Stan Wong, portfolio manager at Scotia Wealth Management
FOCUS: North American large caps and ETFs
Top Picks: The Financial Select Sector SPDR Fund, Nvidia, UnitedHealth Group
MARKET OUTLOOK:
At The Stan Wong Group, we maintain a positive outlook for North American equities, particularly U.S. stocks, as we start the new year. The U.S. economy currently appears to be in a “Goldilocks” phase – neither too hot nor too cold – characterized by steady gross domestic product (GDP) growth, easing inflation, a robust consumer segment, and a steady labour market. This macroeconomic backdrop supports the potential for a third consecutive year of gains for U.S. stocks. Corporate earnings remain strong, with S&P 500 Index earnings expected to grow around 12 per cent in both 2025 and 2026. Mid-cap companies are anticipated to experience even stronger growth during this period. Additionally, money market assets have reached record highs of around US$6.75 trillion, which could further boost equity performance as interest rates decline. With a new incoming U.S. administration likely to adopt pro-business policies and reduce regulatory burdens, there is a compelling case for continued strength for equities throughout 2025. Overall, the U.S. economic landscape appears rather resilient, with no immediate signs of downturn.
Our team’s investment strategy remains focused on identifying high-quality, secular growth companies to enhance portfolio performance. Our preferred sectors include health care, consumer staples, financials, and technology, with a focus on companies that exhibit strong competitive advantages, reliable earnings, and reasonable valuations. From a regional perspective, we are currently allocating about 70 per cent to U.S. equities and 30 per cent to Canadian equities. Our strategic and tactical allocations are designed to optimize returns while effectively managing risk for our clients. A well-diversified portfolio is essential for mitigating risk and enhancing returns, complemented by a comprehensive financial plan that enables us to navigate market volatility effectively.
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TOP PICKS:
FINANCIAL SELECT SECTOR SPDR FUND (XLF NYSE):
Last bought this month at ~US$48
The Financial Select Sector SPDR Fund provides investors with exposure to a diversified portfolio of about 75 U.S. financial services companies. Top holdings in this ETF include Berkshire Hathaway, JPMorgan Chase, Visa, Mastercard and Bank of America. The U.S. economy continues to show resilience and is on track for a desired soft landing, providing a favourable backdrop for the financial sector. Anticipated lower interest rates are expected to stimulate economic activity and boost demand for loans and other financial products. Additionally, the incoming Trump administration is likely to benefit the financial sector through a combination of deregulation, favorable policies, and a pro-business environment. A more lenient regulatory landscape is anticipated to encourage increased merger and acquisition activity, enhancing the potential for fees and revenue for financial institutions. During Donald Trump’s first year as president in 2017, the financial sector saw gains exceeding 20 per cent.
NVIDIA (NVDA NASD):
Last bought in December 2024 at ~US$132
With projected revenue of over US$129 billion for fiscal 2025 and more than US$27 billion in free cash flow, Nvidia specializes in designing and manufacturing graphics processing units (GPUs), system-on-a-chip units, and artificial intelligence (AI) hardware and software. The company serves diverse sectors, including gaming, automotive, healthcare, and data centers, holding a remarkable 90 per cent market share in the AI GPU segment, significantly benefiting from the growing demand for artificial intelligence applications. Nvidia is anticipated to achieve a staggering earnings growth rate of nearly 50 per cent over the coming years. Trading at just 0.7 times PEG ratio (price-earnings to growth), NVDA shares are undervalued compared to most other technology stocks. The company reports its next quarterly results on Feb. 26.
UNITEDHEALTH GROUP (UNH NYSE);
Last bought in December 2024 at ~US$490
With projected revenue exceeding US$442 billion for fiscal 2025, UnitedHealth Group is a leading private health insurer providing medical benefits to about 50 million members globally. As a leader in employer-sponsored, self-directed, and government-backed insurance plans, UnitedHealth has established significant scale within the managed care sector. The company’s approach of integrating medical insurance, pharmacy benefits, and healthcare services fosters a strong alignment of incentives, allowing clients to better control their healthcare costs compared to pure-play competitors. UnitedHealth is well-positioned to benefit from enduring demographic trends, such as an aging population and escalating healthcare costs – key drivers of demand for its services. Following the tragic death of it’s CEO, UNH shares remain 19 per cent below recent highs, presenting an attractive long-term opportunity for a low-beta, defensive investment. UNH trades at an 18 times forward price-earnings ratio with an anticipated earnings growth rate of 11 per cent. The company reports its next quarterly results on Jan. 16.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| XLF NYSE | Y | Y | Y |
| NVDA NASD | Y | Y | Y |
| UNH NYSE | Y | Y | Y |
Past Picks: January 11, 2024
MASTERCARD (MA NYSE)
- Then: US$426.72
- Now: US$514.25
- Return: 21%
- Total Return: 21%
MCKESSON CORP. (MCK NYSE)
- Then: US$488.84
- Now: US$584.45
- Return: 20%
- Total Return: 20%
O’REILLY AUTOMOTIVE (ORLY NASD)
- Then: US$944.61
- Now: US$1,199.88
- Return: 27%
- Total Return: 27%
Total Return Average: 23%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MA NYSE | Y | Y | Y |
| MCK NYSE | Y | Y | Y |
| ORLY NASD | N | N | N |