Stan Wong’s Top Picks for Feb. 6, 2025

Stan Wong, Portfolio Manager, Scotia Wealth Management

FOCUS: North American large caps & ETFs

Top Picks: Apple, Deckers Outdoor, Financial Select Sector SPDR Fund

MARKET OUTLOOK:

Despite concerns over potential disruptions from U.S. tariffs, equity markets have continued to advance in early 2025, driven by optimism surrounding U.S. President Donald Trump’s anticipated policies. Expectations of corporate tax reductions and regulatory easing have fuelled investor confidence, fostering a pro-growth environment that is helping to offset uncertainties around global trade.

At The Stan Wong Group, we remain positive on equities, particularly U.S. stocks, as the first quarter of 2025 unfolds. The U.S. economy is showing balanced growth – strong enough to support corporate earnings yet moderate enough to keep inflation pressures in check. This favourable backdrop, supported by steady GDP expansion, stable inflation, strong consumer spending, and a resilient labour market, sets the stage for a potential third consecutive year of gains for U.S. equities. Although geopolitical risks and trade negotiations may create turbulence, we see these factors as opportunities, not obstacles. Additionally, the potential for lower corporate taxes could boost earnings and investor confidence further. Corporate earnings remain robust, with S&P 500 earnings projected to grow approximately 11 per cent in 2025 and 12 per cent in 2026, while mid-cap companies are expected to see even stronger growth. Furthermore, with money market assets at record highs of nearly US$6.9 trillion, a shift from cash into equities could provide additional momentum as interest rates decline. With a business-friendly administration poised to reduce regulatory burdens and cut taxes, the outlook for equities remains encouraging.

Historical trends also reinforce a positive bias. Post-election years have typically been strong for equities, with the S&P 500 averaging an 18.1 per cent return in the first year following a presidential election over the past ten cycles, with a 90 per cent win ratio. The January Barometer—a theory that suggests January’s market performance predicts full-year returns—also signals a constructive outlook. Since 1950, a positive January has led to an average S&P 500 return of 12.2 per cent, with an 87 per cent success rate.

Our investment strategy remains centered on high-quality, secular growth companies. We favour sectors such as health care, financials, and technology, focusing on businesses with strong competitive advantages, reliable earnings, and attractive valuations. Currently, we are allocated 73 per cent to U.S. equities and 27 per cent to Canadian equities, balancing strategic positioning with tactical flexibility. A well-diversified portfolio, coupled with a comprehensive wealth plan, is essential to navigating market volatility and optimizing long-term returns.

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TOP PICKS:

APPLE (AAPL NASD)

With forecasted revenue of US$410 billion for fiscal 2025, Apple Inc. (AAPL) remains a global tech powerhouse, with a strong ecosystem that continues to drive customer loyalty and recurring revenue. Apple’s innovation, particularly in the iPhone, wearables, and services segments, positions it for sustained growth. The growing services business, including iCloud, App Store, and Apple Music, provides high-margin, recurring revenue that offsets cyclicality in hardware sales. Apple’s expanding AI and AR initiatives offer significant growth potential. With a robust balance sheet, cash flow generation, and shareholder-friendly initiatives, Apple is poised to capitalize on both innovation and global consumer demand, making it a high-quality name for long-term investors. The Company is projected to achieve an average annual earnings growth rate of 15 per cent in the coming years.

DECKERS OUTDOOR (DECK NYSE)

Founded in 1973, Deckers Outdoor Corp. (DECK) is a leading footwear and apparel company, best known for its Hoka and UGG brands. Hoka’s explosive growth in the performance footwear space is fuelling revenue expansion, while UGG remains a highly profitable, resilient lifestyle brand. The company’s disciplined inventory management and direct-to-consumer strength are driving margin expansion. With global demand for premium footwear rising, Deckers is well-positioned to capture market share. A robust balance sheet and consistent execution provide further confidence. Despite strong stock performance, valuation remains reasonable given DECK’s growth trajectory. As Hoka cements itself as a global leader in running shoes, further upside remains. The company is projected to achieve an average annual earnings growth rate of 15 per cent in the coming years.

FINANCIAL SELECT SECTOR SPDR FUND (XLF NYSE)

The Financial Select Sector SPDR® Fund (XLF) offers diversified exposure to the U.S. financial sector, including banks, investment firms, insurance companies, and asset managers. With increasing economic activity, financials are poised to benefit from higher trading volumes and more robust capital market activity. A pro-business stance from the Trump administration could further boost the sector through deregulation, corporate tax cuts, and a more business-friendly policy environment, potentially driving merger and acquisition (M&A) activity and enhancing profitability for banks and financial institutions. Top holdings, including names like JPMorgan Chase, Goldman Sachs, Visa and Berkshire Hathaway, are well-positioned to capitalize on these trends. During Trump’s first year as president in 2017, the financial sector saw gains exceeding 22 per cent.

PAST PICKS: February 15, 2024

ASML HOLDING N.V. (ASML NASD)

Then: US$929.84

Now: US$737.48

Return: -21%

Total Return: -20%

CARDINAL HEALTH (CAH NYSE)

Then: US$104.94

Now: US$126.71

Return: 21%

Total Return: 23%

DOLLARAMA (DOL TSX)

Then: $102.76

Now: $138.04

Return: 34%

Total Return: 35%

Total Return Average: 13%