Stan Wong is vice-president and portfolio manager at Macquarie Private Wealth. His focus is on North American large caps and ETFs.
PulteGroup is the largest home builder in the U.S. and is well-positioned to benefit from the U.S. housing recovery. Several recent data points have signalled a bottom 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. Low mortgage rates, affordable home prices and favourable demographic trends will continue to drive the U.S. housing recovery and earnings outlook for home builders such as PulteGroup.
Near-term, Potash Corp. shares are attractively valued given the expected uptrend in earnings as fertilizer prices rise in response to greater global demand. Longer term, earnings should rise on a more secular increase in demand for fertilizers, driven by a combination of population growth and shifting food diets in developing countries. As well, Potash’s strong free cash flow should enable it to expand capacity and continue raising its dividend which currently yields 2 per cent.
Samsung Electronics Co. Ltd.
Samsung Electronics manufactures a wide range of consumer and industrial electronic equipment including semiconductors, televisions, home appliances and smartphones. Samsung’s Galaxy smartphone sales have proven to be stronger than expected and upcoming product launches will continue to provide catalysts to the share price. In 2013, Samsung is forecast to sell 290 million smartphones, up 35 per cent from 2012. Trading at nine times forward price-earnings multiple, Samsung shares are very compelling given its diversified earnings stream and expected 15-20 per cent long-term annual earnings growth rate.
Past picks: Jan. 26, 2012
Cisco Systems Inc.
Total return: +8.29 per cent
Total return: +51.19 per cent
iShares Emerging Market Income ETF
Total return: +8.31 per cent
Total return average: +22.60 per cent
Equities remain attractive relative to historical valuations and the comparative outlook for bonds. Improving economic data from the U.S. and China should provide a solid foundation for equities this year. As well, fears of sovereign debt default and banking failures in the euro zone have dissipated, as evidenced by falling bond yields in key European countries. Additionally, policy makers around the world remain accommodative and inflation risks are not yet significant. Of course, near-term risks to equities include the looming U.S. debt ceiling along with Italy’s upcoming presidential election. In our portfolios, we continue to favour U.S. over Canadian equities in the expectation that the S&P 500 will once again outpace the S&P/TSX this year. Emerging market equities should also gain considerable traction this year and we expect cyclical sectors to top defensive sectors.
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