Dividend payers, beaten-down growth stocks and out-of-favor companies are among the seven stocks and one crypto that are on the buy list of Forbes top investment newsletter editors.
The best time to be a buyer is when everybody else is running for the exits, and three of Forbes’ top newsletter editors make the case for cautious contrarian investments for investors with horizons of four to seven years in Forbes’ Investment Outlook for 2023.
With a macroeconomic backdrop that includes rising interest rates, widespread layoffs and recession scenarios, John Dobosz, editor of Forbes Dividend Investor and Forbes Billionaire Investor is debt averse, looking for companies with sturdy balance sheets that can weather the difficult conditions.
Dobosz did not have to go far from his living room to find recliner maker La-Z-Boy (LZB), which lets investors rest easy with no borrowings at all. On top of that, while the company’s sales have jumped nearly 60% over the past five years to $2.47 billion, its trailing price-earnings ratio of 7.6 has narrowed by 33%. Even accounting for a one-time boost from pandemic-inspired nesting trends, the fundamentals look too good to ignore with a 2.5% dividend yield from a payout that’s up 80% since 2016. The small-cap recommendation was featured in Forbes Dividend Investor on October 20. The investment advisory, which features 25-30 fresh ideas every weekend, recommends undervalued dividend-payers with high yields and ample free cash flow to cover the payout without breaking a sweat.
Consolidated Edison (ED)
The venerable New York City utility Consolidated EdisonED, which will celebrate its 200th birthday in March is a pick from the February 9 edition of Forbes Billionaire Investor, a newsletter that selects stocks owned by the world’s most successful professional investors investors ranging from Warren Buffett, to Carl Icahn and Ken Griffin. “You would like this for all the good reasons you would want a utility stock in your portfolio, Dobosz says, including industry stability and a 3.4% dividend yield.
Forbes’ Taesik Yoon, editor of the long-running Forbes Investor and Forbes Special Situation Survey, is a value investor who is finding bargains in an unintuitive place: growth stocks. He says that in an environment of rising interest rates that may plateau but will not reverse as far as an investor’s eye can reasonably see, equities that will do well are “strictly based” on issuers’ ”fundamentals, their health and their market prospects.”
Audio Codes (AUDC)
That outlook brings him to Audio Codes (AUDC), a small-cap vendor of advanced communication software featured in the December 22 issue of Forbes Special Situation Survey. The company provides such services as voice over internet protocol, secure data networking and high-quality communications systems for contact centers. It is a voice partner in Microsoft’sMSFTMSFT Teams collaboration service, which is powering its sales.
Audio Codes entered 2022 as a high-flying growth stock sitting on a 500% gain over the previous half decade, with what was then a “market rich” forward price-earnings ratio of 22. That reflected earnings that had quadrupled over the five-year span and made it ripe for takedown when the overall market swooned. Still its earnings are likely to be only 14% below bullish analyst forecasts for last year with sales on track to miss estimates by just 1%; in fact, the current consensus revenue for the year shows a gain of about 11% from 2021. The shares, nonetheless, lost 49% of their value over the course of 2022. Yoon sees sales remaining strong and earnings benefiting from reduced costs for training, inventory and currency hedges. Meanwhile, not only is the company debt free but it has about $4 a share of net cash on its books and pays a 2% dividend.
Magic Software (MGIC)
A pick from Forbes Investor is Magic Software (MGIC), another small-cap tech company, this one providing outsourcing software and recommended September 22. Like Audio Codes, the shares began last year well enough but then got caught up in the tech wreck, exacerbated by limited trading volume that may have made investors skittish. The company says it isn’t seeing any negative spending trends among clients and expects recent acquisitions to begin to boost results. It also had a hiring spree, and Yoon says the new employees are just getting up to speed. Also in common with Audio Codes, it has a cash-rich balance sheet and an even-higher dividend payout of 3.2%.
Wildan Group (WLDN)
Willdan GroupWLDNis a stock that Yoon has been recommending in Forbes Investor since April 2021 with unsatisfactory results so far—it is down about 50%—but he’s sticking with his thesis, and if it was a bargain then, it should be a steal now. The company is a consultant to utilities, private industry and public agencies at all levels of government, specializing in energy savings. As with Yoon’s other picks, it went on a hiring binge, but the company was a victim of its own success. “It had to do with a very high number of new programs that were ramping last year, which required extra manpower,” he says. These projects typically start with modest revenue and thin margins, but as sales expand so does profitability.
The deals should eventually be lucrative, adding $150 million of annual sales to a company that’s just cresting $400 million a year now. Contributions to the bottom line have been “slower than we’ve been hoping for,” says Yoon, but the company’s third-quarter earnings came in at 42 cents a share on higher-than-forecast sales, versus the 13 cents analysts were expecting. Consensus for 2023 is for a 61% profit rise. “I don’t know too many companies that are going to see that,” says Yoon, “but I think this one will.”
Silvergate Capitial (SI)
Steve Ehrlich, who runs the Forbes CryptoAsset and Blockchain Advisor is making a gutsy call on two beaten down bank stocks, Silvergate Capital (SI), which Ehrlich first recommended in December 2019, and Signature Bank (SBNY), recommended in August 2021. The pair, which serve digital-asset companies such as exchanges, have been clobbered by the so-called crypto winter that began early last year, but since the start of 2023 there has been a thaw.
Silvergate has had the worse time, with its shares down 86% since the start of last year, in part because of its association with the failed FTX crypto empire, but Ehrlich thinks part of that is investor misunderstanding: Silvergate owes FTX money, not the other way around, so there is not a bad-debt issue arising from the exchange’s bankruptcy proceedings. The reputational damage led to a run on Silvergate as depositors clawed back about 70% of their cash, and that will pinch earnings as the bank had to liquidate some debt before maturity to pay them off. The good news is that Silvergate was able to meet all the withdrawal requests “without any sort of hesitation,” Ehrlich says, leaving it in “a prime position to grow if and when the crypto ecosystem recovers.”
He also has a favorable view of Optimism, a level 2 blockchain that runs on top of level 1 EthereumETH and increases that platform’s efficiency for gamers and decentralized finance. In the brave new world of blockchain there are few traditional equities to be had, and to invest in Optimism you have to buy its optimism token (OP), recently trading around $3. Ehrlich recommended optimism in September 2022. Buying digital assets is not the same as investing in stocks or bonds, you need a special crypto wallet, which can be either hardware or software, and there are all sorts of technological and security concerns, but if you wanted to take a flier, Ehrlich is optimistic about this one.
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