The Monthly Gems by Allan Tong

AI-driven tech

Nvidia and Microsoft are the obvious names in AI and both should be in portfolios, but AMD is a strong number-two behind Nvidia in the category of AI chips. AMD stock rose about half as far as the frontrunner in 2023, but in the last quarter AMD has been gaining momentum, up over 43.4% vs. NVDA's 14.8% and nearly 21% vs. 3.5% in December. Fundamentals and performance are sound. AMD beat its last four quarters. The company boasts that its new MI300X chip can outperform Nvidia's and targets $2 billion in sales in 2024.

Canadian dividends

It's no secret that rising interest rates punished dividend stocks in 2023, but the dynamic is already reversing. Telus shares have jumped over 7% since the late-October market bottom though still lost nearly 10% over 2023. That's an accomplishment of sorts, given that its EPS slid 62% in the past year. Still, Telus' retains a safe 6.38% dividend yield and investor sentiment towards the entire sector is now positive. Analysts clock in at 13 buys, two overweights and two holds, with a price target of $27.03, a fair move from its Dec. 29 close of $23.58. Another tailwing is strong immigration flowing into Canada, which means more customers for the telcos. Even if Telus falls short of that projection, investors are collecting a tidy dividend. Another one to consider in this space is BCE.

American healthcare

As noted, 2023 was unkind to healthcare stocks, but UNH shed only 1%, thanks to a rebound in Q4. UNH remains America's biggest health insurer. It beat its last four quarters, trades at a safe 0.62 beta as well as a 22.85x PE, which is historically in-line. Earlier in 2023, the stock took a hit when the company noted that post-Covid the U.S. was seeing a rebound in elective surgeries, which would increase medical costs and cut into UNH's margins. However, this is a passing concern. View UNH in the long-term. Its shares have climbed 144% in five years and the projectory has been largely up, though the last two years have been bumpy. As we exit post-Covid, Wall Street expect UNH to resume its climb. Analysts signal 20 buys, one overweight, five holds and one sell with a price target of $594.61, nearly 13% higher than its last close of $526.47. Go long on UNH.

This trend accounted for KO's price drop to $52.89 in early October, but it's noteworthy that shares recovered quickly even as the wider S&P continued to slide. Entering December, KO shares have climbed $6 from that low, sandwiched between their 50- and 200-day moving averages. Further, its PE of 23.38x trades below its five-year average of 28.24x at a stable 0.59 beta, while the company has beaten its last three quarters.

You've seen the ads, heard the hype about NVO's Ozempic (and its related Wegovy). As noted above, weight-loss drugs are all the rage, and NVO has attracted as much hype as Taylor Swift's latest album. In mid-October, the Danish company raised full-year guidance in sales and operating profit for the third time this year. NZO expects sales growth of 32-38% up from the prior 27-33%, based on surging popularity for both its drugs in the U.S.

The Canadian tech giant recently made headlines when its merchants hit $4.1 billion in Black Friday sales, soaring 22% over last year and defying expectations of the consumer and the stock itself.

Once bigger than Royal Bank (in terms of market cap), Shopify shares plunged 75% from their all-time highs after the pandemic. Then, last spring the company cut 20% of its workforce and sold its logistics arm after buying it just the year before. Shopify also got rid of its warehouse and robotics company that it picked it up 2019.

No one touches Google in online search while YouTube boasts 2.7 billion (with a B) active users as 52% of internet users click onto the app at least once a month. However, at 11% market share Google Cloud still lags far behind Microsoft (double the share) and Amazon (nearly triple) in the cloud business. Last month, Alphabet's overall revenue of $76.69 billion beat expectations, but its cloud business clocked at only $8.41 billion and missed the expected $8.64 billion.

Telcos, along with banks and utilities, have been abandoned this year as investors flock to bonds, high-interest savings accounts and even GICs. However, interest rates have stopped grinding higher in Canada and the U.S., at least for a while. These sectors are oversold. BCE's PE has sunk from a 52-week high of 24.39x on July 3 to 20.84x on Nov. 1. Its median average of the past five years is 19.82x, so BCE is trading at a fair valuation. Also, it now pays a hefty 7.52% dividend yield that nobody expects to be cut. Upside is more likely downside from here on, given that it's trading only $3 above its 52-week low of $49.57.

Another iconic national brand, Canadian Tire is the dark horse on this list. It's no secret that retail has struggled this year as higher wages, costlier shipping and theft (aka “shrinkage”) have battered the sector. Canadian Tire has sunk 30% off its 52-week highs and recently made a new low of $131.46. At the same time, the stock's PE has fallen below 10x compared to its five-year median of 11.5x.

File under steady grower. This collection of over 14,300 convenience stores in 25 countries, from Indonesia to Canada, has seen shares rise around 120% in the past five years, easily outpacing the TSX at 24%. ATD grows by buying smaller chains and mom-and-pop operations in a still-fragmented market. Circle-K, On The Run and 7-jours are merely some of the brands they own. Many stores are part of gas stations. Gas itself pays razor-thin margins, but lures drivers into the shops to buy high-margin snacks and smokes.

In order, this basket holds Apple, Microsoft, Amazon, Nvidia and Meta as its top five holdings. All have outperformed in 2023, especially Nvidia. QQQ pays a dividend of 0.57%, but charges only a 0.2% MER. True to the stocks this basket holds, QQQ is no income name, but an ETF to trade when tech peaks and slides. On that note, consider this when the market declines a few more percentage points.

Stryker has beaten three of its last four quarters, trades at 38.8x earnings, after scaling nearly 46x earlier this year and pays a modest 1.1% dividend. Its chart so far this year shows it trading in a range between $270 and $305, and shares dipped below $270 at the end of September. A trader or long-term investor could step in now.

In early August, Goeasy reported a convincing beat for Q2: loan originations rose 6%, their loan portfolio was up 35%, revenues jumped 20%, and adjusted EPS climbed 16%, all year-over-year. Also, the company posted record revenues of $265 million and record customer applications for credit, up 25%. This year marks Goeasy's ninth-straight year of raising its dividend (currently 3.01%), and 19 consecutive years of paying one.

Though shares have jumped in the past month, Merck could be entering a new breakout phase. Stability comes from its low 0.34 beta, strong cash flow and growing earnings. It has beaten its last four quarters. It pays a 2.65% dividend. However, its current PE of 90x is far from its five-year norm of 27.53x as well as its competitors Amgen, Eli Lilly and even Moderna. Clearly, the market is pinning high hopes on this name to trade at this valuation.

Pepsi of course, is an entrenched global brand, drunk in over 200 countries and commanding pricing power in this inflationary time. Pepsi keeps beating earnings, trades at a safe 0.54 beta, and pays a decent 2.67% dividend.