Full episode: Market Call for Thursday, July 9, 2020
Stan Wong, portfolio manager at Scotia Wealth Management
Focus: North American large caps and ETFs
After a tremendous recovery from the March lows, global equities may be due for a pause or some consolidation as rising COVID-19 cases in the U.S. and elsewhere loom over the prospects of an economic restart. A slower economic reopening would dampen corporate earnings expectations and derail equity markets. In addition, renewed U.S.-China geopolitical tensions and an upcoming U.S. presidential election could weigh on investor sentiment in the coming months. From a technical perspective, most North American and global equity indices are approaching short-term upper resistance levels.
In Stan Wong Managed Portfolios, we continue to favour growth stocks over value stocks. We like companies with high-quality attributes as they offer resilience during times of economic uncertainty. Equities with dividend appreciation characteristics are encouraged over those with high yields but no dividend growth. Looking ahead, we view select healthcare, technology, communication and consumer companies benefiting from structural trends accelerated by the global pandemic. Work-from-home, e-commerce, cloud infrastructure and healthcare innovation are a few of the themes we expect to be in focus in a post-pandemic world. Our portfolios reflect these themes and our clients are well-positioned to benefit from them.
FACEBOOK (FB NASD) - Last purchased in June 2020 at US$207
Facebook is the largest online social network in the world, with over 2.6 billion monthly active users (MAU). Advertising represents more than 95 per cent of the company’s estimated US$77 billion in expected 2020 revenues. Facebook’s large audience provides the most valuable data for social network online advertising. Its ad-revenue-per-user (ARPU) is growing, demonstrating the increasing value that advertisers and marketers see in working with the social media giant. Facebook currently trades at 33 times forecast earnings with a long-term estimated earnings growth rate of about 23 per cent. The company reports its next quarterly results on July 29.
MICROSOFT (MSFT NASD) - Last purchased in March 2020 at US$141
With over US$141 billion in expected revenues for 2020, Microsoft is one of the world’s dominant technology companies. Microsoft’s cloud (Azure) and business productivity (Office, Skype, Teams, LinkedIn) segments are the company’s fastest growing divisions and should thrive in a post-pandemic world. Its revenue growth, gross margins and free cash flow continue to impress. Microsoft has posted 16 consecutive quarters of positive earnings surprises. It currently trades at 36 times forecast earnings with a long-term estimated earnings growth rate of about 15 per cent. The company reports its next quarterly results on July 17.
ISHARES NASDAQ BIOTECHNOLOGY ETF (IBB NASD) - Last purchased this month at US$140
The iShares Nasdaq Biotechnology ETF seeks to track the investment results of a biotechnology and pharmaceutical company index listed on the NASDAQ. The growth rate of the biotechnology industry is expected to accelerate in a post-pandemic world as the need for rapid health care progress intensifies. Amid fears of new viruses, biotechnology spending is expected to rise as the world focuses on health care innovation. Longer-term, an aging global population and growing middle class in developing markets will fuel demand for more extensive drug treatments.
PAST PICKS: July 4, 2019
ISHARES EDGE MSCI MIN VOL USA ETF (USMV NYSE)
- Then: $63.12
- Now: $60.89
- Return: -4%
- Total return: -1%
VANGUARD HEALTH CARE ETF (VHT NYSE)
- Then: $176.97
- Now: $196.63
- Return: 11%
- Total return: 13%
WASTE MANAGEMENT INC (WM NYSE) - Sold last month at ~$106
- Then: $117.21
- Now: $102.22
- Return: -13%
- Total return: -11%
Total return average: 0%