Michael Sprung, president, Sprung Investment Management
FOCUS: Canadian large-cap stocks
Top Picks: Linamar, Whitecap Resources, Alaris Equity Partners Income Trust
MARKET OUTLOOK:
We are approaching a U.S. presidential election in the next month. Politics have become extremely polarized in recent years. The pundits feed on this polarization by making out that the choice is between good and evil (depending on which side you stand). This noise can lead to a greater level of volatility in the capital market as investors weigh the various economic policies and the perceived impact on businesses and taxation.
Markets tend to go up over time which is why it should be no big revelation when the media blasts announcements that a market index has reached an all-time high. Presidents do not have carte-blanche to implement their policies as they must deal with Congress and the Senate. It is more important to consider the fundamental environment during the period that an administration is in power and the evolving valuation levels of the investment under consideration. In this regard, there are certainly some very lofty valuation levels at the present time, so investors should be vigilant and prudent in their security selections.
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TOP PICKS:
Linamar (LNR TSX)
Linamar Corporation, together with its subsidiaries, produces engineered products in Canada, Europe, the Asia Pacific, and the rest of North America. It operates through two segments, mobility and industrial. The mobility segment focuses on light metal casting, forging, machining, and assembly for electrified and powered vehicle markets. It also focuses on components and systems for the global mobility market; and design, development, and testing services. The Industrial segment manufactures scissor, boom, and telehandler lifts for the aerial work platform industry as well as equipment for agriculture operations. At current levels, the stock is priced at 70 per cent of book value.
Whitecap Resources (WCP TSX)
Whitecap Resources Inc., an oil and gas company, focuses on the acquisition, development, and production of petroleum and natural gas assets in Western Canada. WCP is a leading intermediate growth plus yield company. Management is executing a five-year plan to increase production by about five per cent per year. Recent updates from the Montney and Duvernay have been encouraging. At current levels, the stock is very attractive with a price-to-earnings ratio of 8.1 times, price to cash flow ratio of 3.4 times and a yield of 7.3 per cent.
Alaris Equity Partners Income Trust (AD.UN TSX)
A private equity firm specializing in management buyouts, growth capital, lower and middle market, later stage, industry consolidation, growth capital, and mature investments. Alaris is invested with 19 partners covering a wide range of industries. In the first half of 2024, the company deployed over $75 million and it anticipated that it may deploy more than that in the final half. The units trade at less than book value and currently yield 7.7 per cent.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LNR TSX | Y | N | Y |
| WCP TSX | N | N | Y |
| AD.UN TSX | Y | N | Y |
PAST PICKS: OCTOBER 11, 2023
Bank of Nova Scotia (BNS TSX)
- Then: $60.53
- Now: $71.91
- Return: 19%
- Total Return: 27%
Newmont (NGT TSX)
- Then: $53.13
- Now: $72.57
- Return: 36%
- Total Return: 40%
ATCO (ACO.X TSX)
- Then: $35.48
- Now: $47.60
- Return:34%
- Total Return: 41%
Total Return Average: 36%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BNS | Y | N | Y |
| NGT TSX | Y | N | Y |
| ACO.X TSX | N | N | Y |