Stan Wong, portfolio manager at Scotia Wealth Management

FOCUS: North American Large Caps and ETFs


MARKET OUTLOOK:

Global equities are off to a solid start for 2024 and have now rallied for nearly 15 consecutive weeks. Overall, our team at The Stan Wong Group maintains a constructive stance on equity markets for the year ahead, notwithstanding the possibility of a near-term air pocket due to some overbought technical conditions. Market breadth has notably improved since the October 2022 lows, with more than 65 per cent of constituents in both the S&P 500 Index and MSCI World Index now trading above their respective 200-day moving averages. Additionally, market participation has broadened, with sectors beyond technology and communications seeing upward momentum.

From a seasonality perspective, historical data suggests optimism for equities in election years under a first-term U.S. president. Since 1950, the S&P 500 Index has averaged a 12.2 per cent return during such years, with no instances of negative returns. We also note that the second year of a bull market for the S&P 500 Index has consistently delivered positive results, boasting an average return of 13.5 per cent over 15 observations since 1950. The widely observed “January barometer” also points to a promising outlook. Historical data reveals that after a positive January performance, the S&P 500 Index has achieved an average return of 16.8 per cent for the full year, a trend observed since 1950.

From a macroeconomic viewpoint, inflation is moderating, with year-over-year inflation in the U.S. now at 3.1 per cent, significantly lower than the 9.1 per cent peak observed in 2022. Interest rates have stabilized, with potential downward revisions by mid-year, as indicated by futures markets projecting multiple rate cuts in Canada and the U.S. Such accommodative monetary conditions have historically provided a favourable backdrop for both equities and bonds. Additionally, the U.S. recently reported a 3.3 per cent annual gross domestic product (GDP) growth rate for the fourth quarter, alleviating concerns of a potential recession. Lastly, the U.S. labour market remains robust, with the unemployment rate holding steady at just 3.7 per cent.

Within Stan Wong Managed Portfolios, our steadfast focus remains on identifying high-quality, secular growth companies to bolster our portfolio mandates. Sectors such as health care, consumer discretionary, and financials, along with technology companies demonstrating reasonable valuations, are favoured. Geographically, our equity allocation comprises approximately 55 per cent in U.S. equities, 30 per cent in Canadian equities, and 15 per cent in international equities. Within our fixed income allocation, we favour government and investment-grade corporate bonds with both short and medium durations. Overall, our strategic allocation is constructed to enhance returns while prudently managing risk for clients.

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TOP PICKS:

Stan Wong’s Top Picks

Stan Wong, portfolio manager at Scotia Wealth Management, discusses his top picks: ASML HOLDING N.V., CARDINAL HEALTH, and DOLLARAMA.

ASML HOLDING N.V. (ASML NASD)

Founded in 1984 and headquartered in the Netherlands, ASML is a global leader in designing and manufacturing cutting-edge semiconductor manufacturing equipment, specializing in lithography systems for advanced semiconductor chip production. ASML plays a crucial role in chip manufacturing for various applications, including artificial intelligence (AI), 5G, and automotive technology. Major semiconductor chip manufacturers, including Intel, Samsung, and Taiwan Semiconductor, rely on ASML's products. Longer-term, the company stands to benefit significantly from the growth of AI due to the increased demand for advanced semiconductor chips required to power AI applications. As AI technology continues to advance, the demand for more powerful, energy-efficient, and specialized chips will increase, driving the need for ASML's lithography systems. This heightened demand is expected to translate into strong revenue expansion and earnings growth for the company. Last month, management reported quarterly earnings and revenue that beat analyst expectations. ASML is forecasted to achieve an annual earnings growth rate of more than 17 per cent over the next several years. The company reports its next quarterly results on April 17.

CARDINAL HEALTH (CAH NYSE)

Cardinal Health is a healthcare services company engaged in the distribution of pharmaceuticals and medical products to healthcare providers such as hospitals, pharmacies and clinics. With nearly US$227 billion in forecasted 2024 fiscal year revenue, Cardinal Health’s largest customers include CVS and UnitedHealth Group. Cardinal Health effectively operates in a triopoly industry, sharing market share with McKesson (a name we also own) and Cencora, giving it significant leverage in supply negotiations and predictable cash flow. Along with McKesson and Cencora, the three comprise more than 90 per cent of the U.S. pharmaceutical wholesale industry. Longer-term, an aging population should result in greater spending volumes for prescription drugs. Today, nearly 60 per cent of all Americans regularly use at least one prescription drug and about 30 per cent use two or more. These figures are expected to rise, particularly given the fast-growing demand for diabetes and weight-loss treatment drugs. From a technical perspective, CAH shares been steadily trending higher, trading above ascending 200-day and 200-week moving averages. Cardinal Health is forecasted to achieve an annual earnings growth rate of over 15 per cent over the next several years. The Company reports its next quarterly results on May 3rd.

DOLLARAMA (DOL TSX)

With projected fiscal 2024 revenue of $5.8 billion, Dollarama is Canada’s largest operator of discount retail stores with over 1,400 locations. We like Dollarama for its resilient business model and the growing consumer demand for value-priced goods. Over the years, the Company has exhibited operational efficiency and strong financial performance, including steady revenue growth and healthy operating margins. Last summer, Dollarama announced a share repurchase program for more than 13.6 million shares, demonstrating management’s commitment to shareholder value creation. The company has grown their revenue at a rate of nearly 10 per cent over the past five years and aims to expand its store count to 2,000 locations. Dollarama is forecasted to achieve an earnings growth rate of more than 17 per cent over the next several years. From a technical standpoint, DOL shares have been steadily rising in an ascending pattern, with higher highs and higher lows. The company reports its next quarterly results on April 1..

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
ASML NASD Y Y Y
CAH NYSE Y Y Y
DOL TSX Y Y Y

PAST PICKS JANUARY 12, 2023

Stan Wong’s Past Picks

Stan Wong, portfolio manager at Scotia Wealth Management, discusses his past picks: ISHARES GLOBAL FINANCIALS ETF, LVMH MOET HENNESSY LOUIS VUITTON, and VISA.

 ISHARES GLOBAL FINANCIALS ETF (IXG NYSEARCA)

Then: US$74.70
Now: US$80.72
Return: 8%
Total Return: 11%

LVMH MOET HENNESSY LOUIS VUITTON (LVMUY OTC)

Then: US$168.44
Now: US$175.45
Return: 4%
Total Return: 6%

VISA (V NYSE)

Then: US$223.62
Now: US$279.30
Return: 25%
Total Return: 26%

Total Return Average: 14%

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
IXG NYSEARCA Y Y Y
LVMUY OTC Y Y Y
V NYSE Y Y Y