Welcome to Smart Money! My name is Eric Fry, and I’m glad you’re here.
Wall Street has sold investors on the idea that they should start with “micro” analysis – the idea that they should make investment decisions by comparing things like price/earnings ratios, income statements or other company details.
But I do the opposite; I start with the “macro” analysis.
I look for big-picture trends that drive huge, multiyear moves in entire sectors of the market.
I’m talking about trends that can spin off dozens of triple- and even quadruple-digit gains in just a few years.
Catching just one of these trends – at the right time – can help anyone accumulate enough capital to finance their dreams and to provide themselves with an enviable retirement…
When investors use the global macro strategy, they identify investment opportunities from a broad, global, top-down perspective, rather than by examining stocks one by one (a micro, bottom-up perspective).
And today, I want to examine my Top Five Stocks for 2023, which each capitalize on a highly potentially lucrative trend.
Let’s get started…
2023 Stock No. 1: Corning Inc.
For more than 170 years, the Corning Inc. (GLW) name has been synonymous with best-of-breed glass products. It has continuously innovated and set the industry standard for excellence.
Today, the company operates five different business segments – each of which is beginning to benefit from powerful tailwinds.
Those five segments are…
- Optical Communications – accounting for 33% of Corning’s 2020 sales and 39% of its net income.
- Display Technologies – accounting for 29% of sales and 23% of net income.
- Specialty Materials – accounting for 17% of sales and 20% of net income.
- Environmental Technologies – accounting for 12% of sales and 11% of net income.
- Life Sciences – accounting for 9% of sales and 7% of net income.
The worldwide 5G buildout tops the list of tailwinds that are benefiting Corning’s largest segment, Optical Communications. That’s the one that provides optical fiber and related connectivity solutions to telcos, data centers and other enterprises.
As the global 5G build-out proceeds, so too will demand for Corning’s fiber-optic cable and components. This substantial source of new demand could become shockingly large.
Based on likely earnings of $2.40 a share this year, Corning shares are trading for 15 times earnings. But earnings per share should reach at least $2.75 in 2023 and climb toward $3.00 in 2024.
Looking further down the road, I expect the coming decade to reward Corning with a level of profitability that few investors anticipate today. As a small bonus, the stock pays an annual dividend yield of 3.0%.
Let’s give the final word to Corning CEO Wendell Weeks…
When it comes to the critical components that enable high technology systems in multiple markets that we serve, the bar just keeps getting higher. This leads to a world where precision glass and ceramics win, and we have been winning…
Corning is one of the world’s most proficient innovators in materials science. We combine our unparalleled expertise in glass science, ceramic science and optical physics with our proprietary manufacturing and engineering platforms to develop category-defining products that transform industries and enhance lives.
2023 Stock No. 2: Maxar Technologies Inc.
Warren Buffett advises buying companies that possess a “competitive moat” – an advantage that secures their market share and growth potential.
And Maxar Technologies Inc. (MAXR) possesses a “competitive constellation.”
The company describes itself as a “Leading space technology and intelligence company.” Tracing its roots to the early days of space exploration, the company that would later become Maxar designed and developed NASA’s Mission Control Center (“Houston”) for the Gemini and Apollo missions in the mid-1960s.
But presently, a waiting game continues at Maxar. Investors are anxious to see if the company will finally initiate the long-delayed launch of its next-generation World Legion satellites. Originally, the company had planned to launch its new “birds” in the fall of last year. But after multiple delays, the new target date is sometime in the fall of this year.
Because of the long delay, the only thing that’s legion about Maxar’s new satellites is skepticism. That said, Maxar seems likely to conduct the initial launches before year’s end… and to do so successfully.
Assuming that event comes to pass, the stock could move significantly higher. That’s because the World Legion satellites will provide significant new capacity that could enable Maxar to double its earnings almost immediately.
In the meantime, the company is not simply sitting on its hands; it recently landed a major contract from the U.S. National Reconnaissance Office (NRO), called the new Electro-Optical Commercial Layer (EOCL) contract.
Under the terms of this award, Maxar will provide high-resolution satellite imagery to support the U.S. defense and intelligence community and missions it carries out with U.S. allies and partners.
In exchange, Maxar will receive base annual revenues of $300 million for five years, with an option for five more. This figure is not a game-changer for Maxar, but it provides a great foundation for incremental revenue from the NRO itself, and for “me too” contracts for other U.S. or foreign agencies.
As Maxar boasted when announcing this award…
Recent world events, including the war in Ukraine, have shined an unprecedented light on commercial geospatial intelligence and the value of programs such as EOCL that enable unclassified information sharing with U.S. allies and NATO partners.
Importantly, Maxar can fulfill its EOCL obligation without consuming any of the new capacity the World Legion satellites will provide. Once those birds take flight, Maxar’s earnings per share could rocket toward $3 – putting the stock on a valuation of less than nine times forward earnings.
2023 Stock No. 3: Nokia Corp.
In 2030, the idea of investing in Nokia Corp. (NOK) may seem like the most obvious investment anyone could have ever made.
But in the here and now, the stock does not seem like an automatic winner.
After peaking at $60 a share back in 2000, the stock plummeted below $5 and has spent most of the last decade around that level.
That dismal history is probably a big reason why investors have been hesitant to embrace the stock now, even though the company is on the verge of what will probably become a multiyear phase of explosive growth… thanks to 5G.
But I suspect today’s naysayers are off-target and will be kicking themselves in 2030 (or perhaps as soon as next year) for not buying the stock today.
That’s my bold prediction. Of course, no prediction is certain to come true – least of all the prediction that a long-slumbering stock will soon spring to life and begin to wow investors.
But let’s examine the tea leaves that support my bullish prognostication.
We’ve learned elsewhere that 5G networks will generate a whopping $56 trillion in global sales activity by 2050. To review…
- Artificial intelligence is on pace to unlock over $30 trillion in new revenue…
- The Internet of Things is going to add $19 trillion to the economy…
- And driverless cars are predicted to add $7 trillion.
You get the idea. Typically, an industry measures its growth potential in the billions of dollars, not trillions.
And I can assure you, these new technologies won’t produce their tens of trillions of dollars of economic growth in a vacuum. Somebody will be there to collect, and one of those “somebodies” is posed to be Nokia.
The company possesses a kind of “secret weapon” that attracts little attention from investors: a lucrative and growing patent portfolio.
This portfolio throws off more than $1.5 billion a year in licensing revenue. Because most of that revenue flows directly to the bottom line as net profit, it provides Nokia with steady, robust cash flow.
In fact, this source of income is so substantial that it has totaled more than twice the entire company’s net income during the last six years. Intriguingly, this line item on Nokia’s income statement, called “Nokia Technologies,” is likely to grow considerably over the next few years, thanks to new licensing deals.
2023 Stock No. 4: Paramount Global
Even in genuinely tough economic times, folks are reluctant to forgo “affordable luxuries.”
They would rather eliminate “date nights” in a nice restaurant rather than go without an occasional Starbucks latte… or their favorite movie-streaming service. But don’t try telling that to the folks who have been dumping Paramount Global (PARA) shares.
The stock has tumbled 50% during the last six months, even though the media giant released its highest grossing film of all time, Top Gun: Maverick, over the summer.
At the current quote, I believe Paramount has become a compelling and undervalued speculation – and a few noteworthy investors seem to agree with me.
Warren Buffett’s Berkshire Hathaway Inc. (BRK-A) recently spent $2.6 billion to buy an 11.3% stake in the company. Buffett paid about $37.70 a share.
Prior to his purchase, Paramount’s Chairwoman, Shari Redstone, bought about $3 million worth of stock at $28.38 a share. And prior to that, CEO Bob Bakish bought $500,000 worth of stock at $35.84.
Paramount, one of Hollywood’s most famous film studios, is the owner of many other famous media brands, like CBS, Nickelodeon, and Showtime. Collectively, these media brands create a formidable competitive moat that surrounds what is fast becoming an impressive citadel of streaming services.
Although many investors view Paramount’s streaming services, Paramount+ and Pluto TV, as also-rans, these also-rans are sprinting ahead of most of the competition.
Netflix Inc. (NFLX), for example, lost subscribers for the first time ever during the first quarter of this year, and then lost even more during the second quarter. But over the same timeframe, Paramount+ added a whopping 10.5 million subscribers to lift its total to 43.3 million.
Pluto TV, for its part, added 2.1 million monthly average users (MAUs) during the second quarter to raise its total to 69.6 million MAUs.
I believe Paramount is in the early stages of what could become a powerful growth phase. Even if that growth materializes more slowly than I anticipate, the stock offers ample downside protection at its current quote.
2023 Stock No. 5: TotalEnergies SE
The Paris-based TotalEnergies SE (TTE) is literally a one-stop “energy transition” powerhouse – part “Old Energy” and part “New Energy.” Both parts are significantly undervalued, relative to comparable companies. In fact, it’s one of the world’s biggest renewable energy companies.
The company formerly known as Total – rebranded to TotalEnergies in 2021 – operates in every major facet of the energy industry, from oil and gas to renewables like solar, wind, and green hydrogen.
Unlike most other major oil companies, TotalEnergies’ interest in renewable energy is not a recent or fleeting dalliance. It has been investing billions of dollars over many years to develop a diverse and fascinating portfolio of renewable energy assets.
For example, in 2011 Total purchased a majority stake in SunPower Corp. (SPWR), a leading U.S. manufacturer of solar panels and related products.
Total held that investment through thick and thin – mostly thin. After Total paid $23.25 a share for 60% of SunPower, the stock tanked almost immediately and spent most of the next decade trading at about half that level.
But Total maintained its long-term investment and cooperation with SunPower, and it is finally paying off. Today, TotalEnergies’ renewable energy assets produce about 18% of the company’s total revenues. No other major oil company has come close to making a commitment of that size.
The first runner-up would be London-based Shell PLC (SHEL), which generates about 11% of its revenues from renewables. Elsewhere in the world, including here in the United States, renewables rarely contribute more than a rounding error to oil company income statements.
Additionally, in the renewable energy space, TotalEnergies is quickly incorporating green hydrogen into the mix, and doing so in a big way.
One year ago, the company joined forces with L’Air Liquide ADR (AIQUY), Vinci SA ADR (VCISY), and other large international companies to create the world’s largest investment fund dedicated to clean hydrogen projects. The 1.5-billion-euro fund will target green hydrogen projects along the entire production chain.
Then, just three months ago, Total upped its commitment to green hydrogen by announcing a partnership with India’s Adani Group to invest $50 billion over the next 10 years to produce green hydrogen and develop an entire ecosystem around it. An initial investment of $5 billion will develop four gigawatts of wind and solar capacity, about half of which will feed electrolyzers that produce hydrogen. The venture could expand to 1 million tons of annual green hydrogen production by 2030, driven by 30 gigawatts of clean power.
Although TotalEnergies’ massive investment in renewables entails some risk, so would a failure to do so. If, in fact, the world is transitioning away from fossil fuels toward renewables, oil companies will have to do the exact same thing to maintain their long-term viability and growth potential.
Total is embracing that mission with gusto, or as they might say in the company’s native tongue, avec élan.
I’m so glad that you decided to further your journey to wealth by joining Smart Money.
While these five stocks are sure to fortify your portfolio in 2023 and beyond, those aren’t the only benefits of this free e-letter…
Nearly every Tuesday, Thursday, and Saturday, you’ll receive an email from me or my Editor, Dave Gilbert, wherein we’ll share insights on the latest market “megatrends,” how to hedge against inflation, which stocks you should avoid, and more.