Stan Wong, portfolio manager at Scotia Wealth Management
FOCUS: North American large cap stocks and ETFs
MARKET OUTLOOK:
Global equity markets continue to make new highs as worldwide vaccine progress and U.S. stimulus plans help set the global economy on a path towards a strong 2021 recovery. This week, the International Monetary Fund (IMF) boosted its global economic growth forecast for the second time in three months – upgrading its 2021 GDP growth estimate to six per cent (from 5.5 per cent). Indeed, this would represent the strongest annual global economic expansion since 1980.
We expect the vaccine reopening trade to favour equities over bonds, cyclical sectors over defensive sectors and credit over government bonds. Commodity prices should also continue to gain traction. While equity valuations may appear stretched, an improved outlook for corporate earnings should help equity markets hold firm. Central banks and governments around the world continue to appear committed to maintaining low interest rates and expansionary fiscal policies. Of course, the path to recovery will be bumpy as risks related to excess inflation, rising bond yields and COVID-19 variants loom.
In Stan Wong Managed Portfolios, we remain focused on active stock, industry and sector selection as the global economy recovers from the fallout of the pandemic. We expect market leadership to broaden out beyond technology stocks to include financials, materials, industrials and other economically sensitive sectors. In our portfolio mandates, we favour companies with dominant long-term secular growth prospects and high-quality attributes. We have increased exposure to select cyclical sectors and industries positioned to benefit from the broad economic recovery. We like U.S. equity markets for its breadth and depth of high-quality names and favour Asia Pacific as a leading beneficiary of a cyclical upswing, a subdued U.S. dollar and calmer U.S.-China trade relations. A broad economic restart should also help equity markets in Canada and Europe narrow their performance gaps against U.S. markets.
TOP PICKS:
MASTERCARD INC (MA NYSE) – Last purchased 03/21 at ~US$355
Mastercard is the second largest global payments company in the world. With over US$18 billion in expected revenue for 2021, Mastercard operates in more than 210 countries and processes transactions in over 150 currencies. Near-term, a return to a more normal economic backdrop amid the accelerating vaccine rollout should help in the recovery of consumer spending volumes, particularly in more lucrative travel and cross-border transactions. Longer-term, the secular trend from cash payments to electronic payments provides a long runway for growth. On a global scale, electronic payments surpassed cash payments only a couple of years ago. After falling nine per cent in 2020, Mastercard’s revenue is expected to grow by 17 per cent annualized over the next few years. Mastercard reports its next quarterly results on April 29.
UBS GROUP AG (UBS NYSE) – Last purchased 03/21 at ~US$16
Founded and based in Switzerland, UBS is the world’s largest wealth manager and generates over US$32 billion in annual revenue. Apart from wealth and asset management, it operates a universal bank in Switzerland and a global investment bank. UBS earns more from wealth and has a lower credit risk than some of its largest global banking peers. It has a solid balance sheet with strong capital and liquidity metrics. Regulatory support, steepening yield curves and a broad economic recovery should continue to help European financials. In January, management at UBS announced the launch of a new share buyback program of up to US$4.5 billion. UBS shares continue to look compelling trading just below book value and yielding a dividend of 1.1 per cent. The Company reports its next quarterly results on April 27.
UNITED AIRLINES HOLDINGS (UAL NASD) – Last purchased 03/21 at ~US$55
United Airlines is the second largest airline in the U.S. by market cap and the most international focused U.S.-based carrier by operating revenue. As the pace of the vaccine rollout accelerates, investors are becoming increasingly optimistic that strong pent-up demand will cause domestic and international travel to surge as the pandemic winds down. U.S. domestic traffic and booking trends are picking up rapidly on a week-over-week basis. TSA checkpoint numbers have now exceeded 1.5 million daily passengers from a low of under 100,000 daily passengers a year ago. Indeed, many analysts expect air travel in 2022 to far exceed 2019 pre-pandemic levels. United Airlines reports its next quarterly results on April 19.
PAST PICKS: June 9, 2020
Air Canada (AC TSX)
- Then: $21.01
- Now: $28.02
- Return: 33%
- Total Return: 33%
Costco Wholesale Corp (COST NASD)
- Then: $305.55
- Now: $358.50
- Return: 17%
- Total Return: 21%
Nasdaq Inc (NDAQ NASD)
- Then: $120.09
- Now: $151.90
- Return: 26%
- Total Return: 28%
Total Return Average: 27%
| AC TSX | Y | Y | Y |
| COST NASD | N | N | N |
| NDAQ NASD | N | N | N |
Website: www.stanwong.com
Twitter handle is @StanWongWealth.
