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

MARKET OUTLOOK

Global equities continue to surge higher from the March lows as investors grow increasingly optimistic over the reopening of the global economy. We believe that the flattening of COVID-19 curves around the world and the seemingly rapid progress in the development of potential vaccines and treatments to combat the virus has also buoyed market sentiment. In addition, signs of improving economic data including last week’s surprise employment numbers in the U.S. and Canada indicate that a lengthy recession has been averted and that we are shifting from rescue to recovery mode.

While all very positive developments, we caution against excessive optimism over stocks as the economic reopening will likely be uneven, particularly if we see a second wave of the coronavirus (as we are witnessing in Latin America). With equities now in overbought territory from a technical level, a near-term pullback or consolidation is very possible. Moreover, simmering U.S.-China tensions and the upcoming U.S. presidential election are potential key risks to consider.

In Stan Wong Managed Portfolios, we like U.S. and Asia Pacific equities geographically. We continue to prefer growth stocks over value stocks. We favour companies with high-quality attributes and strong balance sheets (high return on equity, low financial leverage and steady earnings growth). Looking ahead in a post-pandemic world, we view select healthcare, technology and consumer companies benefiting as the world adjusts to a new normal.

TOP PICKS

AIR CANADA (AC TSX)
Last bought this month at $22.

The travel and leisure industries are beginning to show signs of life as COVID-19 curves flatten and optimism grows over potential vaccines and treatments to combat the virus. Management at Air Canada has reported that they are seeing an improvement in demand for air travel and fewer cancellations along with expectations of a pickup in domestic leisure travel this summer and business travel in the fall. Air Canada’s strong balance sheet relative to its peers makes it well positioned to recover as the economy reopens and travel normalizes. As well, the company’s liquidity of C$10 billion provides sufficient cushion against a potential second wave of COVID-19. Air Canada reports its next quarterly results on July 30.   

COSTSCO WHOLESALE CORP (COST NASD)
Last bought in April at US$304.

With nearly 95 million members around the world and over US$163 billion in expected revenues for 2020, Costco is a dominant name in the mass merchant space. Membership renewal rates have remained very strong at almost 90 per cent. Customer loyalty has been fueled by its strategy of procuring high quality merchandise at exceptionally reasonable prices. In addition, Costco’s private-label offering, Kirkland Signature, continues to perform robustly. In a post-pandemic world, we will likely see a greater consolidation of retailers allowing heavyweight merchants such as Costco to capture even more market share. Costco reports its next quarterly results on Sep. 24.   

NASDAQ INC (NDAQ NASD)
Last bought in April at US$107

With over US$2.8 billion in expected revenues for 2020 and offices in 25 countries, Nasdaq is primarily known for its equity exchange which houses such technology giants as Alphabet, Apple, Facebook, Microsoft and Netflix. However, in addition to its market services (exchange) segment, the Nasdaq’s other business segments include information services, corporate services and market technology. Long-term, Nasdaq Inc is well-positioned to benefit as technology and leading-edge, disruptive themes increasingly become more important in the world. Over the past 10 years, it has returned an impressive 23 per cent annualized return while comparatively the Nasdaq Composite Index has returned 18 per cent. The company trades at 22 times forecast earnings with a long-term estimated earnings growth rate of about 12 per cent. The shares also yield a modest 1.6 per cent dividend. Nasdaq reports its next quarterly results on July 24.   

PAST PICKS: MAY 22, 2019

DOLLAR GENERAL CORP (DG NYSE)

• Then: $122.05
• Now: $185.60
• Return: 52%
• Total return: 53%

VERIZON COMMUNICATIONS (VZ NYSE)

• Then: $59.25
• Now: $57.75
• Return: -2%
• Total return: 2%

VANGUARD HEALTH CARE ETF (VHT NYSE)

• Then: $168.18
• Now: $197.56
• Return: 17%
• Total return: 19%

Total return average: 25%