Market Call for Friday, April 28, 2017
Michael Sprung, President, Sprung Investment Management
FOCUS: Canadian Large Caps
As we look back at the first 100 days of the Trump administration, we see a period filled with conflicting messages. The media has been prolific in their condemnation of Trump's policies but the capital markets have been more sanguine. Since the election in November, the U.S. markets have enthusiastically embraced the promises of deregulation and lower taxes that were the cornerstones of the Trump campaign. The enthusiasm paused briefly when changes to health care met with resistance and investors realized that not all of the promises are likely to be easily forthcoming. The Canadian markets were not as robust. Weak energy prices and tepid economic growth were reflected in more range bound markets. European markets were a bit more robust as factories exhibited greater activity as was the case in much of Asia as exports from Taiwan, South Korea and China were up from a year ago.
There is certainly reason to be optimistic on the global economy as orders for capital equipment are on the rise and employment improves. It has been a long, hard climb out of the financial abyss of ten years ago as is often the case in financial crisis. The difficulty of the recovery has been reflected in large part in the rise of populist politics as evidenced by the Brexit vote and the election of Donald Trump. Europe faces a few key elections this year.
Politics and economic cycles are often out of sync. The politics of populism are not as accommodating to the concepts of free trade and globalization that have sown the seeds of the current recovery; yet those very politicians may point to the recovery and take credit where none is due. In fact they may sow the seeds of the next downturn. We Canadians are very aware of these factors as we gear up for renegotiating the NAFTA agreement.
Canadian Imperial Bank of Commerce (CM.TO) last purchase Sept 16, 2016 $101.00
CM is Canada's fifth largest bank by market capitalization. Over the better part of the past decade, management has concentrated on de-risking and shoring up the balance sheet largely by retrenching and focusing on core competencies. The bank is now the most profitable as measured by return on equity and has one of the strongest capital bases. The recent purchase of PrivateBancorp establishes CM with a larger foothold in U.S. This is a well-run, well managed bank and CM has paid a premium to make this purchase. Most recently, the share price has pulled back as concerns about the Canadian mortgage market have been in the spotlight. At current prices, the bank yields around 4.6 per cent.
Suncor Energy (SU.TO) last purchase March 2, 2016 $32.94
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. Management has been focused of increasing efficiencies and positioning the company for future growth. Over the remainder of the year, Fort Hills and Hebron will be coming online. Suncor has a strong balance sheet to support and expand operations. At current levels, the stock yields 3.1 per cent.
Goldcorp (G.TO) last Purchase March 30, 2017 $19.43
Goldcorp is one of North America's largest gold companies that is now beginning to reap the rewards of major capital spending over the past few years as Penasquito is in production. Joint ventures with Barrick and Teck Resources will assist in driving costs down over the next few years as management begins to prepare for future growth in Arizona and Chile.
Past Picks: JUNE 2, 2016
Bank of Nova Scotia (BNS.TO)
- Then: $65.45
- Now: $76.09
- Return: +16.25%
- TR: +21.16%
Vermilion Energy (VET.TO)
- Then: $43.45
- Now: $48.15
- Return: +10.81%
- TR: +16.20%
- Then: $41.14
- Now: $44.26
- Return: +7.59%
- TR: +10.67%
Total Return Average: +16.01%
Twitter Handle: @SprungInvest