Stan Wong
Stan Wong is director and portfolio manager at Scotia Wealth Management. His focus is North American large caps and ETFs.
Top Picks:
Loblaw (L.TO)
Added to position this month at approximately $66
Loblaw Companies Ltd. (Loblaw) is Canada's largest food and pharmacy retailer. As a classical consumer staples stock, Loblaw provides investors with steady and predictable growth along with a modest but growing dividend. The acquisition of Shoppers Drug Mart provides the grocery giant with not only cost and revenue synergies, but also exposure to the higher margin profile of the drug retail business. Further diversification is enjoyed with President's Choice Financial (a joint venture with CIBC), Joe Fresh apparel stores and majority ownership of Choice Properties REIT. Loblaw currently trades at a forward price-earnings multiple of 19x with an expected long-term earnings per share (EPS) compound annual growth rate (CAGR) of over 12 per cent. Loblaw currently pays a 1.5-per-cent dividend yield.
Electronic Arts (EA.O)
Bought in August 2015 at approximately $66
Electronic Arts produces entertainment software for PCs, home video game consoles, mobile gaming devices, smartphones and tablets. EA has successfully navigated (and benefited) from the industry's ongoing shift from console gaming to digital gaming. Mobile gaming revenues continue to climb as consumers increasingly spend more on smartphones and tablets. EA's partnership with Disney to develop games based on the upcoming new Star Wars movies should also be viewed very positively. Electronic Arts shares provide investors with strong earnings growth at a reasonable valuation, currently trading at a forward price-earnings multiple of 21x with a forecast long-term earnings per share (EPS) compound annual growth rate (CAGR) of over 14 per cent.
General Dynamics (GD.N)
Bought new position this month at approximately $145 (U.S.)
General Dynamics is a global diversified aerospace and defence company. It is the world's fourth-largest military contractor and also one of the world's biggest manufacturers of corporate jets. General Dynamics products include Gulfstream jets, submarines, combat vehicles, weapons munitions and communications systems. With heightened global terrorism fears and an upcoming U.S. presidential election year, GD should benefit from an increased defence and security spending budgets. The company's aerospace business also continues to deliver on its significant backlog. This week, a shareholder-friendly stock buyback program was announced (for 10 million shares). GD currently trades at a forward price-earnings multiple of 16x with a forecast long-term earnings per share (EPS) compound annual growth rate (CAGR) of over 9 per cent. General Dynamics shares currently pay a 1.9-per-cent dividend yield which is expected to grow modestly over the next several years.
Past Picks: December 4, 2014
Alphabet (GOOGL.O)
Then: $542.58 Now: $768.20 +41.58% Total return: +41.58%
MetLife (MET.N)
Then: $55.18 Now: $50.06 -9.28% Total return: -6.66%
Starbucks (SBUX.O) * Stock Split* April 9, 2015 – 2 for 1
Then: $81.31 Now: $59.55 +46.48% Total return: +48.37%
Total Return Average: +27.76%
Market outlook:
Equity markets have moved sideways over the past several weeks as investors deliberate several near-term risks. Uncertainty over the timing of Fed monetary policy, falling commodity prices, weakening economic growth in China and heightened geopolitical risks have caused equities to stall somewhat. Over the near-term, we expect volatility to linger as investor sentiment remains fragile. With North American equity indexes trading at 17/18x forward price-earnings multiples, valuations appear a bit stretched. Indeed, a stronger corporate earnings backdrop will be needed in the coming quarters for more meaningful advances in equity prices. In our portfolios, we continue to seek opportunities in large-cap, high quality North American companies with strong earnings and positive growth attributes. We prefer U.S. equities (along with the U.S. dollar) over Canadian equities as the commodity-heavy (and challenged) S&P/TSX composite index appears to be still trending downwards. Lastly, we note that individual stock and sector selection has become increasingly important as implied correlation indicators in equity indexes continue to decline.