Stan Wong
Stan Wong is director and portfolio manager at Scotia Wealth Management. His focus is North American large caps and ETFs.
Top Picks:
AbbVie Inc. (ABBV-N)
Last bought: June 2016 at US$61
AbbVie is a global research-based pharmaceuticals business that emerged as a separate entity following the spin-off from Abbott Laboratories in 2013. The company boasts an impressive pipeline with over 20 new products or indications through 2020. The shares are attractively valued, trading at a forward price-earnings multiple of only 12 times with an estimated long-term earnings per share (EPS) compound annual growth rate (CAGR) of over 13 per cent. ABBV shares currently pay a 3.7-per-cent dividend yield which is expected to grow solidly over the next few years.
Microsoft (MSFT-Q)
Last bought: May 2016 at US$49
The world's largest software company is transforming itself to be more relevant in a technology world that prioritizes cloud computing and mobile technology. Microsoft's bid to acquire LinkedIn allows the company to expand it presence in cloud applications. While the $26-billion (U.S.) acquisition cost for LinkedIn appears expensive, LinkedIn is undoubtedly a unique and difficult-to-replicate asset with over 433 million members worldwide. Microsoft shares currently trade at a forward price-earnings multiple of about 18 times and pay a 2.8-per-cent dividend yield. Over the last five years, MSFT has delivered an annual dividend growth rate of over 17 per cent.
Pembina Pipeline (PPL-T)
Last bought: April 2016 at C$35
Pembina Pipeline provides transportation and midstream services for the North American energy industry. Pembina Pipeline has likely the strongest position and competitive advantages in the Alberta midstream business. The shares provide investors with a conservative strategy to participate in the recovery of energy prices. Pembina Pipeline shares currently pay a 4.9-per-cent dividend yield which is expected to grow modestly over the next few years.
Past Picks: June 25, 2015
Apple (AAPL-Q)
Then: $127.50 Now: $96.10 -24.63% TR: -23.08%
CVS Health (CVS-N)
Then: $105.01 Now: $94.02 -10.47% TR: -9.10%
Walt Disney Co (DIS-N)
Then: $114.45 Now: $99.02 -13.48% TR: -12.43%
Total Return Average: -14.87%
Market outlook:
Valuations for North American equity markets continue to appear somewhat extended. The S&P 500 index currently trades at a multiple of 18 times forward price-earnings while the S&P/TSX composite index trades at a multiple of 19 times forward price-earnings. The historical 10-year average forward price-earnings multiple for both North American indexes is closer to about 14 times. While exceptionally low interest rates continue to act as a safety net for equities, an improvement in corporate earnings growth remains the key variable for equity markets to move meaningfully higher.
In the meantime, the 2,115 level (an area of overhead supply) represents upside resistance for the S&P 500 index while the S&P/TSX composite has remarkably pushed higher this year on the back of its resource sectors. Near-term market anxieties include a sluggish corporate earnings picture, weak global economic growth, geopolitical tensions, an uneasy U.S. political backdrop and of course, the timing of Federal Reserve interest rate hikes. Given this setting, North American equity markets will likely remain rather bumpy and range bound in the coming months ahead.
In Stan Wong Managed Portfolios, we prefer large-cap, high quality North American companies with strong balance sheets, reliable earnings streams, growing dividends and lower beta attributes. As we move into the late cycle phase of the economy and stock market, we continue to believe that today's market environment requires active portfolio management with tactical stock selection and defensive risk controls including stop loss strategies.