Stan Wong, portfolio manager, Scotia Wealth Management

FOCUS: North American large cap stocks and ETFs

MARKET OUTLOOK:

After a strong October, global equity markets have continued to advance in November. Solid economic data and healthy corporate earnings have helped push market sentiment and stocks higher. Positive seasonality trends have also helped equities. Looking at the S&P 500 Index, the fourth quarter has historically produced the strongest average quarterly returns for stocks with the highest positivity rate.

However, COVID-19 trends in the U.S. and parts of Europe have taken a negative turn with cases and hospitalizations rising, causing investor concern over the potential for more economic restrictions and lockdowns. Persistent supply chain constraints and inflation pressures could also add to renewed bouts of market volatility. Input and end prices have climbed around the world, with commodity prices surging and U.S. inflation numbers hitting 13-year highs. In addition, concerns over the timing and magnitude of interest rate hikes and the tapering of asset purchases by the Federal Reserve Bank could keep equities in check.

From an intermediate term perspective, the macroeconomic landscape continues to look favourable – enormous fiscal stimulus, low interest rates and high household savings rates provide a positive backdrop for the global economy. Arguably, the worst of the pandemic is behind us with vaccinations progressing around the world and being extended to children in many countries. To date, a total of more than 7.76 billion doses of coronavirus vaccines have been administered worldwide across 184 countries. In addition, highly anticipated antiviral pill treatments from Pfizer and Merck should help the fight against COVID-19.

In Stan Wong Managed Portfolios, we continue to seek strong secular growth companies with high-quality attributes trading at reasonable valuations. We prefer cyclical over defensive equities and remain focused on an active stock, industry and sector selection strategy. From a geographic perspective, we like U.S. equity markets for its breadth and depth of high-quality names. We also like Europe given its relative valuation discount, broadening economic activity and recent pickup in investor inflows. In Canada, financial and energy stocks continue to look attractive. Aside from precious metals, we expect most commodity prices to remain firm as the global economy continues to expand. In our fixed income allocation, we are underweight government bonds in favour of inflation-protected bonds and short-duration corporate bonds.

TOP PICKS:

Booking Holdings (BKNG NASD) Last bought at $2,300

Booking Holdings is the world’s largest online travel agency by revenue, 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 COVID-19 vaccinations and booster shots accelerating worldwide and highly effective antiviral pills coming, the tremendous pent-up consumer demand for travel could boost Booking’s revenues beyond pre-pandemic levels. Indeed, BKNG’s forecasted revenue for 2022 is expected to come in at US$15.7 billion, surpassing 2019’s revenues. With renewed restrictions in Europe, BKNG shares have fallen 15 per cent this month, providing an opportunity for shrewd investors. Booking Holdings reports its next quarterly results on Feb. 24.  

Ishares Global Healthcare ETF (IXJ NYSE) Last bought at $87

The iShares Global Healthcare ETF provides exposure to a basket of global healthcare stocks including pharmaceutical, biotechnology, managed care and medical device companies. The global healthcare sector generally exhibits strong balance sheets with ample cash, raising the possibility of higher dividend payouts, share buybacks and M&A activity. Near-term, with the worst of the pandemic presumably behind us, we expect to see a meaningful return in demand for elective procedures, drug sales and diagnostics. Longer term, positive demographic trends such as an aging global population and a growing middle class in developing markets further help the sector. Approximately 70 per cent of the IXJ ETF is invested in the United States and the remainder in international markets. Top holdings in the iShares Global Healthcare ETF include Johnson & Johnson, UnitedHealth Group, Pfizer, Roche Holding and Abbott Labs. The IXG ETF pays a current dividend yield of 1.1 per cent.

Suncor (SU TSX) Last bought at $31

Suncor Energy is one of Canada’s largest integrated energy companies, operating in western Canada, east coast Canada, the U.S., and the North Sea. Suncor operates in three business segments: oil sands, exploration and production (E&P), and refining and marketing. The Company’s national retail distribution network falls under the Petro-Canada brand. Broadly speaking, energy prices are expected to remain firm given improving global demand, low inventories and weak capital expenditures and production. Last month, Suncor’s management announced that it would double the Company’s dividend and accelerate plans to repurchase its shares. Suncor pays a very attractive 5.1 per cent dividend yield and reports its next quarterly results on Feb. 9.

PAST PICKS: Nov. 19, 2020

Mastercard (MA NYSE)

• Then: $333.88
• Now: $325.93
• Return: -2%
• Total Return: -2%

NVIDIA (NVDA NASD)

• Then: $134.40
• Now: $311.18
• Return: 131%
• Total Return: 132%

Simon Property Group (SPG NYSE)

• Then: $80.63
• Now: $167.76
• Return: 108%
• Total Return: 115%

Total Return Average: 82%