4 million, or $0.32 a share, from $93.8 million, or $0.34 a share, for the similar period in 2013. Revenue was also higher, rising to $1.1 billion from $974.6 million, while adjusted EBITDA grew to $367 million from $303.4 million. For Mr. Sprung, Precision Drilling is a best buy.

Mr. Sprung may like a meat-and-potatoes outfit such as Precision that caters to one of Canada’s primary industries. But he also has a soft spot for a firm like CAE Inc. (CAE-TSX, $13.68) whose flight simulators for training pilots are definitely high tech.

Investors Digest CAE strong demand hardware software world airlines replace old planes new ones

Investors Digest – CAE – strong demand as airlines continue to replace old planes.

For one thing, he says, CAE should log a strong demand for both its hardware and software as the world’s airlines continue to replace old planes with new ones. Moreover, the company stands to benefit from increased demand for training pilots of business jets, as sales of such aircraft rise with an improving U.S. economy.

Mr. Sprung admits that because of America’s cutbacks in defense spending, CAE will do less business selling simulators for training military pilots. But he notes that because of a deal it recently inked with General Atomics, a California-based maker of surveillance aircraft, CAE will now be training the operators of drones.

And since General Atomics boasts 24 per cent of the U.S. drone market, CAE’s deal is obviously significant.

In the meantime, CAE has a strong balance sheet; indeed, at roughly 35 per cent, its debt-to-capital ratio is well below the cut-off of 50 per cent, Mr. Sprung notes. Moreover, in Marc Parent, the company has a president and CEO with years of experience in the aviation industry.

Then, too, CAE is fattening its order book, having regularly announced new contracts over the past few months. For Mr. Sprung, CAE is also a best buy.

For the three months ended June 30, CAE’s net income fell to $41.6 million, or $0.17 a share, from $45.4 million, or $0.17 a share, for the similar period in 2013.

But revenue was higher, rising to $526.2 million from $520.1 million, while gross profit fell to $136.5 million from $138.3 million. Operating profit, however, was up, rising 16.4 per cent to $71.7 million.

© Copyright 2014 by MPL Communications Inc., Reproduced by permission of Investors Digest of Canada, 133 Richmond St. W., Toronto, ON   M5H 3M8. Sign up for free investment reports here>>

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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 – Michael Sprung on BNN

Stockwatch – Michael Sprung discusses his market outlook and stock picks with Mark Bunting on BNN

Mark Bunting:          Now having said all that and maybe time to take some profits, so that’s what our next guest has been doing in a couple of stocks that have had some big run ups. He feels we maybe headed for a correction in the U.S. and Canada. Let’s find out more. We have Michael Sprung here, president of Sprung Investment Management. He joined us here in the studio, good to see you as always Michael.

Michael Sprung:        Good to be here, thank you very much.

Mark Bunting:          We’ve had so many people calling for a correction of 10% or more for a long time, we haven’t seen it. Why are you convinced that we have to have to one?

Michael Sprung market outlook stock picks Mark Bunting BNN

Michael Sprung discusses his market outlook and stock picks with Mark Bunting on BNN

Michael Sprung:        Well, it’s not that we have to have one. We at least have to have a pause in here. Now, whether we see a 10% or 15% pull back, I don’t think it’s likely to be a very sudden jerk response but I think we could see a deterioration in the market over the next number of months simply because, as value investors, we don’t really look at the macroeconomics environment all that much but we have to be aware of it. It’s getting harder and harder for us to find stocks that we think we really want to purchase and there’s a lot of tell tale signs out there that the market is closer to a top or at least the upside potential from today’s level in the immediate future. Probably, it’s not as great as perhaps the downside could be in a lot of circumstances.

Over the last, while we’ve seen much more retail participation in the market. That’s usually a sign that people are weighing more into equities and certainly we’ve seen that much more in the last year or so.

Mark Bunting:          And taking more risk?

Michael Sprung:        Taking more risk too. We’ve seen rotation into smaller cap stocks more, not necessarily lower quality, but certainly higher out on the risk profiles. So, if you look at the averages in the U.S. you’ll see the much broader averages like the Russell which include a lot of the smaller stocks are running way, way ahead of the S&P and so on.

We’ve seen much more in the way of IPOs and mergers easily eaten up again largely in a retail environment. This is all out of time when I think a lot of it is being fed by the low interest rate environment that we’ve been in. Also people are using more margin which is always a dangerous sign.

In our view, interest rates really can’t go too much lower. If you look at all the moves that the Central Banks have made since 2008, they’ve largely been somewhat inflationary and yet we have not seen inflation come into the picture really yet, although we have seen an acceleration and rate of inflation in Canada more recently.

Mark Bunting:          Right. Just give us short answers here before we get to your picks, but which sectors are overvalued and where have you have taken profits?

Michael Sprung:        Well, we took some profits in Precision Drilling (TSE:PD) for instance. There are a number of stocks in the energy area that we’ve had really significant gains on where we’re looking at pairing back a little bit just to have some off the table. Materials just recently have had a bit of a lift that yes they had been depressed for some period of time. We don’t own any railroads anymore. Railroads have sort of run on the gambits that they can do so much better than GDP and yes they have picked up share and they’ve come from the lowest and there’s been improvements and operating efficiencies.

Overall companies, I think profits look high but that’s on the back of some significant cost cutting and perhaps lower wage rates than what existed prior.

Mark Bunting:          Right. Okay. So, your picks today, Agrium, Northwest Company, and New Flyer, let’s start with Agrium.

Michael Sprung:        Sure, Agrium Inc. (TSE:AGU), we think that you know you can buy that under a $100. It’s a well diversified agricultural play. The agricultural stocks have not kept pace with the base metals or even the precious metals lately, so they’ve sort of lagged. There’s been less demand for potash certainly, and potash prices have been depressed. We like Agrium because it’s a little bit more diversified and we think that you know if you can buy at anywhere between $96, $98, even you know up to $99, it has fairly good upside with more limited downside risk from here.

Mark Bunting:          Okay, and North West Company?

Michael Sprung:        North West Company Inc (TSE:NWC) is one that is certainly significantly pulled back from its highs. It was as high as $29 in the not too distant past. We’ve been able to buy it for under $25 and it’s a good solid yield play. We think that because their markets are somewhat protected, although they do operate in some areas that have been a little bit more depressed. The far north, there hasn’t been the actual mining activity that there was before. But as we see though the demand for those materials pick up and the acceleration of economic activity there, it will do better.

Mark Bunting:          Just a quick thought on New Flyer, it pays a handsome dividend.

Michael Sprung:        New Flyer Industries Inc (TSE:NFI) pays a handsome dividend. They have acquired a lot of the competition in North America. They still do have competition out there, but the one thing that is really evident is that a lot of municipalities and have to start replacing their fleets of buses and transportation. New Flyer, I think will certainly benefit from that.

Mark Bunting:          Nice looking chart, thanks Michael, good to see you.

Michael Sprung:        Thank you.

Mark Bunting:          Okay. Michael Sprung, president of Sprung Investment Management.

See Michael Sprung on BNN here>>

Top Stock Picks

Top Stock Picks

Michael Sprung‘s top stock picks for July 2012

Precision Drilling (PD): Owned by clients, last purchase June 15 2012, $7.64
The pullback in oil prices has resulted in many companies in the oil patch to scale back capital expenditures. Investors are concerned that this trend may continue in firms that are dependent on greater cash flow. This fear has been particularly reflected in the oil service companies and PD is no exception. Selling below book value, PD offers tremendous value for patient investors.

Barrick Resources (ABX): Owned by clients, Last purchase June 15, 2012, $39.39
Disappointment at the board level with the share price performance has caused the board to replace the CEO with Jamie Sokalasky, a long term Barrick employee. In addition, the retreat in the price of gold has been reflected in the price of the producers’ stocks; Barrick being no exception. Barrick is the largest gold producer and is selling at reasonable multiples. We anticipate that the recent changes will result in a renewed focus on shareholder returns

Progressive Waste Solutions (BIN): Owned by clients, Last purchase July 15, 2012, $18.42
Recent weaknesses in the North East division have overshadowed more stable results in the Canadian operations. The stock price has over reacted to these problems and fears that competitive pricing pressures will continue to impact results for some time. BIN is well positioned to benefit from a pickup in economic activity. The company is well managed and will further expand operations strategically. At current levels, the stock price is compelling.

Why does our value investing approach work? The prices of well-established, high-quality stocks tend to rise over time as the companies create value for shareholders. Stocks touted by brokers and the media often rise to extreme highs in expectation that they will meet or exceed their short-term earnings forecasts. However, they can decline dramatically when they fail to meet those forecasts.