Stan Wong is director of wealth management and portfolio manager, Stan Wong Private Wealth Management, ScotiaMcLeod. His focus is North American large caps and ETFs.
Dollarama is Canada's largest dollar store retailer with over 900 stores located across the country. With nearly five times the number of stores as its nearest Canadian competitor, Dollarama operates in an attractive and growing segment of the Canadian retail space. It continues to execute well with very solid quarterly sales and earnings performance numbers. DOL's organic growth has been impressive, with plans to grow its store base to over 1,400 locations. Given Dollarama's dominant position, shares continue to command a premium valuation – trading at a 26x forward price-earnings multiple with an expected 15-per-cent long-term earnings growth rate.
General Motors (GM-N)
General Motors is the world's second-largest producer of cars and trucks. The outlook for automobile manufacturers is positive with U.S. auto demand trending higher based on improving consumer confidence and lower gasoline prices. The average vehicle age in the U.S. is over 11 years old, an industry record representing a catalyst for a demand cycle refresh. Recently, GM announced a $5-billion (U.S.) stock buyback as part of a plan to enhance shareholder value. GM's valuation is compelling, trading at a 7x forward price-earnings multiple with an expected 12-per-cent long-term earnings growth rate. As well, GM shares currently yield an attractive 4-per-cent dividend which is expected to grow over the next several years.
Southwest Airlines (LUV-N)
Southwest Airlines is the fourth-largest U.S. airline and provides mainly short-haul flights in the U.S. Southwest has perhaps the most conservative and healthiest balance sheet among the major U.S. airlines with a relatively low debt-to-capital ratio. The sell-off in airline stocks this week over capacity and pricing represents an attractive buying opportunity for LUV shares. A recovering U.S. economy and lower fuel costs should continue to act as tailwinds for the stock. Earlier this month, LUV announced an increase in its dividend and share buyback program. Southwest shares are undervalued trading at a 10x forward price-earnings multiple with an expected 15-per-cent long-term earnings growth rate.
Past Picks: April 9, 2014
Adidas AG (ADDYY-OTC MKTS)
Then: $54.51; Now: $42.10 -22.77%; Total return: -19.62%
Gilead Sciences (GILD-Nasdaq)
Then: $70.65; Now: $111.22 +54.42%; Total return: +57.42%
Then: $73.56; Now: $92.90 +26.29%; Total return: +27.14%
Total return average: +21.65%
North American equity markets continue to trade in a narrow range as investors search for a meaningful catalyst. Trepidation surrounding equity valuations, higher U.S. dollar headwinds and a pending shift in Fed policy has seemingly put equity markets in an air pocket. Near term, equity markets will likely remain largely in a sideways pattern until the earnings backdrop improves, especially given the traditional seasonal softness in the months ahead. Individual stock and sector selectivity has certainly become more critical in the prevailing environment. We continue to be focused on high-quality, reasonably valued companies with solid earnings growth attributes. We prefer companies that are expected to benefit from the improving global economy, the positive effects of lower commodity prices and continued easy monetary policy around the world. In our asset allocation, we continue to be overweight U.S. equities and currently hold an approximate 10-12-per-cent cash position in order to take advantage of any near term tactical opportunities.