Michael Sprung’s Outlook and Top Picks on BNN Bloomberg’s Market Call

Outlook:

Trade issues continue to cloud the economic outlook as the tariffs constrain spending and companies seek alternative supply routes in their attempts to minimize the higher costs resulting from the implemetation of the tariffs. Geopolitical issues are contributing to the growing uncertainty as we face federal elections year in Canada and the US, turmoil in the UK with respect to Brexit and increasing tensions the Asia (Hong Kong) and the Middle East.

As the global outlook for economic growth diminishes, investors are reacting to the slightest pronouncements by central bankers as evidenced by the increasing volatility in the markets.

We suggest that investors continue to take a very cautious stance, investing in strong companies with solid balance sheets and management.

Top Picks:

Canadian Imperial Bank of Commerce, CM-T, Owned personally and by clients, Last Purchase: August 2019, $99.92
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 consistently among the most profitable as measured by return on equity and with a strong capital base. Today the valuation is attractive and the yield is 5.6%.

Suncor Energy Inc., SU-T, Owned personally and by clients, Last Purchase August 2019, $37.26
Suncor is Canada’s largest integrated energy company. The company has an extremely strong upstream asset base and the top downstream business in North America. Suncor is the most profitable Canadian refiner. The company generates very strong free cash flow, higher than its Canadian and global peers. Ongoing stock repurchases and dividends will return capital to shareholders. At current levels, the stock yields 4.3%.

BCE Inc., BCE-T, Owned personally and by clients, Last Purchase February 2018, $56.22
BCE Inc. is Canada’s largest communications company. The company’s dominant infrastructure build provides some competitive advantage over its primary competitors. However, changes in technology and the competitive landscape will require large ongoing capital outlays. In the wireline business, BCE is leading in its quest to bring fibre to the home that will provide superior internet and related services. The wireless busines remains competitive promotions are expected to continue but BCE retains the largest market share. The media business remains challenging. In the current environment, we antcipate that BCE will more than hold its own position in the competitive landscape and the current yield of 5.0% is attractive given the likelyhood of future dividend increases.

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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.