Citi U.S. equity strategist Drew Pettit has introduced a new list of top stock picks based on his conviction regarding six investment themes: artificial intelligence, infrastructure and fossil fuels, experiential commerce, digital leisure, internet-driven business models and financial technology (fin tech).
The Thematic 30 list of investment options is unique among thematic-based strategies in that the investment themes are an outgrowth of the stock selection process rather than the other way around. Mr. Pettit and his team found that in looking at individual stocks, their emphasis on reliable sales growth, attractive valuations relative to growth rate and improving operating leverage (the ability to turn revenue growth into cash flow) uncovered opportunities that fell among the six themes.
The three stocks chosen under the artificial intelligence focus are Amazon.com, Alphabet and Meta Platforms, where Citi analysts predict 2024 earnings growth of 37 per cent, 19 per cent and 34 per cent, respectively.
The infrastructure and fossil fuels section emphasizes companies involved with growing power demand and the energy transition towards renewable sources. The stocks are AECOM, Edison International, Chart Industries, Martin Marietta Materials, NOV and United Airlines.
Cruise line Carnival, DoorDash and Uber Technologies are the picks under the experiential commerce theme, a category that includes vacation providers and services for everyday life.
The profit growth expectations for the digital leisure stock picks that make up theme number four are notable. These are GoDaddy (where Citi expects 59 per cent earnings growth in 2024), AppLovin (82 per cent), Draft Kings (73 per cent), internet gaming company Roblox (25 per cent), Unity Software (37 per cent) and Wix.com (200 per cent).
Internet-driven business models, companies that help improve corporate productivity, is section number five. The stocks here are DocuSign, Equinix, HubSpot, Stride, Q2 Holdings, Squarespace and Wayfair.
The final category, fin tech, includes Fiserv, Global Payments, Mastercard, PayPal Holdings and SS&C Technologies.
On average, the Thematic 30 is forecast to grow earnings by 55 per cent based on a 13 per cent rise in sales. Mr. Pettit warns that the stocks are high beta – in percentage terms they move more than the benchmark on both the upside and downside – indicating higher investment risk.
-- Scott Barlow, Globe and Mail market strategist
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Ask Globe Investor
Question: I am 63 years old and may be retiring at 65. I have a mortgage of $451,000 at 2.69 per cent and a line of credit with a balance of $120,000 at prime (8 per cent). The mortgage renewal is coming July 1st. I have $85,000 in my TFSA, growing at 5 per cent this year. What is better for me? Pay $85,000 on the line of credit? Pay down $85,000 on the mortgage, knowing that the renewal is coming at very high interest? Or leave the money growing in the TFSA? - José P.
Answer: The 5 per cent return on your TFSA in 2023 is not impressive. The TSX is up 8.4 per cent for the year (as of Dec. 27). The Dow has gained 13.6 per cent while the S&P 500 has added 24.5 per cent. It appears that you are holding very conservative securities in your TFSA, without much growth potential.
Based on that, the money would be better used paying down the mortgage or the line of credit, whichever is carrying the higher interest rate. Right now, that’s the line of credit.
--Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question on the subject line.)
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Compiled by Globe Investor Staff