Mike Vinokur, portfolio manager at MV Wealth Partners with iA Private Wealth

FOCUS: North American large caps 

MARKET OUTLOOK:

We are cautiously optimistic that U.S. equity markets can keep performing, however, we expect that there will be a rotation from the Magnificent Six big U.S. technology stocks to other parts of the market which have yet to catch up. This has not been a “sell in May and go away” type of year, though we would not be surprised to see a correction of two to five per cent which could come fast and furious and surprise most investors.The breadth of the market has been improving as of late. For the first six months, only six companies contributed more than 60 per cent of the S&P 500 Index’s return. The S&P 500 outperformed its equal-weight counterpart by more than 10 per cent, which has perhaps occurred only once before. If this market continues to move higher, as we predict it will, breadth arguably needs to increase.

We have been finding opportunities in utilities, transportation, financials, industrials and other technology stocks, which are compelling and still very much under-appreciated given the elevated earnings multiple of the overall market and especially the big six.

We did raise cash at the beginning of May; however, we have been deploying capital over the last several weeks. July is usually a good month for U.S. markets, and we think that upcoming earnings reports will be better than currently expected, allowing for a continuation after a potential slight correction.  

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

State Street (STT NYSE)

This is one of the largest custodians of assets. While considered a financial, unlike a bank, STT has very little credit risk. The company just went through the U.S. Federal Reserve stress test, and it revealed they have ample excess capital. We would not be surprised by a dividend hike, an increase in the share buyback or both. We purchased STT at a cost of just over $72. In the meantime, the stock trades for less than nine times our estimated earnings for 2025 and provides a dividend yield of 3.7 per cent.

Cisco Systems (CSCO NASD)

Cisco needs no introductions; it has been one of the incumbent tech stocks since the ’90s tech boom. However, today CSCO represents tremendous value as it morphs into a much higher proportion of its sales to annual recurring revenues. Cisco has successfully acquired many companies over the years. We are excited to see how one of their latest acquisitions (Splunk) bolster its abilities in data analysis. Unlike many tech companies, CSCO trades for less than 14 times next year’s earnings and pays a dividend just north of three per cent. We purchased shares at $46.75.

Magna International (MG TSX)

This is a well-known auto parts manufacturer/supplier. We think the market is underestimating Magna’s earnings power. It keeps winning big platform contracts with the largest of OEMs. Magna trades at seven times estimated next year’s earnings, whereas in our view it deserves to be trading at least at nine to ten times. We believe that earnings could be close to $9.50/share in 2025. If we are right, then this equity is substantially undervalued. In the meantime, we collect a 4.4 per cent dividend while we wait for the revaluation. We entered this one a little too early and recently averaged down at just below $58.