Michael Sprung, president, Sprung Investment Management
FOCUS: Canadian large caps
Top Picks: Enbridge, Wajax, Chemtrade Logistics
MARKET OUTLOOK:
Post Donald Trump’s election win in the U.S., the stock markets have continued their upward trajectory given the prospect of a more business-friendly administration. Valuations are already stretched as the S&P 500 Index is up over 25 per cent this year following a 24 per cent gain in 2023. Investors are carrying very large exposures to the capital markets. The leading theme in the market around the prospects for artificial intelligence have driven a number of stocks to extreme valuations, very reminiscent of the dot com boom in the early 2000s.
In the meanwhile, geopolitical trends are becoming less stable in the Middle East and Ukraine. Consumers are struggling with high prices following the high levels of inflation in the last few years. Any threat of a recurrence in inflation that would drive interest rates higher could destabilize the current market trends. This is a time for investors to be cautious in their security selections.
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TOP PICKS:
Enbridge (ENB TSX)
Enbridge is well positioned to benefit from the growing demand for energy in North America to service the increasing number of data centres, LNG and industrial demand. Over the next few years, the company will continue its $27 billion capital expenditure program driving earnings and cash flow. Dividends are anticipated to continue to grow with the expanding infrastructure and earnings.
Wajax (WJX TSX)
Wajax has a 161-year history of providing equipment, parts and services to the construction, mining, industrial and commercial sectors. Revenues stem from equipment sales, product support, rentals and engineered repair services (ERS). Over the last seven years, earnings have grown at a 21 per cent annual rate. Wajax has an exclusive relationship with Hitachi in Canada. The recent results in the third quarter of 2024 were disappointing as industrial parts and product support missed expectations as did equipment sales and ERS. On the positive side, the backlog for equipment increased due to higher construction, forestry and mining orders. The stock has pulled back and presents an opportunity with a yield of 6.5 per cent and a compelling valuation for the long term.
Chemtrade Logistics Income Fund (CHE.UN TSX)
Chemtrade Logistics is one of North America’s largest suppliers of sulfuric acid, spent acid processing, inorganic coagulants for water treatment and other industrial chemicals. The company has over 60 facilities that service oil and gas, pulp and paper construction and semiconductor manufacturing. In North America, Chemtrade has a competitive advantage in manufacturing highly pure acid for the semiconductor industry due to lower energy costs. At current levels, the units are trading around 10.6 times with a yield of 5.7 per cent
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ENB TSX | Y | N | Y |
| WJX TSX | Y | N | Y |
| CHE.UN TSX | Y | N | Y |
PAST PICKS: OCTOBER 11, 2023
Bank of Nova Scotia (BNS TSX)
- Then: $60.53
- Now: $79.09
- Return: 31%
- Total Return: 39%
Newmont (NGT TSX)
- Then: $53.13
- Now: $59.40
- Return: 12%
- Total Return: 39%
ATCO (ACO.X TSX)
- Then: $35.48
- Now: $49.15
- Return: 38%
- Total Return: 15%
Total Return Average: 31%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BNS TSX | Y | N | Y |
| NGT TSX | Y | N | Y |
| ACO.X TSX | Y | N | Y |