Michael Sprung, president, Sprung Investment Management

FOCUS: Canadian large cap stocks

MARKET OUTLOOK:

The war in Ukraine has further highlighted the fragility of the global economy. Supply chain disruptions over the past two years were already causing business and governments to question the feasibility of sourcing parts and labour on a global basis.

As shortages have mounted, issues regarding not just security of supply, but also availability of supply have become major concerns. As Russia and Ukraine are major suppliers of many industrial, energy and food-related commodities, the war has put renewed focus on the inflationary pressures that were already evident in the latter period of the pandemic.

Global debt levels skyrocketed during the pandemic on the government, business and consumer levels. One of the only tools available to central banks to fight inflation is through raising interest rates. Unfortunately, this mechanism will have the effect of slowing, or even stalling, future economic growth. The recent onset of volatility in global stock markets is the result of investors' uncertainties regarding the degree to which growth will be pushed forward.  All of these issues are likely to persist for some time.

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TOP PICKS:

Citigroup (C NYSE)

Last purchase March 2016 US$42.15

Citigroup is a global diversified financial services company providing a range of services including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management. Citi is a major money centre bank. In the current environment, the stock has been under pressure given the slowdown in economic activity and some underlying inflationary pressures on expenses. Citigroup is well capitalized with a CET1 of just under 12 per cent. The stock currently sells at a large discount to book value and yields around 4 per cent.

Hudbay Minerals (HBM TSX)

Last purchase July 2019 $6.45

Hudbay produces zinc, copper, and precious metals at its two operating mines in the Snow Lake/Flin Flon region of Manitoba (Lalor and 777) and at Constancia in Peru. Hudbay also operates a zinc smelter facility in the Flin Flon area. The company has been very active laying the groundwork for future growth at Lalor, Constancia, Copper World and Rosemont. In our view, the current price does not reflect the future potential of Hudbay's activities.

Ag Growth International (AFN TSX)

Last purchase September 2021 $29.07

Ag Growth plans, engineers and manufactures full solutions and systems across five platforms: seed, fertilizer, grain, feed and food. The solutions facilitate the storage, movement, processing and protection of agricultural inputs/crops and food products. Recent global inflation and the war in Ukraine have brought renewed focus on global food supplies and with that, a renewed focus on agriculture infrastructure. AFN has encountered growing demand in Brazil, India and other markets more than offsetting slower growth in western Canada. Backlogs are building and fulfillment times on those backlogs has been extending. AFN has recently concluded an issue of convertible debentures strengthening the company’s financial position. At current prices, the stock yields around 1.5 per cent.

PAST PICKS: April 21, 2021

Manulife Financial Corporation (MFC TSX)

• Then: $26.51
• Now: $25.06
• Return: -5%
• Total Return: -1%

Suncor Energy (SU TSX)

• Then: $25.45
• Now: $40.67
• Return: 60%
• Total Return: 65%

BCE (BCE TSX)

• Then: $58.51
• Now: $70.18
• Return: 20%
• Total Return: 26%

Total Return Average: 30%