Update No. 495: IMF on Recession, 2023 Crystal Ball, TC Energy
07Jan23 $TRP
Dear Friends of Purple Chips,
Happy New Year! On Thursday the Dow was at 33,000, down a few hundred points from a week ago. We're looking forward to an exciting year where it shouldn't be too difficult to make 5% +. A lot of stocks are giving attractive yields and fixed income now makes sense. There will be challenges, but also great opportunities. In this weekend's video, we look at the following:
Comments by the IMF say that we'll likely experience a global recession;
We dust off our crystal ball and talk about what we see ahead;
Discuss TC Energy;
Our next video is on January 21st.
Please click below for:
Please see the Update here.
Video Transcript:
On Thursday the Dow was at 33,000, down a few hundred points from last week. Looking ahead, I would not be surprised to see further weakness in the first half of the year because earnings forecasts are still optimistic and will likely be lowered as the effects of rising interest rates start to take hold. Having said this, I also believe that we are in a broad trading range with a negative bias. And lastly, I would also not be surprised if the S&P 500 ends 2023 with a net gain after finishing down 19% in 2022.
Now in the spotlight, we look at comments from the IMF that say we could be going into a global recession. No surprise there. You can pause your video to read through this. And here's another slide from the spotlight theme that says that earnings forecasts will probably be revised downward. For a few months now we've been saying that analysts’ forecasts are too high so I'm not surprised to see this
We didn't make any changes in our satellite positions. Please note that we do plan to exit most of the stocks when our model tells us that they're at high valuations.
Now I'd like to talk a little bit about the future and we'll do a little bit of crystal balling here about I think the year could evolve. 2022 was the pinnacle of a 13-year bull market. It was a year of exaggeration. where speculators threw all common sense out the window and bet on Bitcoin and stocks that were driven by hype rather than reality. All of this led to overvalued speculative companies which is typical when a bull market gets exhausted and tops out. Now it looks like the era of low-interest rates has passed. And stocks are facing headwinds in the form of possible recessions, supply chain issues, rising global tensions, increasing tariffs, etc, etc. Although there's a lot to be worried about, historically the market has had a way of surprising investors and doing better than expected and this could happen. Many investors believe the market is too high, it should go lower. I feel this way too. However, experience has taught me that what we expect is not usually what we get. The market could go sideways for longer than expected. I think the smartest way to gauge the market is to watch the progression of earnings because this will dictate how stocks perform. My expectation is that earnings forecasts will decline and stocks will face headwinds, but this doesn't mean that stocks will only just drop. The market could decline in the first half of the year and then rally thereafter. That being said, we'll base our investment decisions on valuations and continue to look for fundamentally good companies that are out of favor.
One such stock is TC Energy. For full disclosure, I hold shares in this stock and we own this stock in our satellite portfolio. I find this company very attractive because most of its revenues are based on long-term contracts. So the analysts’ forecasts are not likely to change too much, recession or not. Also, the current valuation is the lowest that I've seen in 20 years and they pay a 6.8% dividend at this level. The reason the stock has been weak is that the earnings will be flat for 2023. However, I think the bad news is already priced into the stock and within two years, I would not be surprised if it trades at $70 plus. At this time the average analysts’ target is $64.85.
On to other matters, our next video will be on January 21. And if you have any questions about this video or about Purple Chips, please contact me at info@purplechips.com. I thought we should start the year with a good laugh, so here are a few things that could get you going. And that's it for this week. It's a short video but I wish everyone a Happy New Year with health and prosperity.
Transcribed by https://otter.ai