These 11 stocks could help revive your portfolio after the S&P 500’s ‘income recession’ and next year’s market bottom.


This may surprise you: Wall Street analysts expect gains for the S&P 500 increase 8% in 2023 Despite all the buzz about a possible recession, the Federal Reserve is tightening monetary policy to curb 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
— that is, about a 10% decrease in profits. But he also expects the decline to mark a bottom for the stock market.

Lauda’s Predictions for S&P 500 ‘Profit Decline’ and Bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund BUFEX
and the $905 million Buffalo Discovery Fund, which co-manages BUFTX,
said during an interview, “It’s not unusual to see a 20% hit [to earnings] in a modest decline. Margins have reached their peak.”

The consensus among analysts polled by FactSet is for weighted earnings per share for the S&P 500 to be $238.23 per share in 2023, an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his bottom line for 2023 is earnings of around $195 to $200 per share, and that the earnings decline (to around 9% to 12% from the current consensus estimate for 2022) will be “combined with some kind of economic downturn.” “

He expects Wall Street estimates to come down, and said, “Once Street estimates get to $205 or $210, I think stocks will go up.”

He went further and said, “At 3,200 or 3,300 in the S&P, things get really interesting.” The S&P 500 closed at 3,583.07 on Oct. 14, down 24.8% excluding dividends for 2022.

Laudan said the Buffalo Large Cap Fund is about 7% in cash as it has saved some dry powder for stock purchases at lower prices, adding that it has been “fairly defensive” since October 2021 and ” continued to focus on stable dividends. pays companies with strong balance sheets.”

Leaders for stock market recovery

After the market bottomed out, Laudan expects stocks to recover next year as “valuations will discount and respond faster than earnings.”

He expects “long-term tech growth stocks” to lead the rally because “they got hit first.” Nvidia Corp. When asked if NVDA
and Advanced Micro Devices Inc. AMD
Amid the broad decline in semiconductor stocks, and because both are in the Buffalo Large Cap Fund, Laudan said: “They let us down and they’re going to jump first.”

Laudan said his “biggest tech holding” is ASML Holding NV ASML,
which supplies the equipment and systems used to manufacture computer chips.

Among the largest technology-focused companies, the Buffalo Large Cap fund also owns Apple Inc. It owns shares of AAPL.,
Microsoft Corp. MSFT,
Amazon.com Inc. AMZN
and Alphabet Inc. GOOG

GOOGLE.

Laudan also joined UnitedHealth Group Inc. He said he was “overweight” at UNH,
Danaher Corp. DHR
and Linde PLC LIN
Recently, and used Adobe Inc.’s ADBE reduction
After announcing the acquisition of Figma for $20 billion, it collected more shares.

Generalization of reductions

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF SOXX,
The PHLX Semiconductor Index tracks the SOX
The top 30 U.S.-listed chipmakers and related equipment makers are down 44% this year. Still, SOXX is up 38% over the past three years and 81% over the past five years, underscoring the importance of long-term thinking for stock investors even during this terrible bear market for this particular technology space.

Summary of share price changes (again, excluding dividends) and forward price-to-earnings calculations for each stock mentioned in this article between 2022 and October 14. Stocks are listed in alphabetical order:

Company

Ticker

2022 price change

Forward P/E

Forward P/E to December 31, 2021

Apple Inc.

AAPL

-22%

22.2

30.2

Adobe Inc.

ADBE

-49%

19.4

40.5

Amazon.com Inc.

AMZN

-36%

62.1

64.9

Advanced Micro Devices Inc.

AMD

-61%

14.7

43.1

ASML Holding NV ADR

ASML

-52%

22.7

41.2

Danaher Corp.

DHR

-23%

24.3

32.1

Alphabet Inc. Class C

GOOG

-33%

17.5

25.3

Linde PLC

LIN

-21%

22.2

29.6

Microsoft Corp.

MSFT

-32%

22.5

34.0

Nvidia Corp.

NVDA

-62%

28.9

58.0

UnitedHealth Group Inc.

UNH

2%

21.5

23.2

Source: FactSet

You can click on the icons for more information about each company. Click here for Tommy Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

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

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