Stan Wong, a portfolio manager at Scotia Wealth Management, is renowned for his expertise in North American large caps and ETFs. As we delve into his top picks for July 11, 2024, we’ll explore the market outlook and analyze the potential of his selected stocks: Lennox International, Netflix, and Novo Nordisk. This article provides an in-depth look at the current market environment and why these companies stand out in Stan Wong’s portfolio.
Market Outlook
Global equities have shown impressive stamina in 2024, with the U.S. mega-cap growth stocks leading the charge. The S&P 500 Index has surged over 18% year-to-date, while the tech-heavy Nasdaq Composite Index has soared more than 24%. In contrast, the Dow Jones Industrial Average and the S&P/TSX Composite Index have delivered more modest growth, both rising just over 5% year-to-date. This divergence highlights the dominance of the technology sector in driving market performance.
The U.S. technology sector has continued its leadership from 2023 into 2024, driven by strong growth in cloud computing, artificial intelligence (AI), and cybersecurity. However, high valuations in this sector pose significant risks, as the S&P 500 Information Technology Index trades near 20-year highs. On the other hand, the real estate and materials sectors have lagged, reflecting broader market dynamics and investor sentiment.
In such a complex landscape, diversification remains crucial. Investors must balance opportunities and risks, maintaining a well-diversified portfolio aligned with proper risk and return objectives. A comprehensive financial plan can help navigate market oscillations effectively, ensuring long-term growth and stability.
Economic Perspective
The world economy is projected to grow by 3% in both 2024 and 2025. While advanced economies show slight acceleration, emerging markets face potential slowdowns. This uneven growth requires strategic allocation to maximize returns while managing risks.
Recent interest rate cuts by the Bank of Canada and the European Central Bank mark a significant shift in monetary policy. In the U.S., strong consumer spending and moderating inflation raise hopes for potential interest rate cuts later this year. Meanwhile, Canada’s economy is expected to slow for the remainder of 2024, with retail sales moderating, manufacturing softening, and home sales shrinking. The unemployment rate in Canada has also increased to 6.4%.
Stan Wong’s Investment Philosophy
Stan Wong maintains a constructively optimistic outlook for equity markets. Decelerating inflation and falling interest rates, coupled with a record level of U.S. money market assets, should keep market sentiment positive. Identifying high-quality, secular growth companies remains a core focus in his portfolio mandates.
Wong favors sectors such as health care, consumer discretionary, financials, and technology, provided valuations are reasonable. His geographic allocation includes approximately 60% U.S. equities, 25% Canadian equities, and 15% international equities. Within fixed income, he prefers government and investment-grade corporate bonds with both short and medium durations. This strategic allocation aims to enhance returns while prudently managing risk.
Top Picks for July 2024
Lennox International (LII NYSE)
Lennox International manufactures and distributes heating, ventilating, air conditioning, and refrigeration (HVACR) products to replacement and new construction markets. With replacement sales representing 75% of overall sales and new construction 25%, Lennox has a balanced revenue stream. Over 90% of its revenue is generated from the U.S., with a strong focus on residential HVAC units.
Lennox enjoys strong brand recognition and an extensive distribution network, allowing it to maintain a competitive advantage and growing market share. The company is well-positioned to benefit from trends such as elevated demand for energy-efficient and environmentally friendly HVAC systems, aging infrastructure, increasing urbanization, and rising global temperatures.
Lennox shares have been trending upwards since mid-2022, with a clear channel of higher highs and higher lows. The company is forecasted to achieve an average annual earnings growth rate of more than 15% over the next several years. Lennox reports its next quarterly results on July 24.
Netflix (NFLX NASD)
With over 260 million global subscribers and nearly $39 billion in projected fiscal 2024 revenue, Netflix continues to dominate the subscription streaming service industry. The company’s focus on original content production has allowed it to differentiate its service and build a global customer base.
Netflix is expanding its footprint into emerging markets, tapping into significant subscriber growth potential. The introduction of advertising-supported subscriptions offers an additional revenue stream, attracting cost-conscious consumers and advertisers seeking premium inventory.
Netflix shares have been outpacing the broader S&P 500 Index since early 2022, with a clear uptrend channel of higher highs and higher lows. The company is forecasted to achieve an annual earnings growth rate of over 35% in the coming years. Netflix reports its next quarterly results on July 18.
Novo Nordisk A/S ADR (NVO NYSE)
Headquartered in Denmark, Novo Nordisk is a leading global healthcare company and Europe’s most valuable listed company, with a market capitalization of over $635 billion. The company holds a dominant position in the rapidly growing diabetes and obesity treatment markets.
Novo Nordisk supplies half of the world’s insulin and commands one-third of the diabetes treatment market. With over 40 million people worldwide benefiting from its drugs, the company is experiencing unprecedented growth driven by continued consumer demand for blockbuster medications like Ozempic and Wegovy.
Novo Nordisk shares have been outpacing the broader market indices since early 2017, maintaining a strong upward trend. The company is poised to deliver an annual earnings per share growth rate of over 25% in the coming years. Novo Nordisk reports its next quarterly results on August 7.
Conclusion
Stan Wong’s market insights and top picks for July 2024 underscore the importance of strategic diversification and a focus on high-quality growth companies. Lennox International, Netflix, and Novo Nordisk each offer unique opportunities for investors seeking robust returns in a dynamic market environment.
