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

MARKET OUTLOOK

With less than two weeks until the U.S. presidential election, North American equity markets have rebounded somewhat this month from September’s 4-5 per cent pullback. While the upcoming November election contest has captured investors’ attention, we do not expect the results to be a primary driver of financial markets beyond the near term. Although U.S. tax, spending and regulatory policies may (or may not) look different following the election, fiscal and monetary policies should continue to be accommodative for the economy for quite some time. Today, the U.S. economy continues to show signs of recovery with housing, manufacturing, labour and retail sales data all indicating positive gains.

Although the S&P 500 is up over 55 per cent from the March lows and up 7 per cent year-to-date, market breadth has been rather lacking with over half of the index’s constituents still in negative territory year-to-date. The technology, consumer discretionary and communication services sectors have been the clear winners this year while the energy, financials and real estate sectors have been severe laggards. Undoubtedly, active sector, industry and stock selection has become more important than ever as the pandemic has hurt some areas of the economy more than others. In some cases, industries and companies have thrived under the global pandemic, with revenue and earnings growth accelerating.

In Stan Wong Managed Portfolios, we continue to favour growth stocks over value stocks. We prefer companies with high-quality attributes (high return on equity, low financial leverage and low earnings variability). Equities with dividend appreciation characteristics are encouraged over those with high yields (and no dividend growth). Looking ahead, we view select technology, communication, healthcare and consumer companies benefiting from structural trends accelerated by the global pandemic. Work-from-home, e-commerce, health sciences, retail consolidation and cloud computing are a few of the themes and trends that we expect to be in focus for many years to come. Our portfolios reflect these important themes and we believe that our clients are well-positioned to benefit from them.

TOP PICKS

Alphabet (GOOGL NASD) last bought in September 2020 at ~US$1,410

Alphabet is a holding company, with internet media giant Google as a wholly-owned subsidiary. Google generates 99 per cent of Alphabet revenue, of which more than 83 per cent is from online ads. The company’s expected 2021 revenues is expected to top a whopping US$170 billion. Google’s other revenues are from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue. Sales of hardware items such as Chromebooks, the Pixel smartphone and smart home products such as Nest and Google Home, also contribute to revenue. As global online users and usage continues to grow, so will digital ad spending, pushing Alphabet’s revenue higher. Android’s dominant global market share of smartphones allows the company to be well-positioned as online traffic continues to shift from desktops to mobile devices. Alphabet’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 October 29.

Lululemon Athletica (LULU NASD) last bought this month at ~US$335

With over US$4 billion in expected 2021 revenues, Lululemon sells its products through e-commerce, outlets, wholesale accounts and almost 500 company-owned stores in 17 countries. In the U.S., Lululemon has the highest sales per square foot of any apparel retailer. Growth of the athleisure wear market is undeniable, particularly with changing consumer habits as a consequence of the global pandemic and work-from-home mandates. International markets, particularly China remains a tremendous opportunity for Lululemon as the country represents the second-largest athletic apparel market in the world. Digital sales growth and further expansion into menswear are also important growth drivers for the company. Over the next few years Lululemon’s earnings growth looks robust, with an 18 to 20 per cent forecasted growth rate. Lululemon reports its next quarterly results on Dec. 11. 

Nvidia (NVDA NASD) last bought in September 2020 at ~US$495

With nearly US$16 billion in expected 2021 revenues, Nvidia is the leading designer of graphics processing units (GPUs) that enhance the experience on computing platforms. Nvidia chips are used in a variety of end markets, including high-end PCs for gaming, data centres and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favourable opportunities, including artificial intelligence (AI) and autonomous driving, furthering its revenue and earnings opportunities. Indeed, revenue growth is expected to top 25 per cent over the next few years while earnings growth around 20 per cent. Nvidia reports its next quarterly results on Nov. 18.

PAST PICKS: OCTOBER 24, 2019

iShares Edge MSCI Min Vol USA ETF (USMV NYSE)

• Then: $63.76
• Now: $64.86
• Return: 2%
• Total Return: 4%

Merck & Co. (MRK NYSE)

• Then: $82.58
• Now: $78.18
• Return: -5%
• Total Return: -2%

Restaurant Brands International (QSR TSX)

• Then: $90.08
• Now: $74.02
• Return: -18%
• Total Return: -15%

Total Return Average: -4%

Twitter: @StanWongWealth