The best stocks to ride out the coming year draw from several of the biggest technology companies, profit-gushing Canadian energy producers and a couple of beaten-up dividend powerhouses, according to the newly minted Readers’ Portfolio.
The portfolio consists of the 10 most popular stock picks sent to us by savvy readers as part of the second annual Globe and Mail Investing Club.
Readers were asked to choose three stocks each to hold for the next 12 months – a request that attracted 615 entries, edging past last year’s total. At the end of this one-year period, the reader with the best returns, in Canadian-dollar terms and including dividends, will win bragging rights.
But this is much more than an individual endeavour.
The Readers’ Portfolio offers all of us a look at the collective thinking of a cross-section of smart investors. That’s you.
We’ll compare the results to our own Globe Hot List, 10 stocks selected by our in-house team of armchair investors.
We’ll check in periodically on the progress of both portfolios and examine what’s working and why. Perhaps we’ll learn a few things about investing and have some fun along the way.
If last year’s challenge offers an indication of what to expect, there will be plenty to discuss as markets respond to central bank decisions, corporate earnings trends, economic activity and a whole lot of uh-oh moments.
Through these twists, the Readers’ Portfolio from our previous challenge – which wound up in mid-March – delivered results that stunned us. The portfolio beat the S&P 500. It smashed the S&P/TSX Composite Index. And it humiliated our own underperforming stock picks.
Does that put pressure on this year’s version?
Perhaps. But we prefer to focus on one of the more positive aspects of a successful – if brief – track record: Given last year’s strong performance, the current incarnation of the Readers’ Portfolio deserves a close look.
What you’ll notice first off is that the list is dominated by tech names, split evenly between U.S. and Canadian-based companies.
The three U.S. picks – Nvidia Corp. (NVDA-Q), Microsoft Corp. (MSFT-Q) and Amazon.com Inc. (AMZN-Q) – are huge, with a collective valuation of US$7.7-trillion based on the value of their outstanding shares.
This could be a bet on artificial intelligence, an investing theme that has propelled the S&P 500 over the past year. Or it could rest on momentum, which is the belief that winning stocks attract investor interest, driving further gains. Either way, this should be an interesting trio to watch.
Canadian tech companies, though considerably smaller than their U.S. counterparts, are also well represented in the portfolio. Shopify Inc. (SHOP-T) has retreated more than 20 per cent in 2024, but readers clearly believe there is a comeback in store for the volatile e-commerce company.
Constellation Software Inc. (CSU-T), which acquires and occasionally spins out tech companies, has been on a hot streak over the past year as the pace of deal-making picks up.
Celestica Inc. (CLS-T) is the smallest tech company in the portfolio, valued at less than $10-billion. But like its larger peers, it is enjoying tremendous momentum: The stock has outperformed Nvidia by 170 percentage points over the past year, as investors bet that the Canadian company will benefit handsomely from its ties to the AI boom.
The Readers’ Portfolio also has value plays, or stocks that are out of favour and well off their highs.
BCE Inc. (BCE-T) has slumped 26 per cent over the past year, but the decline has boosted the dividend yield to 8.7 per cent. Toronto-Dominion Bank (TD-T) has faltered amidst concerns that a U.S. investigation into the bank’s flawed anti-money laundering efforts will hamper growth.
Rounding out the portfolio are two blue-chip energy plays. Canadian Natural Resources Ltd. (CNQ-T) and Tourmaline Oil Corp. (TOU-T) stand to deliver stellar returns if commodity prices stay lofty.
Clearly, a lot of things need to go right over the next 12 months for all 10 stocks to perform well. But as last year’s effort proved, just getting a few things right can be enough to beat major indexes – and Globe reporters.