Michael Sprung, president, Sprung Investment Management
FOCUS: Canadian large cap stocks
Top Picks: Sun Life, HudBay, Canadian Natural Resources
MARKET OUTLOOK:
Investors’ initial enthusiasm following U.S. President Donald Trump’s election victory has given way to fear and uncertainty as the on and off again implementation of tariffs created havoc in global trade flows and cross border political relationships. Volatility in the capital markets has left investors with shrinking confidence that the economy can evade a recession or worse. Stagflation with high unemployment and higher interest rates has become a distinct possibility.
In this environment, the international relationships of the post World War Two era have frayed as the U.S. becomes more isolationist. A new economic order will ultimately emerge as nations seek new trading relationships and economic ties. This process is likely to take years to evolve.
In this period if uncertainty, we continue to recommend caution. Investors must seek opportunities to invest in companies with strong fundamentals that are trading at reasonable prices. Concentrate on companies with the capability to withstand any calamities ahead.
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TOP PICKS:
Sun Life Financial (SLF TSX)
Sun Life is a leading insurance company providing insurance, employee benefits and global wealth management services to clients through operations in Canada, the United States, the United Kingdom, Ireland and Asia. The stock price pulled back by about $10 per share following disappointing earnings an guidance given in February as fourth quarter earnings were released. This was primarily due to poor experience in stop-loss insurance claims in the U.S., a small impairment in Vietnam, softer flows at MFS wealth management and lower earnings on surplus in Canada. The company continues to make progress on its cost saving initiatives. SLF has a strong financial position with $1.4 billion at the hold-co level. At current levels, the stock is trading around 15 times trailing earnings and has a yield around 4.3 per cent.
HudBay Minerals (HBM TSX)
HudBay is a diversified mining company with operations in Canada, the U.S. and Peru. In February, management reduced near-term guidance as lower grade ore was mined at Pamacancha deposit in Peruand the stock declined by about 25 per cent in the aftermath. In March, HBM acquired Mitsubishi’s 25 per cent interest in the Copper Mountain deposit in Arizona for US$148 million including debt to bring HBM’s interest to 100 per cent. Going forward, the company’s opportunities stem from the solid gold production from Snow Lake and Constancia, more exploration in Northern Manitoba and Peru and increasing copper development from Copper World, Constancia and the Mason project in Manitoba. The balance sheet is strong with US$582 million in cash, US$1.1 billion in debt and US$426 million in credit. At $10.23 the stock trades at 1.1 times book value .
Canadian Natural Resources (CNQ TSX)
Canadian Natural Resources is a diversified senior oil and gas producer with operations in Western Canada, the North Sea and offshore Africa. The share price has been volatile to the downside with the prices of oil and gas since the imposition of tariffs has threatened to slowdown the global economy. CNQ is one of the premier companies headquartered in Canada with its low-cost structure and ability to allocate and adjust capital as conditions change. In Horizon/AOSP, CNQ has oil sands mining upgrading facility that can operate at very low commodity prices following last year’s $6.5 billion deal with Chevron and a recent swap with Shell. At current prices the stock yields 5.8 per cent.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SLF TSX | Y | N | Y |
| HBM TSX | Y | N | Y |
| CNQ TSX | Y | N | Y |
PAST PICKS: March 15, 2024
Royal Bank (RY TSX)
- Then: $134.63
- Now: $164.14
- Return: 22%
- Total Return: 27%
Vermilion Energy (VET TSX)
- Then: $15.29
- Now: $8.96
- Return: -41%
- Total Return: -37%
Telus (T TSX)
- Then: $22.42
- Now: $20.78
- Return: -7%
- Total Return: 0.10%
Total Return Average: -3%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| RY TSX | Y | N | Y |
| VET TSX | Y | N | Y |
| T TSX | Y | N | Y |
