America’s economic statistics continue to suggest that fears about an imminent recession and a corporate earnings collapse are way overblown. For example, during the recent holiday shopping season, sales climbed 7.6% year-over-year. And since most people don’t buy each other paper towels, eggs, and toothpaste for Christmas, I have to believe that discretionary products account for most of the increase. As a result, it’s clear that consumer spending isn’t going to fall off a cliff anytime soon. And the U.S. GDP rose by a healthy annualized rate of 3.2% in the third quarter. Given these points, I believe that a new bull market will begin in the first quarter of 2023, and I’m excited to unveil my blue-chip stock predictions for 2023.
IBM (NYSE:IBM) stock had risen 6.4% this year, excluding its dividend payments, and, in line with my predictions, the tech giant’s cloud business thrived. In fact, in the third quarter, the revenue of its software and consulting businesses jumped 14% year-over-year and 16% YOY, respectively.
The strong results indicate that the company’s strategy of developing systems that suit the hybrid cloud –which combines the use of the public cloud, the edge cloud, and local databases — is resonating with its clients. And that’s logical because, as CEO Arvind Krishna explained in a recent interview, it makes perfect sense, in this era when hacking has become a major issue, and there is geopolitical upheaval, that companies and countries would want to store some of their more sensitive data locally. Additionally, the edge cloud is used to support artificial intelligence that’s utilized to replace workers, Krishna stated.
Speaking of AI, IBM has emphasized the use of artificial intelligence, which is logical since the technology has become so powerful and useful at this point.
Finally, according to IBM’s Senior VP of Sales, Rob Thomas, under Krishna’s leadership, IBM is focusing much more energy and resources on ensuring that its new customers are productively using IBM’s systems and understand how they can benefit by adopting more of its products. Since technology can be challenging to understand, integrate, and appreciate even for IT professionals, that strategy certainly seems worthwhile and profitable.
With IBM’s common-sense strategies working and the Street having gained a greater appreciation for the firm, as shown by the outperformance of its shares, IBM belongs on one of my list of top blue-chip stock predictions for 2023.
Without a doubt, Visa (NYSE:V) and V stock will be one of the biggest beneficiaries of much better-than-expected consumer spending in 2023. After all, the vast majority of consumer spending is executed with credit cards these days. Moreover, Visa is America’s largest card network, and it earns a small portion of every transaction that is carried out with its cards.
Visa should also get a lift from inflation since higher prices will boost its revenue, and if the company can keep its costs from rising less than inflation, its bottom line will also climb as a result of the phenomenon. Additionally, the card network should be helped by the resurgence of international travel since it earns higher fees when its cards are used for overseas spending.
Also encouraging is the fact that the company’s U.S. payments volume jumped 9% year-over-year last month. And billionaire Ray Dalio, a veteran, highly renowned investor, more than doubled his stake in V stock last quarter to 1.2 million shares.
Wells Fargo (WFC)
With the American economy actually performing quite well even as it’s trashed daily in the media by Wall Street analysts, Wells Fargo (NYSE:WFC), a very large bank that’s focused on lending to America’s businesses and consumers, is poised to outperform expectations in 2023.
Perhaps that’s why WFC stock was identified on Dec. 4 as the 12th favorite stock of hedge funds and mutual funds by Goldman Sachs.
Like all banks that are focused on lending, WFC’s net interest income will be boosted by higher interest rates.
In an interview that took place on Dec. 6, CEO Charlie Scharf confirmed that prognosis, saying that “we certainly would expect next year’s net interest income to be higher than this year’s net interest income,”
And although Scharf said that overall economic growth is slowing, he stated that the credit card spending of the bank’s customers continues to increase, although the business’s growth is slowing. Moreover, services and experiences businesses are doing quite well. And when it comes to loans, after the bank’s loans increased by 4% in the first three quarters of the year, the CEO reported that the direction of the company’s loan business had not changed meaningfully in Q4.
So WFC is poised to benefit from continued credit card spending growth, higher net interest income, and continued strong loan growth. Yet the bank’s forward price-earnings ratio is a minuscule eight, creating a very good opportunity for investors in 2023.
The world’s second-largest automaker in global sales, Volkswagen (OTCMKTS:VWAGY) trades at a tiny valuation, as it’s changing hands for just four times analysts’ average 2022 earnings per share estimate. That’s even below the low valuations of Ford (NYSE:F) and GM (NYSE:GM), which change hands for about fives times analysts’ mean 2022 EPS estimates for them.
Volkswagen’s valuation is being weighed down by the fact that its headquarters are in Europe. But the automaker obviously makes and sells vehicles all over the world. Moreover, as research firm Trefis pointed out recently, Volkswagen has a number of important strengths.
Specifically, its deliveries jumped 10.6% year-over-year in the third quarter, while its operating profit soared 64% YOY. And the company’s electric-vehicle business is thriving, as its EV sales jumped 25% YOY to 366,400. With Volkswagen also building its own battery factories, the company should start emerging as an obvious winner in the EV race next year.
According to Trefis, VWAGY stock is worth roughly $23 per share versus its closing price of $15.61 on Dec. 28.
Cheniere Energy (LNG)
Continuing our theme of blue-chip stocks with unjustifiably low valuations, let’s look at Cheniere Energy (NYSEMKT:LNG). The company, which exports natural gas from the U.S., is changing hands for just 6.6 times analysts’ average 2022 earnings per share estimate for the company.
Yet the company is generating huge profits, as it, as of November, is expected to generate $8.1 billion to $8.6 billion of “distributable cash flow” in 2022.
And LNG has strong macro drivers. First, Europe is buying all of the natural gas it can get its hands on, as American LNG exports to the continent soared more than 200% year-over-year in the first nine months of 2022. Meanwhile, China’s reopening should rejuvenate the demand for natural gas from that country.
Additionally, Cheniere is continuing to expand its export capacity by building more export facilities, and the company is benefiting from elevated liquid natural gas prices. And continued tensions between the West and Russia, along with the electrification of transportation, should keep natural gas prices high for the foreseeable future.
Nowadays, much of Wall Street seems allergic to buying or recommending Big Tech stocks. But ServiceNow (NYSE:NOW), whose products automatically carry out IT tasks, appears to be an exception to that rule. Between the close of Dec. 7 and the close of Dec. 27, the shares were little changed. And Yahoo Finance earlier this month identified the name as a hedge-fund favorite.
What’s more, Morgan Stanley recently identified NOW stock as its “top pick” in the software sector, saying that the company’s subscription model should enable its growth to remain resilient. Additionally, the bank, which has an “overweight” rating on the shares, expects NOW’s profit margins to climb in the coming months.
Also noteworthy is that in Q3, institutional investors either held or bought 166 million shares of NOW stock, while only 12 million of its stock was sold by institutions. And showing institutions’ faith in the name, they own 87.7% of its shares.
Booking Holdings (BKNG)
Along with Expedia (NASDAQ:EXPE) and Trip.com, Booking Holdings (NASDAQ:BKNG) is one of three huge, U.S.-based online travel agencies, or OTAs.
In a Dec. 6 interview, Wells Fargo CEO Charlie Scharf stated that U.S. consumers are continuing to spend a great deal of money on travel. Although I think that trend could slow somewhat next year, it should still remain strong for much of 2023, enabling Booking Holdings to continue reporting strong financial results and lifting BKNG stock.
And in the third quarter, the number of hotel rooms rented through the site climbed about 8% versus Q3 of 2019, while the value of its gross bookings soared 27% versus the same period in 2019.
Also encouragingly, billionaire George Soros, one of the world’s more successful investors, bought 10,000 shares of BKNG last quarter.
Finally, the company should greatly benefit from the return of international travel.
BKNG has a relatively low forward price-earnings ratio of 16.8 times.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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