Stan Wong is vice-president and portfolio manager at Macquarie Private Wealth. His focus is on North American large caps and ETFs.
Louisiana-Pacific is one of North America’s largest producers of oriented strand board (OSB) wooden panels used in building houses. The company also manufactures wood siding and engineered wood products. Several recent data points have signalled a recovery in the U.S. housing market: Housing starts and building permits are up significantly, new and existing home sales are up, prices are climbing and inventory is declining. The U.S. housing recovery should translate into significantly stronger earnings and cash flow for Louisiana-Pacific.
Wal-Mart Stores Inc.
Wal-Mart is the world’s largest retailer, operating a chain of more than 10,000 discount department stores, wholesale clubs, supermarkets and super centres. Internationally, Wal-Mart operates in several countries including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom. Wal-Mart is a dominant player in many of these markets; more than 100 million people walk into a Wal-Mart store every week. With 30 per cent of its revenues coming from international markets, Wal-Mart is also poised to benefit from faster growing economies outside North America. Wal-Mart shares are compelling given its predictable earnings stream, growing dividend stream and expected 10-per-cent long-term annual earnings growth rate.
Starbucks is the world’s leading coffee retailer, with 18,000 locations in 60 countries. Starbucks has clearly shifted back to a growth mode with global opportunities in its core retail business but also with a multi-channel distribution plan taking form for its Via ready-brew packs, K-cups and packaged coffee. The pace of the U.S. economic recovery has picked up recently and should boost consumer spending on small discretionary items such as Starbucks products. Additionally, Starbucks should benefit in the long term from significant growth opportunities in international markets, particularly China and India. Starbuck shares are compelling given its strong global brand and expected 15-20 per cent long-term annual earnings growth rate.
Past picks: April 19, 2012
Total return: +36.78 per cent
Total return: +45.33 per cent
Total return: +18.85 per cent
Total return average: 33.65%
While stocks appear somewhat overbought in the near-term, improving economic data from the U.S. should continue to provide a solid foundation for US equities to push higher over the balance of the year. Housing, manufacturing, consumer and labour data in the U.S. continues to improve and has demonstrated impressive resilience despite increased taxes, higher gasoline prices and government spending cuts. In our portfolios, we maintain our preference for U.S. equities over Canadian in the expectation that the S&P 500 will continue to outpace the S&P/TSX for the foreseeable future. As well, we are overweight large-caps over mid- to small-caps and cyclical sectors over defensive sectors.
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