Market Call for Friday, March 17, 2017
Michael Sprung, president of Sprung Investment Management
Focus: Canadian large caps
The U.S. market has continued to rise in the first two months of 2017 as investors anticipate a better business climate under the Trump administration, and the Federal Reserve has indicated more confidence in the economic recovery through yet another interest rate hike.
The Canadian market has been less directional as commodity prices have fluctuated and economic activity remains comparatively weak. Low interest rates have attracted Canadian consumers to increase debt loads to levels that would be difficult to sustain in a rising interest rate environment.
There is no shortage of global geopolitical concerns in the Middle East (particularly Syria), the South China Sea, Russian interventions in the Ukraine and Syria, etc. The populist culture continues to threaten the status quo and, more particularly, free trade and globalization.
Over the past eight years, multiples have expanded, driving valuations to higher levels. We would suggest that this is a time for caution and vigilance in terms of security selection.
We have sold:
- HBM on September 22 2016 at $5.00: Raising cash for one particular client
- AGT on March 8 2016 at $36.68: Reducing weight
- AGT on Feb 22 2017 at $33.06: Estate wind up
- NWC on March 3 2016 at $31.79: Reducing weight
SUN LIFE FINANCIAL INC. (SLF.TO) – Owned personally and by clients, last purchase February 2016 at $37.20
Sun Life Financial operates in Canada, the U.S., the U.K. and Asia. Insurance companies will benefit from a rising interest rate environment. We anticipate reasonable growth in earnings over the next few years that should result in expanding dividends. At just under $50, the stock currently yields 3.4 per cent and represents good value in the current environment.
PRECISION DRILLING CORP. (PD.TO) – Owned by clients, last purchase September 2015 at $5.00
Precision Drilling is Canada's leading contract drilling company with growing operations in the Middle East. During the downturn in energy prices, management has upgraded assets and improved efficiency. Earnings and cash flow will be very reactive to an improved environment. Recent signs that conditions are improving come from longer contracts and rising day rates.
GEORGE WESTON LTD. (WN.TO) – Owned by clients, last purchase January 2015 at $96.88
Weston's operates fresh and frozen bakery operations in the U.S. and Canada and food distribution through Loblaws, Canada's leading food retailer. Recent capacity additions are complete and greater volumes should lead to better margins in the bakery business. Weston's ownership of Loblaws has been creeping up as share buybacks in the market have reduced the float. Weston has a strong balance sheet. The current dividend yield is 1.6 per cent. From time to time, Weston has been known to pay a special dividend.
PAST PICKS: FEBRUARY 4, 2016
- Then: $56.86
- Now: $78.14
- Return: +37.42%
- TR: +43.47%
ARC RESOURCES (ARX.TO)
- Then: $18.29
- Now: $19.03
- Return: +4.04%
- TR: +7.27%
HUDBAY MINERALS (HBM.TO)
- Then: $3.08
- Now: $9.75
- Return: +216.55%
- TR: +218.08%
TOTAL RETURN AVERAGE: +89.60%