How Stan Wong is Navigating Market Volatility with These Stock Picks

Stan Wong, portfolio manager at Scotia Wealth Management, has revealed his latest top stock picks for October 2024. With a focus on North American large-cap stocks and exchange-traded funds (ETFs), Wong’s expertise in managing portfolios is reflected in his selections: <a class="tvreplink" target="_blank" href="https://www.tradingview.com/chart/?symbol=Nasdaq%3AGOOG">Alphabet Inc. (GOOGL NASD), Lennox International (LII NYSE), and the iShares Core S&P Mid-Cap ETF (IJH NYSE). These picks are grounded in his deep understanding of market trends and the companies' long-term growth potential.

Market Outlook: A Volatile Yet Promising October

As October unfolds, investors are bracing for heightened market volatility due to the approaching U.S. presidential election. Historically, this month has been a challenging period for the stock market during election years, with an average decline of 2.5%. Negative returns have been recorded 63% of the time, driven by political uncertainty and investor caution.

However, despite these short-term headwinds, Wong remains optimistic about the mid-term market outlook. The U.S. economy is showing strength, with GDP growth at 3% in Q2 of 2024, supported by robust consumer spending and business investment. Inflation has cooled to 2.4%, and the labor market remains stable, with an unemployment rate of 4.1%. This economic resilience, coupled with the U.S. Federal Reserve’s shift towards monetary easing, creates a favorable environment for equities, and corporate earnings projections are strong, forecasting 13% growth in 2025 and 10% in 2026.

Top Picks for October 2024

Alphabet Inc. (GOOGL NASD)

Alphabet, the parent company of Google, is a digital advertising powerhouse, commanding over 90% of the global search market. In 2024, the company is projected to generate nearly $300 billion in revenue, with digital advertising accounting for more than 75% of that total. Alphabet’s dominance in the search market translates into significant cash flow, which is reinvested in other high-growth areas such as Google Cloud and YouTube.

Alphabet’s hardware segment, including Chromebooks, Pixel smartphones, and smart home devices, also contributes to its revenue diversity. With a price/earnings-to-growth (PEG) ratio of 1.4 times, Alphabet offers investors an attractive value proposition, especially considering its projected average annual earnings growth rate of more than 15% over the next several years. After a 16% dip in its share price, Alphabet represents an attractive buying opportunity. The company is set to report its next quarterly results on October 24, 2024, making it a key stock to watch.

Lennox International (LII NYSE)

Lennox International is a leading manufacturer and distributor of heating, ventilating, air conditioning, and refrigeration (HVACR) products. The company generates 75% of its sales from replacement markets, with the remaining 25% from new construction. Residential HVAC units account for more than two-thirds of Lennox’s revenue, with almost 90% of overall revenue coming from the U.S. market.

Lennox has a strong competitive edge, thanks to its well-established brand and broad distribution network. The company is poised to benefit from increasing demand for energy-efficient HVAC systems, driven by regulatory changes, aging infrastructure, and rising global temperatures. Lennox’s shares have been trending upward since mid-2022, with analysts projecting an average annual earnings growth rate of 14% over the next several years. The company is expected to report its next quarterly earnings on October 23, 2024.

iShares Core S&P Mid-Cap ETF (IJH NYSE)

The iShares Core S&P Mid-Cap ETF (IJH) provides investors with exposure to around 400 U.S. mid-cap companies, including industry leaders like Illumina, Williams-Sonoma, and Toll Brothers. Mid-cap stocks offer a unique growth opportunity, as they are often undervalued compared to large-cap stocks but have strong earnings growth potential.

The S&P Mid-Cap 400 Index trades at a price-to-earnings (P/E) multiple of 18 times, compared to the S&P 500’s 25 times, while mid-cap companies are expected to deliver higher earnings growth of over 15% in 2025 and 17% in 2026. With interest rates expected to fall, mid-cap companies could benefit from easier access to capital and lower borrowing costs, making this ETF a compelling choice for investors seeking diversification and growth. The recent purchase of IJH at around $61 underscores its value in a well-rounded portfolio.

Why These Picks Matter

Stan Wong’s top picks for October 2024 reflect his strategy of focusing on companies with strong fundamentals and long-term growth potential. Alphabet continues to dominate the digital advertising space while expanding into cloud computing and hardware. Lennox International is well-positioned to capitalize on the growing demand for energy-efficient HVAC solutions. Finally, the iShares Core S&P Mid-Cap ETF offers a cost-effective way to gain exposure to mid-cap companies with attractive valuations and strong earnings growth prospects.

Conclusion

Stan Wong’s selections for October 2024—Alphabet, Lennox International, and the iShares Core S&P Mid-Cap ETF—provide investors with access to companies that are well-positioned for long-term growth. Despite the anticipated short-term volatility due to the U.S. presidential election, Wong’s market outlook remains optimistic. A diversified portfolio, focusing on sectors like technology, industrials, and mid-cap stocks, is essential for navigating market fluctuations and maximizing returns. With solid fundamentals and promising growth projections, Wong’s top picks offer a robust foundation for any investment strategy.