Stan Wong, portfolio manager at Scotia Wealth Management

FOCUS: North American large cap stocks and ETFs

MARKET OUTLOOK:

Global equity markets made new all-time highs again this month amid growing optimism over a vaccine-led worldwide economic restart. Last month, the International Monetary Fund boosted its global economic growth forecast for the second time in three months, upgrading its 2021 global GDP growth estimate to 6.0 per cent (from 5.5 per cent). This would represent the strongest annual global economic expansion since 1980. For 2022, the IMF currently forecasts global GDP to come in at 4.4 per cent.  

Against this backdrop, we view equities as favourable over bonds and prefer cyclical over defensive sectors. We expect commodity prices to continue advancing higher as the global economy reopens. While inflation worries have recently materialized, we view last week’s surge in the U.S. consumer price index as transitory, as supply bottlenecks and pent-up demand collaborate to push prices materially higher. We view this economic restart as different from a typical business cycle recovery where demand slowly catches up to supply. While we maintain a constructive perspective for stocks, risks to our outlook include rising bond yields, unfavourable tax policies and a resurgence of COVID variant cases.

We remain focused on active stock, industry and sector selection as the world economy recovers from the fallout of the pandemic. We expect market leadership to come from economically sensitive sectors such as financials, materials and industrials. In our portfolio mandates, we favour companies with dominant long-term secular growth prospects and high-quality attributes. We have increased exposure to select cyclical equities positioned to benefit from the broad economic upturn. From a geographic perspective, we like U.S. equity markets for its breadth and depth of high-quality names but have broadened equity exposure more internationally to Asia Pacific and European markets.

TOP PICKS:

ALPHABET INC (GOOGL NASD) - last purchased this month at ~US$2,200

Alphabet operates as a holding company, with Internet media giant Google as a wholly owned subsidiary generating 99 per cent of overall revenue (of which more than 85 per cent is from online ads). As online users and usage continues to grow worldwide, so will digital ad spending, pushing Alphabet’s revenue higher. As well, Android’s increasingly dominant market share of smartphones allows the Company to be well-positioned as online traffic continues to shift from desktops to mobile devices. In 2021, Alphabet’s revenue is expected to come in at an astounding US$200 billion. Looking ahead, the Company’s revenue and earnings growth are both expected to top 15 per cent over the next few years. Alphabet reports its next quarterly results on July 30th.

BOOKING HOLDINGS INC (BKNG NASD) - last purchased this month at ~US$2,200

Booking Holdings is the world’s largest online travel agency by sales, offering booking services for hotel and vacation rooms, airline tickets, rental cars, restaurant reservations, cruises and other vacation packages in over 220 countries. The company operates six primary brands – Priceline, Booking.com, Agoda, Rentalcars.com, Kayak and OpenTable. With worldwide vaccinations accelerating, COVID cases declining and tremendous pent-up consumer demand for travel, BKNG’s revenues are expected to not only recover, but perhaps meaningfully surpass pre-pandemic levels over the next few years. Booking Holdings reports its next quarterly results on August 6th.   

MASTERCARD INC (MA NYSE) - last purchased this month at ~US$360

Mastercard is the second largest global payments company in the world. With over US$18 billion in expected revenue for 2021, Mastercard operates in more than 210 countries and processes transactions in over 150 currencies. Near-term, accelerated vaccine rollouts and a quicker than expected return to a more normal economic backdrop should help in the recovery of consumer spending volumes, particularly in the more lucrative travel and cross-border transactions. Longer-term, the secular trend from cash payments to electronic payments provides a long runway for growth. On a global scale, electronic payments surpassed cash payments only a couple of years ago. After falling nine per cent in 2020, annualized revenue growth is expected to climb to 18 per cent over the next few years. Mastercard reports its next quarterly results on July 30th.

PAST PICKS: July 9, 2020

FACEBOOK (FB NASD)

• Then: $255.50
• Now: $306.02
• Return: 25%
• Total Return: 25%

MICROSOFT (MSFT NASD)

• Then: $214.32
• Now: $240.35
• Return: 12%
• Total Return: 13%

ISHARES NASDAQ BIOTECHNOLOGY ETF (IBB NASD) – Sold in February 2021 at US$162

• Then: $140.57
• Now: $148.33
• Return: 5%
• Total Return: 6%

Total Return Average: 15%

Website: www.stanwong.com

Twitter handle: @StanWongWealth.