Michael Sprung, President of Sprung Investment Management, was on BNN’s Market Call Monday with host Michael Hainsworth to talk about Canadian large cap stocks.
Sprung thinks energy is an attractive sector after its recent, prolonged pullback. However, he says, an investors will need a two to four year time horizon in the sector. He believes base metals in particular are attractive because they have been hit hard. The fund manager says he would like to increase his exposure in that space.
Despite Sprung predilection towards energy, a tech stock still earns one of Sprung’s spots as a “Top Pick”. He think CAE (TSX:CAE) has the potential to be a real growth story in the coming years. Sprung says he believes concern over potential cuts to military spending have held the stock back of late, but that the company is very well positioned on the civil side.
The Toronto-based fund manager says there are huge numbers of planes that will need to be replaced in the coming years, and demand for pilots who will need to be trained by CAE will naturally increase. With a 2% yield, Sprung says CAE isn’t for “dividend clippers”, but its potential for growth should make it popular with investors with a slightly more aggressive bent.
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CAE Inc., which was founded in 1947 in Saint-Hubert, Quebec has built its considerable business on the back of flight simulators. The company is the gold standard in the industry, having sold their simulators to over a hundred different airlines. CAE now trains more than 75,000 crew members each year, many at its at 426,000 square foot facility at the Dallas/Fort Worth International Airport, the largest business aviation training facility in the world.
Sprung says that even thought it is miniscule compared to overall revenue, CAE is also now showing the ability to win business in its new healthcare initiatives.
In March of 2010, CAE acquired three medical simulation product lines from Immersion (NASD:IMMR), which it said would form the core offerings of CAE Healthcare’s newly established surgical simulation division. In fiscal 2012, annual revenue from the company’s “New Core Markets” division, which includes its mining and healthcare initiatives, were slightly less than 10% of total revenue, at $83.0-million, but was up 118% from the $38.0-million topline its posted in 2011.
At press time, shares of CAE Inc. on the TSX were up .7% to $10.13.