MARKET OUTLOOK:
After slumping in September, North American equity markets have rebounded sharply in October. Declining COVID-19 cases, robust economic data and solid corporate earnings have helped push market sentiment and stocks higher. Positive seasonality trends have also helped equities. 

Historically, the fourth quarter on average has produced the strongest quarterly returns for stocks with the highest positivity rate. Of course, worries about supply chain constraints and inflation pressures could cause 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 U.S. 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. 

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 restart 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:

Facebook (FB NASD)
Last bought in October 2021 at $320.00
Facebook is the world’s largest online social network, with roughly 2.9 billion monthly active users and over US$119 billion in expected revenues for 2021. Advertising revenue represents more than 90 per cent of the firm’s total revenue, with 45 per cent coming from the U.S. and Canada, 24 per cent coming from Europe and 23 per cent coming Asia Pacific. 

Recent negative headlines had caused the stock to fall over 15 per cent, creating yet another buying opportunity for investors. The company’s ad revenue per user continues to climb, demonstrating the value that digital advertisers see in working with Facebook’s platforms. 

FB’s valuation looks compelling, trading at a 24x forward price-earnings multiple with a 25 per cent forecasted earnings growth rate. Since going public in 2012, Facebook has reported only one quarter in which it missed analyst earnings expectations. FB reports its next quarterly results on October 25th.  

Merck & Co (MRK NYSE)
Last bought in September 2021 at $72.00
With over US$48 billion in expected revenues for 2021 and its products marketed in over 140 countries, Merck is one of the world’s largest health care companies. It has operations in pharmaceutical, animal health, and consumer care. 

The company’s core products include treatments for cancer, diabetes and HPV. Over the near-term, strong global demand for Merck’s oral antiviral pill (molnupiravr) to combat COVID-19 will surely generate strong additional revenue and cash flow. 

Longer-term, Merck will benefit from positive demographic trends such as an aging global population and a growing middle class in the developing markets. MRK’s valuation currently trades at a 13x forward price-earnings multiple with a 12 per cent forecasted earnings growth rate. MRK also pays a strong 3.2 per cent dividend yield. The company reports its next quarterly results on October 28th.    

iShares Global Financials ETF (IXG NYSE) 
Last bought in September 2021 at $76.00
The iShares Global Financials ETF provides exposure to a basket of global financial companies including diversified banks, investment banks, asset managers and insurers. With the global economy on the mend, loan losses declining and interest rates on the rise, global financials should continue to benefit from these tailwinds. 
Valuations continue to look attractive for financials from a historical perspective with this ETF portfolio trading at a price-to-book ratio of approximately 1.3x. 

As well, central banks appear ready to lift capital distribution curbs on banks allowing them to increase share buybacks and dividend payouts. Approximately 50 per cent of the IXG ETF is invested in the United States and the remainder in international markets. 

Top holdings in the iShares Global Financials ETF include Berkshire Hathaway, JPMorgan Chase, Bank of America, Morgan Stanley and HSBC. The IXG ETF pays a current dividend yield of 2.5 per cent.

PAST PICKS: October 21, 2020

Alphabet (GOOGL NASD)

• Then: $1,585.99
• Now: $2,823.31
• Return: 78%
• Total Return: 78%

Lululemon Athletica (LULU NASD) 

• Then: $325.50
• Now: $418.69
• Return: 29%
• Total Return: 29%

Nvidia (NVDA NASD) 

• Then: $135.24
• Now: $221.96
• Return: 64%
• Total Return: 64%

Total Return Average: 57%