What Financial Pros Expect in 2023

Our last edition of The Spill looked back at 2022, everything from interest rates to the tech wreck.

Given the pervasive themes, you might assume less interest in technology names.

Yet, as our TrackStar data illustrates, financial pros continue to watch the biggest names out there.

Which plays into our 2023 outlook.

Cash remains king.

That’s the theme and anchor for 2023.

And as we’ll soon explain, we expect it to create a stock-pickers market the likes of which we haven’t seen in a very long time.

What Funds You?

Technology names split into three categories this year.

One group is dominated by companies with fortress balance sheets and cash-rich operations.

This includes names like Apple (AAPL) and Microsoft (MSFT).

Quite simply, these companies provide services that we can’t live without nor easily substitute.

They act more like consumer staples than true tech. But, they still offer solid growth and healthy margins.

Then we get to the second group that’s a lot like the first, but more tightly woven into consumer demand.

This includes Meta Platforms (META), Amazon (AMZN), Tesla (TSLA), and Google (GOOGL).

None of these companies are going out of business anytime soon.

And if the recession is lighter than expected, their growth rates may soon return to preeminent levels.

We see these as the top investments for 2023. However, they can and likely will take years to realize their full potential.

Nonetheless, with many off their all-time highs by more than 50%, they trade at cheap valuations, with Meta priced at just under 7x forward operational cash flows.

Then we get to the stragglers – companies face serious challenges Fastly (FSLY), Palantir (PLTR), and Microstrategy (MSTR).

With tiny or negative operational cash flows, these businesses face legitimate solvency issues.

The higher the debt load, the greater the interest expense.

Since the Fed isn’t likely to cut rates until 2024 at the earliest, these companies are deadweight, in our opinion.

Sure, a few might return to their former glory.

But the average investor isn’t likely to have enough insight to know which ones will make it.

Energy Malaise

Grab any energy stock and you likely did well in 2022.

Stocks from Exxon Mobil (XOM) to Chevron (CVX) were already doing well.

Then Russia invaded Ukraine, and commodity prices took flight.

As we close out the year, it would appear that prices have tempered somewhat.

Yet, the cheap energy boom we saw from 2014-2020 isn’t likely to return.

The graphic below from the Energy Information Administration (EIA) lays out projected demand by fuel and sector over the coming decades.

Source: Energy Information Administration

Despite gains in the renewable sector, demand for fossil fuels continues to rise in the coming years.

The current forecast from the EIA shows limited production output growth in 2023.

The prospect of higher interest rates forced exploration and production companies to rethink expansion.

Many are shedding high cost assets in favor of adjacent properties in the Permian Basin and like territories to increase efficiency and margins.

This makes it highly unlikely we’ll see energy costs return to pre-pandemic levels.

While we expect some froth to come out of sector, energy names, especially well-capitalized ones like Northern Oil & Gas (NOG), should continue outperforming the broader market.

We also like mid-stream plays like Energy Transfer L.P. (ET), which pays a nice dividend and holds long-term contracts with its customers.

Biotech Breakout

2020 permanently changed the way we live.

We’re now acutely aware of the dangers presented by infection and disease.

Despite the politics surrounding vaccines and therapies, we expect biotech and pharma companies to do well over the next decade.

And you don’t have to take our word for it.

TrackStar data constantly picks up heavy search volume as these companies announce drug trials and approvals updates.

One of the heaviest searches in the last several years was Moderna (MRNA).

News of expanded treatments using mRNA shouldn’t be taken lightly either.

Like the potential for fusion energy, the current biotechnology landscape sits at the edge of a true sea change.

And investors care.

With growth hard to come by, biotech companies offer lucrative payoffs for investors, even with high interest rates.

Based on the research of our TrackStar data, this could be the dark horse candidate for 2023.

We can’t offer specific names at this time as the news evolves faster and faster…

…which is why we encourage you to keep on top of your subscription to The Spill.

We’ll make sure to cover the latest developments and top names worth your time.

And Remember…

The Spill strives to synthesize fundamental and technical information driven by our proprietary Trackstar data to provide you with a level of analysis you can’t find anywhere else.

We encourage you to explore these companies and provide us feedback to make your experience even better.

Wishing you and your family a healthy and happy 2023!

• 2022: The Start of a Lost Decade
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• Where Ray Dalio’s Investing
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