The year 2022 was a particularly volatile year. We witnessed massive labour and material supply upheaval across multiple continents, the reopening and removal of enforced isolation for billions of people and the sharpest rises in interest rates in decades. In this atmosphere, which companies have the best chance of having bounce back stocks in 2023?
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As a result of the significant changes being enacted, company stocks went on a wild ride, with losses accumulating in sectors and companies that might otherwise have thrived. In this article, we will look at some of the stocks that have a chance to rebound in 2023.
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Specific stocks in 2022 might have lost value for a number of key reasons.
- Poor financial performance:Â If a company's financial performance deteriorates, it can lead to a decline in the value of its stock. This could be due to factors such as declining sales, increasing costs, or deteriorating profit margins.
- Negative news or developments:Â Negative news or developments related to a company, such as a lawsuit, a recall, or regulatory action, can lead to a decline in the value of its stock.
- Changes in the broader market: Changes in the broader market, such as a recession or a market downturn, can lead to a decline in the value of a company's stock.
- Changes in investor sentiment:Â Changes in investor sentiment, such as a shift from optimism to pessimism, can also lead to a decline in the value of a company's stock.
- Changes in the competitive landscape:Â Changes in the competitive landscape, such as the emergence of new competitors or technological disruptions, can also lead to a decline in the value of a company's stock.
The most disruptive aspect to 2022 technology valuations has been the impact of rising interest rates, which impact stocks in a number of ways:
Cost of capital – Interest rate movements can affect the cost of capital for technology companies, which can impact their profitability and valuations. For example, if interest rates rise, it can make borrowing more expensive for technology companies, which can reduce their profits and potentially lead to a decline in the value of their stocks. On the other hand, if interest rates fall, it can make borrowing cheaper, which can boost profits and potentially lead to an increase in the value of technology stocks.
Investment decisions: Interest rate movements can also impact the investment decisions of technology companies. For example, if interest rates are low, technology companies may be more likely to invest in research and development, as the cost of borrowing is lower. This can potentially lead to an increase in the value of technology stocks. On the other hand, if interest rates are high, technology companies may be less likely to invest in research and development, which could potentially lead to a decline in the value of technology stocks.
Valuation of technology stocks: Interest rate movements can also impact the valuation of technology stocks. For example, if interest rates are low, technology stocks may be more attractive to investors, as they may offer higher returns than other investment options. This could potentially lead to an increase in the value of technology stocks. On the other hand, if interest rates are high, technology stocks may be less attractive to investors, which could potentially lead to a decline in their value.
The stocks that we’ll look most closely at are those that have managed to remain somewhat profitable, have performed as well or better than their peers and are in a sector that has been overlooked by investors of late.
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Meta (NASDAQ:META)
The broader big-technology sector represented by the top 100 companies in the NASDAQ under the exchange-traded-fund (ETF) QQQ (NASDAQ:QQQ) is down by over 30% year-to-date. META is down by over 64% at the time of writing.
META has suffered at the hand of Fed Chairman Jerome Powell and his closing of the door on money from low-interest rates – sending down QQQ by over 30% this year.
META has been a victim of its own hubris of the new metaverse. At present, it is spending an annualised $15bn per annum on the metaverse project – by an easy margin the single largest technology sector investment ever made.
Despite voluntarily spending big breaking ground on META’s next-generation commercial pathways, its legacy business continues to impress. Gross profit in 2021 was up 38% in 2020, bringing in over $95bn.
Its PE ratio is presently 11.3, which is incredibly cheap by growth technology stock standards. Despite the size of the stock and the recent slump in growth, up until 2021 revenue was compounding by over 20% annually. There are very few stocks out there that will grow a top line of 20% and ask of an investor such a small multiple of earnings in return.
Whether META reigns in spending on its metaverse platform, this might determine whether its stock goes up or down in the near term. An investor might hope that the board and Mark Zuckerburg see this through and provide a foundation for its commerce for the years and decades to come.
Facebook and the META group of companies are still by far the most popular social media brands. The business has an enormous competitive moat when it comes to the sheer scale of its operations.
If it is able to execute its projects, then this company has the potential to be the most valuable on the planet, with such a broad operational reach and depth of influence.
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NVIDIA (NASDAQ:NVDA)
NVDA is one of the preeminent hardware solutions of this new Artificial-Intelligence (AI) era. Its cloud processing solutions have been widely adopted by AI and machine learning (ML) innovators.
Having ridden the pandemic era boost in gaming and the Bitcoin mining boom, NVDA has fallen back in 2022, down by over 40%.
NVDA’s revenue was boosted by over 60% in 2021, shooting higher as chip supply shortages boosted prices and elevated Bitcoin priceless.
Many NVDA price forecasts point to an inevitable pullback in earnings growth – as Bitcoin prices have swooned and supply chain issues have unravelled. On top of this, the Fed is rapidly raising rates and pressuring all tech comers.
With the Fed now looking for an interest rate hike off-ramp, attention can turn to NVDA execution. With the rapid rise in AI about to sweep away all comers in technology, processing power will be heavily leant on, particularly in the remote and cloud sector, as new advancements can be quickly deployed.
NVDA is one of the better-placed firms to profit from this new paradigm of stabilised interest rates and requests for a ramp-up in processing power.
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Coinbase (NASDAQ:COIN)
COIN stock has suffered mightily under the weight of the about-turn in the sentiment toward cryptocurrencies. The fallout from the FTX debacle will continue to ring on for some time, with firms like COIN caught in the crossfire.
COIN stock is down over 85% this year – fears of the complete failure of centralised exchanges and the crypto ecosystem are pressuring the valuation of COIN.
COIN’s annualised revenue growth in 2021 was an astonishing 6+ fold, with a gross profit of over $6.5bn. The trailing 12-month gross profit now sits at $4bn following the decline in trading activity in 2022.
All this on a market capitalisation of just $8.8bn. If this company is able to recover anywhere near the volumes generated in 2021 once again, then this company’s valuation will skyrocket.
A lot of life has been sucked out of the crypto market following the FTX collapse, but that is not to say that the phoenix will not rise again.
COIN offers a safe and secure trading and custodial environment, one that will be in demand following the large-scale corporate malfeasance conducted at FTX, now stressing the importance of trust in business execution. Something that COIN has long prided itself on.
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Tesla (NASDAQ:TSLA)
TSLA and Elon Musk have endured a tumultuous year. Through Musk’s acquisition of Twitter, TSLA shareholders have had to endure selling pressure from its founder and majority owner as the TSLA piggy bank was raided to provide an adequate runway to Twitter as well as fund the initial purchase.
TSLA, too, has had to contend with supply chain issues, labour shortages and lockdowns. Throttling demand for its cars in some markets while choking supply in others.
Yet despite these issues, TSLA’s top and bottom line continues to expand rapidly. TTM topline revenue growth is at close to 40%, net income of over $11.1bn. The price-to-earnings (PE) ratio is at an expensive 42, and the market capitalisation of over $400bn makes it by far the largest car listing in the world.
TSLA’s eye-watering PE and market cap are partly down to the innovation in software and tech but mainly to its amazing execution and growth. TSLA is growing its annual production capacity at over 80% and is able to expand production floor space at an incredible click.
From breaking ground to producing cars in the German factory, this took less than two years. Currently producing 3,000 cars a week, it is this software engineering approach to incrementally add on capacity at will that truly sets TSLA apart from the competition.
When things are down, or cash is short, TSLA does what it knows best, ramp up production. This is exactly what it plans to do, and with a willing and growing market available to it, it might not be wise to bet against it.
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Final Thoughts
The stock market in 2023 promises to be equally as volatile as in 2022, if not more so. The stocks listed above have been volatile of late and can go down just as easily as they can go up.
Always do your own due diligence and consult with the experts where you can. Consult Asktraders’ news for the latest updates, data and information to ensure your trading and investment decisions are in line with the latest industry trends.
