- An early-year rally could be good news for big-cap stocks.
- A semiconductor stock that could surprise with upside.
- This big bank may be undervalued.
- A precious metals play with a compelling chart.
- A high-dividend large-cap offering a “must have” service could be ready to rally.
- A value ETF with the potential to outperform again in 2023.
The Real Money and Action Alerts PLUS family has seen their share of good and bad markets, so keeping tabs on what they’re doing can be profit friendly. For instance, many of our expert investors offered their thoughts on the best stocks for 2023 this week.
Should you buy Amazon (AMZN) in hopes of an early-year rally? Is Bank of America (BAC) too cheap? Is Verizon (VZ) a dividend dynamo you ought to own? Read on to learn why our pros are investing their hard-earned money in those stocks (plus two others) and if they are right for you.
Kass is an active investor who loves betting against the herd. This week, he released his annual “surprises” list to readers of his Real Money Pro trading diary. In it, he boldly asserted that instead of poor earnings causing stocks to tumble in the first half of the year, the opposite would be true. Better-than-expected results against lowered expectations will fuel a first-half rally that will fizzle after June.
Kass expects stocks will remain within a trading range (currently, 3700 to 4100 on the S&P 500). So, given the S&P 500 is far closer to the low end than the high end of that range, it’s unsurprising that today he wrote in his diary that he’s “at my highest net long exposure in months.”
Kass writes: “S&P cash closed at 3785 on Wednesday. That represents reward (+315 handles) vs. risk of only (-85 handles). That is, according to my calculus, an almost 4:1 positive ratio of upside/downside. I am sticking to my calculus and investing dispassionately – repeating for emphasis.”
What’s Kass buying? He’s long Amazon (common and calls), Alphabet (GOOGL) (common and calls), St. Joe (JOE) , and Paramount Global (PARA) (common and calls) as of this morning. Uninterested in single-stock risk? He’s also long the S&P 500 ETF (SPY) .
You can bet he’ll be booking profits if we rally, though, especially if we get up toward his upside range target of 4100. So, you’ll want to keep tabs on his activity by regularly reading his diary.
Guilfoyle has been navigating the markets since his first job on the exchange floor in the 1980s. “Sarge” – as he’s known to friends – thinks Advanced Micro Devices is a stock to buy this year.
Sarge’s interest in (AMD) stems from his confidence in CEO Lisa Su and AMD’s leadership in key markets experiencing demand despite this year’s economic craziness. Notably its strength in data centers. However, AMD’s path isn’t likely to be a straight line higher.
Inventories are a problem that will take time to resolve. He’s also not ignoring that AMDs past data center strength (revenue grew 45% year-over-year last quarter) is subject to “changing domestic and global macroeconomic conditions.” If the economy contracts and companies rein in spending, AMD won’t be immune.
As a result, Sarge thinks “a period of technical consolidation will be necessary after a potentially sharp move early in 2023…Then, if all goes according to plan, AMD will have set the stage to an upward acceleration in share price into the second half, or fourth quarter, of 2023.”
Of course, Guilfoyle reminds us that it’s important to be realistic about expectations. Managing trades to protect against downside is a key tenet.
“Seasoned traders use various investing tools such as target prices and panic points — as well as options — for these trades. These tools give us more control over when we exit a position than does the mere passage of time. Regular readers know darn well that I refuse to lose more than 8% on any position unless it happens while I am asleep.”
Given that opinion, consider running a stop loss below AMD so you don’t get trapped if shares fail to follow Guilfoyle’s path.
It may be tempting to bottom-fish high-growth stocks, but that’s risky. The Federal Reserve is focused on keeping rates high for as long as necessary in its inflation battle. For this reason, a higher risk-free rate of return for Treasuries will likely keep a cap on valuation for stocks heavily reliant on forward growth for profitability.
Instead, Ginesin thinks Bank of America is a bargain worth buying, writing, “[Bank of America] has everything right: It’s discounted from recession fears, has great management, benefits from rate hikes, and has a competitor on wobbly footing.”
Bank of America’s shares have retreated 26% year to date on fears slowing economic activity will cause a drop in loan demand and an uptick in delinquencies and defaults. The drop could overstate that risk if unemployment increases yet it remains near historic lows. If so, stable loan demand and higher rates on commercial and consumer loans could mean its net interest margin (the difference between its lending and borrowing rates) props up earnings.
There’s little question that CEO Brian Moynihan is one of the best in the business (he helped the bank successfully navigate the Great Recession). Furthermore, Wells Fargo – one of Bank of America’s key rivals – continues to wrestle with lawsuits stemming from past ill-advised practices.
Ginesin writes: “Valuation matters. Choppy market action will likely continue into the new year, shunning stocks with no valuation support. Bank of America is not a story stock or a glamour holding; it’s a bread-and-butter play on a too-cheap valuation based on the bank’s massive earnings power…The average consumer is actually in good shape to weather a recession — and the average Bank of America consumer is in even better shape — owing to it servicing a more affluent demographic.”
Consumers are sitting on lots of home equity following the post-COVID run-up in housing, somewhat insulating them against foreclosure. Credit card metrics are worsening, but Bank of America’s less exposed than players focusing on lower credit score consumers like Synchrony.
How much could Bank of America be worth? Ginesin says its book value could be over $32 per share because of buybacks and retained earnings exiting 2023. He concludes, “A multiple of 1.2-times book with a 10 price-to-earnings is a reasonably conservative expectation by year-end.”
Technical expert Bruce Kamich could be the hardest-working technician on the planet. He shares his thoughts with Real Money members on many stocks daily, including this week when he selected Hecla Mining (HL) as one of his favorite ideas for 2023.
Kamich’s evaluation of Hecla Mining included reviewing its daily and weekly price charts as well as on-balance volume, a running total of up minus down day volume, and moving average convergence/divergence, a commonly used momentum indicator.
He thinks Hecla’s shares could be in the process of building a multi-DECADE long base. If it moves out of that base, shares could march substantially higher, according to point-and-figure charting, a technique that’s helped analysts determine price targets since the late 1800s.
“In this weekly Japanese candlestick chart of HL, below, I can see a bullish engulfing pattern in September to mark the end of the downtrend from 2021. Prices have rallied above the declining 40-week moving average line. The weekly OBV line shows a slight improvement from September. The MACD oscillator has just crossed above the zero line for an outright buy signal.”
The weekly chart is similarly bullish, but Kamich acknowledges that it could take time for shares to move up to his point-and-figure target of $8.75 on the daily chart and $12.75 on the weekly chart. He concludes that “Traders and investors will need to be patient with this recommendation. Prices could move sideways in the $5.00 to $6.00 range for several weeks or even months before another push higher. Traders could probe the long side of HL around $5, risking to $4.25.”
Bob Lang & Chris Versace
This dynamic duo manages Action Alerts PLUS’ multimillion-dollar portfolio. Recently, they added more shares to their existing position in Verizon, the mega-cap wireless company.
Verizon’s consistent track record for increasing dividends is a big reason Lang and Versace are confident about its performance in 2023. The company increased its dividend payout for the 16th consecutive year in September, bringing its yield to a healthy 6.6%.
In a period when short-term Treasury yields are above 4%, Verizon’s yield remains a competitive alternative for investors. Importantly, while other companies may offer higher yields, few compare with Verizon regarding market size, revenue consistency, and brand recognition. Instead of chasing less-proven stocks with higher yields, buying Verizon could be a relatively safer bet.
Verizon is a “dividend dynamo,” according to Lang and Versace. However, that’s not the only reason they boosted it to a “one” buy rating this week. They write that Verizon’s business is “defensive and inelastic…given consumer and business needs to remain connected in today’s increasingly digital world.”
Of course, there’s competition from other telcos, including T-Mobile. Still, it’s hard to imagine people readily giving up their phones. Like when landlines ruled in ye olden days, smartphones are as close to a “must-have” as it gets, regardless of economic activity.
If you want to follow in their footsteps and pick up shares in these stocks, remember that market volatility isn’t likely over yet. The stock market’s decline in 2022 has wrung a lot of excess out of the market, potentially setting stocks up for better days. Inflation is decelerating recently, and the U.S. Dollar has retreated. Since a strong Dollar weighed down results at multinationals and technology stocks reliant on overseas sales, recent weakness could provide a tailwind, especially against favorable comparables as the year progresses.
Nevertheless, plenty of cautionary signs remain. The Federal Reserve appears closer to the end of raising interest rates. Still, the economy has yet to signal that it’s overplayed its hand, forcing it to pivot from hawkish to dovish. Higher rates for longer could mean we experience slugflation this year, a period of sluggish growth and elevated inflation that hurts consumers’ pockets and reduces corporate spending. If so, growth stocks may still struggle.
For this reason, prudent investing remains wise. That includes smaller-than-normal initial position sizes, dollar-cost averaging into positions, stop-losses to protect against outsized losses, and focusing on best-in-breed companies rather than flashy-unprofitable companies.
It could be that value-oriented stocks, particularly dividend-paying companies, remain in vogue, outperforming growth stocks in 2023. If so, consider Vanguard’s High Dividend Yield ETF (VYM) . It owns over 440 stocks comprising the FTSE® High Dividend Yield Index. The median market cap of its holdings is $142 billion, and it yields 2.8%. As of December 29, it lost just 1% in 2022, miles better than the S&P 500’s nearly 20% tumble. Furthermore, its expense ratio of 0.06% is tiny. If value’s day-in-the-sun continues, adding it to portfolios in 2023 could make sense.