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 “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 a 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 highlight my Top Five Stocks for 2023, each of which is capitalizing on a powerful megatrend.
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 six different business segments – each of which is beginning to benefit from powerful tailwinds.
Those six segments are…
- Optical Communications – accounting for 34% of Corning’s 2022 sales and 37% of its net income.
- Display Technologies – accounting for 22% of sales and 44% of net income.
- Specialty Materials – accounting for 14% of sales and 19% of net income.
- Environmental Technologies – accounting for 11% of sales and 16% of net income.
- Life Sciences – accounting for 8% of sales and 9% of net income.
- Hemlock and Emerging Growth Businesses – accounting for 11% of sales and 2% 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 $1.98 a share this year, Corning shares are trading for 15 times earnings. But earnings per share should reach at least $2.41 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 3.6%.
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: 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. 3: 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 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 the shares of Paramount Global (PARA).
Paramount owns one of Hollywood’s most famous film studios, along with many other famous media brands, including 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.
The stock has tumbled 56% during the last 12 months, even though the media giant is making steady progress in every facet of its business. Paramount’s legacy film and broadcast operations are producing steady successes.
Six of Paramount’s theatrical releases in 2022 year reached No. 1 at the box office… and the studio’s Top Gun: Maverick raked in more than $1.5 billion at the box office – surpassing Titanic to become the studio’s biggest domestic hit of all time.
Paramount’s Yellowstone is one of the top series on cable, while CBS has been one of the nation’s No. 1 broadcast networks for years.
In other words, there’s a lot to like here.
However, what’s not to like is that revenues are falling.
In early May, Paramount missed Q1 revenue estimates, and the company gave its quarterly dividend a steep haircut from $0.24 to $0.05. This caused the stock to drop from the $22-$23 range to $14-$15.
Despite this setback, 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.
A few noteworthy investors seem to agree with me.
Warren Buffett’s Berkshire Hathaway Inc. (BRK-A) has spent $2.6 billion to buy an 11.3% stake in the company. Buffett paid about $37.70 a share – or more than double the current share price.
2023 Stock No. 4: 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 a few 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.
2023 Stock No. 5: Volkswagen AG
Volkswagen AG (VWAGY) often stands atop the champion’s podium as the world’s largest auto manufacturer. The giant German company jockeys with Toyota Motor Corp. (TM) year by year for the top spot, whether measured by auto deliveries or revenues.
In 2020 and 2021, for example, Toyota sold more cars, but VW produced larger revenues. In 2019, VW sold more cars than Toyota and produced larger revenues.
Volkswagen Group owns the Volkswagen brand of automobiles, of course. But it also owns Audi, Porsche, Bentley, Bugatti, Lamborghini, Ducati, Scania, Seat, Skoda, and Man brands.
In all, VW’s 120 production plants produce and sell eight to 10 million cars per year in 153 countries… and they do so very profitably.
During 2022, for example, VW posted gross earnings (EBITDA) of $49 billion for 2022 and net income of nearly $14 billion – and that’s with various supply-chain challenges, a war in Ukraine, and recessionary conditions worldwide.
You get the point. VW is one of the biggies; Tesla Inc. (TSLA) isn’t.
But Tesla might be the sexiest car company, which is probably the main reason its stock has been dazzling investors for so many years.
Even though Tesla shares have tumbled more than 45% from their all-time high, they remain a whopping 833% above their 2020 low and still cling to a hefty $712 billion market value.
To be clear, a low valuation alone is not reason enough to buy any stock. But Volkswagen’s considerable growth potential, coupled with the stock’s rock-bottom valuation, provides ample reason to pull the “buy” lever.
Thanks to its focused and substantial investment in producing a new generation of electric vehicles, VW has embarked on a robust, multi-decade growth trajectory.
The company makes no secret of its ambition to become the world’s preeminent EV company… and it is making rapid progress toward that goal.
Over the next five years, Volkswagen plans to invest a titanic $76 billion in global EV production and battery technology, including $7 billion to expand U.S. production and $17 billion to expand its market-leading presence in China. No other automaker is spending close to that amount.
Volkswagen is also investing heavily to develop of an open fast-charging network worldwide. By 2025, the company and its partners expect to install 45,000 High Power Charging points in Europe, China, and the U.S.
Despite a substantial drop in VW’s overall car sales during the last 12 months, its EV sales rose at a healthy clip. Total EV deliveries for the first nine months of 2022 increased 25% year over year, led by a whopping 139% jump in China deliveries.
Volkswagen may not be as “sexy” as Tesla… but it is well on its way for a top spot in the EV megatrend.
Moving Forward
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.
Get started by visiting your Smart Money website here.
Regards,
Eric Fry
