Stan Wong, director and portfolio manager at Scotia Wealth Management 
FOCUS: North American large caps and ETFs

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MARKET OUTLOOK

Global equity markets appear extended:

  1. In overbought territory, when looking at the relative strength index (RSI) – an important technical momentum indicator
    • According to the CNNMoney Fear & Greed Index, which looks at seven different measures of market sentiment, investor attitude is now signalling an ‘extreme greed’ reading
    • The American Association of Individual Investors (AAII) Investor Sentiment Survey, which offers insight into the mood of individual investors, is currently indicating that over 45 per cent of individual investors are feeling bullish about equity markets (well above the historical average of 38.5 per cent)
    • From a contrarian viewpoint, these several readings indicate that a healthy pause or pullback in the near-term for equity markets is likely
  2. Beyond any near-term pauses, the fundamental backdrop for global equity markets remains supportive, with strengthening economic data in almost all corners of the globe and corporate earnings accelerating. As such, we expect to see equity outperformance relative to fixed income in the year ahead
  3. However, we do anticipate more risks and volatility ahead, as investors navigate rising bond yields, higher inflation, global trade tensions and geopolitical risks. In our view, taking advantage of any temporary sell offs and ‘buying the dips’ would remain a prudent strategy
  4. In Stan Wong managed portfolios, we are overweight in the financials, technology and consumer discretionary sectors, while underweight defensive areas such as utilities and consumer staples
  5. We also favour high-quality stocks and expect dividend growers to outperform dividend payers. While growth stocks have largely outperformed value stocks since 2007, we expect value stocks to eventually outpace growth stocks as interest rates drift higher
  6. We continue to add to international and emerging market equities as we expect these positions to generally outperform North American equity markets based on relative valuation indicators and economic growth expectations

TOP PICKS

Stan Wong's Top Picks

Stan Wong, director and portfolio manager at Scotia Wealth Management, discusses his top picks: Applied Materials, Rogers Communications and Samsonite International S.A.

APPLIED MATERIALS (AMAT.O)  
Applied Materials is the world’s largest provider of manufacturing equipment, services and software to the global semiconductor industry. Beyond semiconductors, Applied Materials is a leading supplier of manufacturing tools for flat-panel displays, including liquid crystal displays (LCDs) and organic light-emitting diodes (OLEDs), along with solar energy devices. The company’s customers include Samsung Electronics, Taiwan Semiconductor and Intel. As the PC and Internet era matures, Applied Materials stands to benefit in the tremendous growth of mobile and social media usage, along with the expected exponential growth of artificial intelligence and big data. AMAT’s valuation is compelling with the shares trading at a forward price/earnings multiple of 14x and an estimated long-term earnings per share (EPS) annual growth rate of over 15 per cent. Last bought in December 2017 at ~US$50.

ROGERS COMMUNICATIONS (RCIb.TO
Rogers Communications is the largest wireless carrier in Canada, with nearly 10 million subscribers. It also owns an extensive cable network, passing over four million homes in Ontario and the Atlantic region, and has five million total customer connections for Internet access, TV, and phone services. Its media subsidiary owns the Sportsnet TV network, which holds exclusive broadcasting rights to the NHL and Toronto Blue Jays games. In 2014, Rogers pivoted its wireless strategy to focus on retaining only its most profitable customers, boosting growth in sales, average revenue per account and subscribers. Near-term, potential catalysts for Rogers’ shares include possible sales of its stake in Cogeco or the Toronto Blue Jays franchise. Recent weakness in its share price provides an attractive buying opportunity. Today, Rogers Communications trades at 9x EV/EBITDA with a dividend of over three per cent. Last bought in January 2018 at ~C$61.

SAMSONITE INTERNATIONAL S.A. (SMSEY.5)
Samsonite International S.A. is a Hong Kong-based company principally engaged in the design, manufacture and distribution of luggage, business and computer bags, outdoor and casual bags, travel accessories and slim protective cases for personal electronic devices. As the world’s largest luggage maker, Samsonite operates under three brands: the entry-level American Tourister brand, the core Samsonite brand and the upscale Tumi brand, acquired in 2016. It is estimated that the global market for luggage and everyday bags is growing at a steady rate of four to five per cent annually, helped by population growth, longer living and travel becoming more important as a leisure activity. Samsonite aims to further grow its market share through growth in Asia and Europe, e-commerce, smart luggage, and a focus on women’s bags. Samsonite shares trade at a forward price/earnings multiple of 24x and an estimated long-term earnings per share (EPS) annual growth rate of 13/14 per cent. The shares also pay a 1.5 per cent dividend yield. Last bought this month at ~US$22.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
AMAT Y Y Y
RCIb Y Y Y
SMSEY Y Y Y

PAST PICKS: JANUARY 13, 2017

Stan Wong's Past Picks

Stan Wong, director and portfolio manager at Scotia Wealth Management, discusses his past picks: Metlife, United Technologies and the Vanguard Global Value Factor ETF.

METLIFE (MET.N)

  • Then: $48.39
  • Now: $54.00
  • Return: 11.57%
  • Total return: 15.29%

UNITED TECHNOLOGIES (UTX.N)

  • Then: $110.22
  • Now: $137.75
  • Return: 24.97%
  • Total return: 27.91%

VANGUARD GLOBAL VALUE FACTOR ETF (VVL.TO)

  • Then: $30.66
  • Now: $35.41
  • Return: 15.49%
  • Total return: 20.85%

TOTAL RETURN AVERAGE: 21.35%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
MET Y Y Y
UTX Y Y Y
VVL Y Y Y

TWITTER: @StanWongWealth
WEBSITE: www.stanwong.com