Michael Sprung, president of Sprung Investment Management, shares his outlook on Canadian Large Cap Stocks.

Michael Sprung, President, Sprung Investment Management

Focus: Canadian large cap stocks

Top picks: Canadian National Railway, Aecon Group, Hammond Power Solutions

MARKET OUTLOOK:

Any initial trepidation that market participants had at the onset of the Trump tariff regime has dissipated as investors’ exuberance continues to drive stock prices higher.

Overall, the markets appear to be very expensive at this juncture as a number of technology related companies and so-called “meme” stocks carry valuations far in excess of fundamental valuations.

In many ways, it is reminiscent of the late 1990’s when day trading was in vogue and prices reflected more of a gambling profile than an investment mindset. We would suggest that this is a time for caution and investors should be positioning portfolios to reflect more of a defensive posture.

In light of the frayed international relationships that the United States tariffs has precipitated, countries seek to hammer out new trading relationships and supply chains. This process will take years to evolve. Meanwhile, debt is becoming more of a concern as many countries attempt to sustain huge social benefits with growing annual deficits.

In this environment, value stocks are more likely to provide downside protection.

Companies with strong fundamentals will better withstand any calamities ahead.

TOP PICKS:

Michael Sprung’s Top Picks: Canadian National Railway, Aecon Group & Hammond Power Solutions Michael Sprung, president of Sprung Investment Management, shares his top stock picks to watch in the market.

Canadian National Railway (CNR TSX)

The railroads are a mirror on the state of the economy. This year, the enthusiasm for the Canadian rail stocks has been constrained by the tariff and trade tensions as well as concerns over commodity shipments and a slowing economy.

It is in periods like this that valuations of rail stocks become more attractive for long-term investors. At this juncture, CNR’s stock is selling at around book value with a price-to-earnings (P/E) at 18 times and a yield of 2.7 per cent which is quite attractive.

Aecon Group (ARE TSX)

Aecon’s results should continue to improve as the legacy projects mature. The Company finished the latest quarter with a record backlog of $10.7 billion. Seventy-six per cent of Aecon’s contracts are now cost=plus.

There are five collaborative projects on the horizon that Aecon will participate in, if successful that will add to that backlog. At current prices, the stock is selling at around 1.4 times the book value and carrying a 3.7 per cent dividend yield.

The trailing P/E is high due to continuing losses in some of the legacy projects, but the forward P/E is estimated around 16 times.

Hammond Power Solutions (HPS.A TSX)

The demand for electricity is rapidly increasing as public policy attempts to lower the demand for fossil fuels while at the same time technology demand in server farms, cloud services, artificial intelligence and power-hungry computer chips explodes.

Whether or not this demand can be met in its entirety, Hammond is a key player in the manufacture of dry transformers which will be sorely needed to transmit this growing capacity.

Hammond pays a modest dividend that currently yields 0.9 per cent but the P/E is projected to diminish from the 20 times range to 15 times over the next two years.

DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDCNR TSXYNYARE TSXYNYHPS.A TSXYNY

PAST PICKS: OCTOBER 4, 2024

Michael Sprung’s Past Picks: Linamar, Whitecap Resources & Alaris Equity Partners Michael Sprung, president of Sprung Investment Management, discusses his past stock picks and how they’re doing in the market today.

Linamar (LNR TSX)

Then: $64.66

Now: $76.96

Return: 19%

Total Return: 21%

Whitecap Resources (WCP TSX)

Then: $10.92

Now: $11.12

Return: 2%

Total Return: 8%

Alaris Equity Partners (AD.UN TSX)

Then: $18.22

Now: $19.35

Return: 6%

Total Return: 12%

Total Return Average: 14%

DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDLNR TSXYNYWCP TSXYNYAD.UN TSXYNY