These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

This may surprise you: Wall Street analysts are expecting gains for the S&P 500 increase 8% in 2023, despite all the hype about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., doesn’t buy it. He expects an “earnings recession” for the S&P 500 SPX,
+2.62%
– a profit drop of around 10%. But he also expects this decline to form a bottom for the stock market.

Laudan’s Predictions for “Earnings Recession” and S&P 500 Bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund BUFEX,
-2.86%
and is co-managing director of the $905 million Buffalo Discovery Fund BUFTX,
-2.82%,
said during an interview: “It’s not uncommon to see a hit of 20% [to earnings] in a mild recession. Margins have peaked.”

The consensus among analysts polled by FactSet is that total weighted earnings for the S&P 500 in 2023 will be $238.23 per share, an increase of 8% from the current 2022 EPS estimate of 220, would equate to $63.

Laudan said his base case for 2023 is earnings of about $195 to $200 per share and that that earnings decline (about 9% to 12% from the current 2022 consensus estimate) “is coupled with some kind of economic recession. ”

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He expects Wall Street estimates to fall, saying, “Once Street estimates go up to $205 or $210, I think stocks will take off.”

He went further, saying, “At 3200 or 3300 on the S&P, it gets really interesting.” The S&P 500 closed at 3583.07 on Oct. 14, down 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund has about 7% in cash as it keeps some powder dry for stock purchases at lower prices, adding that it’s been “fairly defensive” since October 2021 and remains focused on “steady dividends.” . paying companies with strong balance sheets.”

Stock market recovery guide

With the market bottoming, Laudan expects stocks to begin a rebound next year as “valuations will depreciate and react faster than earnings.”

He expects “long-term tech growth stocks” to lead the rally because “they got hit first.” When asked if Nvidia Corp. NVDA,
+5.59%
and Advanced Micro Devices Inc. AMD,
+3.40%
were good examples, given the broad decline in semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said, “They led us down and they’ll bounce back first.”

Laudan said his “biggest tech holding” is ASML Holding NV ASML,
+3.28%,
which provides equipment and systems for manufacturing computer chips.

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Among the largest technology-oriented companies, the Buffalo Large Cap Fund also holds shares of Apple Inc. AAPL,
+3.05%,
microsoft corp MSFT,
+3.74%,
Amazon.com Inc. AMZN,
+6.16%
and Alphabet Inc. GOOG,
+3.94%

google,
+3.76%.

Laudan also said he was “overweight” at UnitedHealth Group Inc. UNH,
+1.25%,
Danaher Corp. DHR,
+2.57%
and Linde PLC LIN,
+2.27%
recently and had taken advantage of the decline in Adobe Inc.’s ADBE,
+2.03%
Price after announcing $20 billion acquisition of Figma by buying more shares.

Summary of declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF SOXX,
+1.74%,
which maps the PHLX Semiconductor Index SOX,
+2.00%
of 30 U.S.-listed chipmakers and related device makers is down 44% this year. On the other hand, the SOXX was up 38% in the last three years and 81% in five years, underscoring the importance of long-term thinking for stock investors, even during this terrible bear market for this particular area of ​​technology.

Here’s a summary of changes in share prices (again, excluding dividends) and forward price-to-forward earnings ratings over the period 2022 through October 14 for each stock mentioned in this article. The holdings are sorted alphabetically:

company

ticker

Price change 2022

Forward P/E

Estimated P/E as of December 31, 2021

apple inc

AAPL,
+3.05%

-22%

22.2

30.2

Adobe Inc.

ADBE,
+2.03%

-49%

19.4

40.5

Amazon.com Inc.

AMZN,
+6.16%

-36%

62.1

64.9

Advanced Micro Devices Inc.

amd,
+3.40%

-61%

14.7

43.1

ASML Holding NV ADR

ASML,
+3.28%

-52%

22.7

41.2

danaher corp

DHR,
+2.57%

-23%

24.3

32.1

Alphabet Inc. Class C

WELL,
+3.94%

-33%

17.5

25.3

Linde PLC

LIN,
+2.27%

-21%

22.2

29.6

microsoft corp

MSFT,
+3.74%

-32%

22.5

34.0

Nvidia Corp.

NVDA,
+5.59%

-62%

28.9

58.0

United Health Group Inc.

UNH,
+1.25%

2%

21.5

23.2

Source: FactSet

You can click on the tickers to learn more about each company. Click here for Tomi Kilgore’s in-depth guide to the wealth of information available for free on MarketWatch’s price page.

Forward P/E for the S&P 500 fell to 16.9 at the close on October 14 from 24.5 at the end of 2021, while forward P/E for SOXX fell to 13.2 from 27.1.

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Source

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