Stock Picks for October 2024
Today is October 17, 2024 and It’s time for some new stock picks!
As usual, I’m going to review the performance of my picks from this time last year, then offer a bit of an economic analysis, assess market conditions and then proceed with 3 new stock picks for the next 12 months and beyond.
Last year’s stock picks
This time last year, I picked Manulife, symbol MFC. The stock was up an incredible 81.7% including dividends in US dollars. Then I picked Pembina, symbol PPL. This one was up 45.6% including dividends. Lastly, I picked Verizon, symbol VZ. Verizon was up 48.7%! The average of these three stocks was 58.7% which compares with 35.8% for the MSCI World Index including dividends in US dollars, as represented by the URTH ETF.
Economic Outlook
The numbers above, both for the markets and for my picks, were unusually good at a time when economic conditions are not particularly great. Economic conditions are okay despite the fact that central banks around the world increased interest rates, which makes the cost of borrowing higher. In theory, this leads to a slowdown, which we haven’t seen as I have mentioned in my prior videos. This is due to deficit government spending counteracting the effect of a possible decrease in economic activity due to lower borrowing levels by consumers and businesses as the borrowing costs are higher due to interest rate increases by the central banks. With that in mind, I think the chances of these sorts of numbers for performance from the market for the next 12 months are not very high.
The stock market on average produces long term returns of about 10%. Usually there are 2 good years and 1 bad year. The last couple of years have been good. We can reasonably expect one bad year at some point in the future. We just don’t know when that’s going to come. So let’s just be cognizant of that. It’s likely that we see a little bit of a reversal to the mean and see lower returns for the next 1-2 years.
United Microelectronics Corp.
For my first stock pick, for the next 12 months and beyond, I have a semiconductor company, United Micro Electronics Corp, symbol UMC. This is the 3rd largest, chipmaker in the world after Taiwan Semiconductors and Global Foundries. They have a diverse client base, they’re reasonably profitable and reasonably stable for a semiconductor company. Not as profitable as some of the competitors like Taiwan Semi. But the valuation is a lot lower than the competitors. For example, we are looking at the trailing 12 month PE ratio of about 12 times. Forward PE of about 12 times is also pretty reasonable for a semiconductor stock.
Paccar Inc.
My second pick will be Paccar, Inc, symbol PCAR. They’re a leading manufacturer of medium and heavy duty trucks under premium brands such as Kenworth. A truck manufacturer should be economically sensitive as it’s a big purchase for trucking companies adding new trucks to their fleets or if it’s a smaller truck owner operator, getting a new truck, especially these large trucks. But it’s one of the better companies in the space.
They’re extremely well run, they have had a very high profitability over the last 10 plus years, with average return on equity in the twenties, which is extremely good for such a company. Reasonable valuation, about 11 times earnings. Earnings are expected to slow down a bit with the economy possibly slowing down. But still a reasonable valuation for a decent and highly profitable company. And if the timing isn’t right with regards to buying it, all we have to do with a company like this, because it’s a good quality company, is just wait and it should deliver over the longer term if it doesn’t deliver in the next 6 to 12 months.
BBVA Bank
Stock pick number 3 is a little bit more interesting and possibly the riskiest of the 3. Banco BBVA Argentina, an Argentinean bank. Argentina, for the longest time, has been a good place to see wealth being destroyed. But in the last 12 months or so, since the new president, Milei, there has been a resurgence in, at least, optimism in the country, and the Argentinian economy. There are reforms, limiting government spending, limiting government size and so on. They are lifting restrictions in various markets such as rent control, which should see things like residential real estate appreciate in value. As banks lend against real estate, there should be more lending and more profits for the banks. Banks offer a levered play on the economy.
If the whole Argentinian economy improves, their banks are going to do quite well. As I said, risky because Argentina has had a history of destroying people’s wealth. But hopefully, these reforms are here to stay or even improve! The stock is very reasonably priced at about 6 times earnings and a price to book ratio of about, 1 or 1.1, while generating return on equity in the teens or even higher twenties.
If this was anywhere else in the world, this would be trading at probably double the valuation that this stock is trading at, but it is Argentina so there is a big discount. For a small position in one’s portfolio a small bet on Argentina is not so bad!
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- Stock Picks for November 2024 - November 18, 2024
- Stock Picks for October 2024 - October 17, 2024
- Stock Picks for September 2024 - September 12, 2024
