Stan Wong is director of wealth management and portfolio manager at Stan Wong Private Wealth Management, ScotiaMcLeod. His focus is on North American large caps and ETFs.
Google Inc. (GOOGL NASDAQ)
Google's valuation is compelling amongst growth-oriented technology companies. GOOGL trades at a forward price-earnings multiple of 20x with a long-term expected earnings growth rate of 18-20 per cent. At a PEG ratio of about 1.1x, the stock trades at a valuation that is cheaper than over 80 per cent of other S&P 500 components using this measure. Google has executed well in its core business areas and is expected to continue its strong growth organically and through strategic acquisitions.
Sun Life Financial (SLF TSX)
As long-term interest rates normalize and equity markets grind higher, insurers such as Sun Life will benefit. SLF currently yields a 3.7-per-cent dividend which is expected to grow modestly over the next few years. Sun Life's revenues are well-diversified between Canada and the United States with some exposure to Asia. Sun Life could also benefit from investors taking profits on recent strong gains from Canadian banks.
iShares MSCI EAFE Index ETF (EFA NYSE)
The iShares MSCI EAFE Index ETF provides broad exposure to companies in Europe, Australia, Asia and the Far East. International equity markets are currently somewhat more attractive on relative basis to North American markets. The MSCI EAFE Index currently pays a higher dividend yield than North American indexes and also trades at a valuation discount on both forward price-earnings and price-book multiples. Top holdings in this ETF include Nestle, Novartis, Toyota Motor and Royal Dutch Shell.
Past Picks: May 16, 2013 (all share prices in US$)
Walt Disney Co. (DIS NYSE)
Then: $66.47; Now: $82.68 +24.39%; Total return: +25.92%
Qualcomm Inc. (QCOM NASDAQ)
Then: $65.64; Now: $78.78 +20.02%; Total return: +23.12%
iShares US Home Construction ETF (ITB NYSE)
Then: $25.61; Now: $24.36 -4.88%; Total return: -4.62%
Total return average: +14.81%
In the near term, North American equities appear extended from both a fundamental and technical viewpoint. However, we expect that global economic growth will improve in the second half of the year, allowing for corporate earnings to advance and equities to move modestly higher. Interest rates should also rise slightly. Of course, further escalation of geopolitical tensions and an extended spike in energy costs could derail this path. In our portfolio allocation, we continue to favour more economically-sensitive cyclical stocks over defensive stocks. Geographically, international equity markets appear somewhat more attractive to us on a relative basis given the stretched valuations in North America. Of course, individual stock and sector selection remains critical as the market has shifted from a macro-driven environment to a more fundamental-driven one.