Stan Wong, portfolio manager at Scotia Wealth Management
FOCUS: North American large caps, ETFs
Top Picks: ELI LILLY & CO, DOLLARAMA, ALPHABET
MARKET OUTLOOK:
Global equities have encountered heightened volatility this month, consistent with historical trends that mark the month of September as challenging for markets. Over the past decade, the S&P 500 Index has seen an average decline of 2.3 per cent during September, posting negative performance in seven out of the last ten years, making it the worst-performing month for equities. Amid these fluctuations, investors are closely monitoring upcoming U.S. elections, economic data, and potential changes in U.S. Federal Reserve policy, which could shape market movements in the near future.
With monetary easing on the horizon in the U.S., the current market volatility presents a favourable opportunity for prudent investors. Historically, equities tend to perform well in the year following the first rate cut of a cycle, provided that a recession does not occur. From our perspective, a soft landing for the U.S. economy seems the most likely outcome. In addition, U.S. money market assets have reached a record high of approximately US$6.3 trillion, providing substantial liquidity that could improve market sentiment and support ongoing investment in equities.
At The Stan Wong Managed Group, our strategy remains centred on identifying high-quality, secular growth companies to enhance our portfolio mandates. We favour such sectors as health care, consumer discretionary, financials, and technology. We prefer companies with strong competitive positions, reliable earnings streams, and reasonable valuations. Our strategic and tactical allocation seeks to enhance returns while carefully managing risk for our clients. A well-diversified portfolio is key to managing risk with a view toward maximizing returns, and a comprehensive financial plan is essential for navigating market volatility effectively.
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TOP PICKS:
With over US$323 billion in projected fiscal 2024 revenue, Alphabet, the parent company of Google, is the world’s unrivalled global leader in search and digital advertising. With search, Alphabet commands over 90 per cent of the global market share and thereby generates substantial cash flow from digital advertising, which in turn represents over 75 per cent of overall revenue. Google Cloud continues to grow rapidly along with YouTube. Hardware sales (Chromebooks, Pixel smartphones, and smart home devices) contribute to diversifying revenue streams. Among the major technology giants, Alphabet offers one of the more attractive values with the shares trading at a 1.2 times price/earnings to growth (PEG) ratio. GOOGL is forecasted to achieve an average annual earnings growth rate of more than 15 per cent over the next several years. The company reports its next quarterly results on Oct. 24.
Dollarama is Canada’s largest discount retail store operator, boasting over 1,500 locations and projected fiscal 2025 revenue of $6.4 billion. Over the years, Dollarama has demonstrated consistent revenue growth and profitability, supported by its strategic expansion into new locations and product offerings. Its business model has proven resilient through all economic conditions. The company’s focus on offering a broad range of quality, low-priced merchandise resonates well with cost-conscious consumers, especially during uncertain economic environments. This has led to increased foot traffic and higher sales volumes. Dollarama aims to expand to 2,000 stores by 2031. DOL is forecasted to achieve an average annual earnings growth rate of more than 15 per cent over the next several years and reports its next quarterly results on Nov. 28.
With over US$46 billion in projected fiscal 2024 revenue, Eli Lilly is a leading pharmaceutical company that develops diabetes, obesity, oncology, immunology and neuroscience medicines. Eli Lilly is well-positioned for strong growth, driven by its promising pipeline of new drugs and leadership in the rapidly expanding diabetes and obesity treatment markets. Gross and operating margins remain remarkably strong, both above 30 per cent, indicating a high level of profitability. Longer-term, global demographic trends, including an aging population and rising obesity rates, provide a favourable long-term demand outlook for LLY’s products. Over the coming years, LLY is poised to deliver extraordinary earnings growth in the coming years, with forecasts indicating an average annual growth rate of about 30 per cent from 2025 onwards. The company reports its next quarterly results on Oct. 30.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GOOGL NASD | Y | Y | Y |
| DOL TSX | Y | Y | Y |
| LLY NYSE | Y | Y | Y |
PAST PICKS: SEPTEMBER 14, 2023
AMAZON.COM (AMZN NASD)
- Then: US$144.72
- Now:US$183.74
- Return:27%
- Total Return: 27%
FORTINET (FTNT NASD)
- Then: US$63.10
- Now:US$76.24
- Return:21%
- Total Return: 21%
PEPSICO (PEP NASD)
- Then: US$181.23
- Now: US$174.23
- Return:-4%
- Total Return: -1%
Total Return Average: 16%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AMZN NASD | Y | Y | Y |
| FTNT NASD | Y | N | N |
| PEP NASD | Y | Y | Y |