Michael Sprung, president, Sprung Investment Management

FOCUS: Canadian large-cap stocks 

MARKET OUTLOOK:

Inflation and rising interest rates continue to be a major preoccupation for everyone. In this setting, capital markets are volatile as investors react to the ever-changing economic data that is highlighting the beneficiaries and the negatively impacted sectors of the economy. In this changing and challenging environment, we expect that the capital markets will remain volatile for some time. The pandemic may be behind us, but the impact on global supply chains continues along with the rising geopolitical tensions between autocratic and democratic nations.

We believe that this trend will continue to favour value as interest rates are unlikely to pull back anytime soon. A recession remains a real possibility, the duration and severity of which is hard to predict.

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TOP PIKCS:

Alimentation Couche-Tard (ATD TSX)

Owned by clients, past purchase September 2021, at $49.96

Couche-Tard is the largest convenience store operator in North America with over 7,500 company-operated stores. ATD operates over 2,000 stores in Europe. In addition, the company is a leader in convenience stores and fuel centres in Scandinavia and the Baltic states with a growing presence in Poland. The recent acquisition of 2,193 retail sites from TotalEnergies adds to their geographic footprint in Germany (1,195), Belgium (566), Netherlands (387) and Luxembourge (45). Synergies will enhance earnings over the next few years as the integration proceeds. In the last few days ATD has acquired an additional 112 fuel and retail locations in the U.S. from MAPCO Express Inc. ATD maintains a strong balance sheet which can finance further expansion. The stock price is attractive at current levels.

Aecon Group (ARE TSX)

Owned personally and by clients, last purchase October 2022 at $10.45

Aecon is a leading construction and infrastructure company. With the recent sales of a 49.9 per cent minority stake in the Bermuda International Airport concession for US$128.5 million and the sale of the Ontario road-building business for $235 million, ARE is in a much stronger financial position. The four remaining problem fixed-price contracts should be substantially completed by next year. Aecon is now in a position to concentrate on more lucrative contracts in a robust bidding environment. At current levels, the stock is yielding near 5.9 per cent.

CVS Health (CVS NYSE)

Owned by clients, last purchase October 2022 at $98.12

CVS is the largest healthcare company in the U.S. by revenue. Over the years, CVS has transformed itself from a pharmacy chain to an integrated provider of health services and benefits. The company intends to be a leader in transforming healthcare services and customer experience through the vertical integration of benefits management, primary and home care delivery and pharmacy services. The recent US$9.5 billion acquisition of Oak Street Health Inc. will add to CVS's healthcare delivery model. However, the stock has reacted negatively in the near term as investors perceive this may take some time to improve profitability in this sector. Brian Kane, the former CFO of Humera has been hired as president of Aetna where his experience with Medicare Advantage will add to CVS's expertise. The pullback in the stock price represents an opportunity for long-term investors as the stock now trades close to 52-week lows and yields 3.4 per cent.

PAST PICKS: April 27, 2022

Citigroup (C NYSE) 

• Then: $49.60
• Now: $46.08
• Return: -7%
• Total Return: -2%

Hudbay Minerals (HBM TSX)

• Then: $8.05
• Now: $6.69
• Return: -17%
• Total Return: -17%

Ag Growth International (AFN TSX)

• Then: $38.86
• Now: $58.34
• Return: 50%
• Total Return: 52%

Total Return Average: 11%