March 2023 Stock Picks
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Hello, today is March 16 2023, and it’s time for some new stock picks. As always, I’ll be doing a review of the performance of my picks from this time last year and analyzing the current financial and economic environment and conditions. I’ll also be giving you three new recommendations with stocks that should do well over the next 12 months and beyond.
March 2022 Picks
This time last year, the war between Russia and Ukraine had just broken out. It was a volatile environment for investing, and my picks at the time reflected energy security more than clean energy as top of mind for various governments and nations. As a result, I picked a uranium stock, Energy Fuels (TSE: EFR) thinking nuclear will be again on top of mind for for a lot of people. That hasn’t materialized, so that pick was down 40.4%.
I also picked a cheaper alternative for housing, Legacy Housing Corporation (NASDAQ:LEGH). They make manufactured homes. Thinking in a rising rate environment, if regular homes are more expensive, they would benefit. It also didn’t do too well. It’s down 24%.
I also picked Reliance Steel (NYSE:RS). That stock was actually up very nicely at 30.7%. The average for the three stocks over the last 12 months was down 4.9% which compares with down 9.4% for the MSCI World Equity Index, as represented by the (URTH) ETF, again in US dollars, including dividends.
This highlights something that we always talk about: the need for diversification for stocks. Stocks are risky and there’s a wide disparity in performance between the three picks from last year (from -40% to +31%). So, staying well-diversified is always a good idea.
The market environment this year is substantially different than any economic environment than last year. We’ve had rates now go up on a very rapid basis. Since last year, the fastest rate increase in decades, from practically zero to around 5% on the short end. In Canada it was a little bit less, 4.5%. And that’s causing problems in a number of areas. The more levered areas of the the market and the economy are affected first like banks.
Banks and Rising Interest Rates
Banks lend typically for the medium term and borrow at the short end of the curve. for example through deposits. Deposits are money that the bank owes to the depositors. Banks either lend the money out to corporations or individuals for longer terms, like mortgages at 5, 10 or 30 years in the US. Or, when they don’t have suitable loans, the bank can buy things like longer term US Treasuries. Some of them didn’t anticipate this rapid rise in rates. So, they bought longer term treasuries and held such long term treasuries and when rates went up, the value of those treasuries went down and they became insolvent. I’m specifically talking about Silicon Valley Bank in the US that failed us last week and was taken over by FDIC.
This is hopefully not completely endemic of what’s happening with banks and hopefully specific to that one that didn’t try to manage the interest rate risks. Nonetheless, it highlights the attention that investors have now given to other alternatives other than keeping the money in deposits in the bank. One of them is obviously holding US Treasuries or government securities directly. The second one is holding gold.
Alamos Gold (TSE:AGI)
So with that in mind, our top stock pick is going to be a gold stock. Silicon Bank was probably a singular incident. In case that becomes more commonplace over the next few months, we’ll see other banks be in the same situation and people that are going to flock to gold. Obviously gold stocks are going to do well under this scenario. Even if that doesn’t happen however, having a small portion of one’s portfolio in gold and gold stocks is not a bad idea, anyway.
So the first stock pick is Alamos Gold (TSE:AGI). It’s an approx. $5.7 billion Canadian market cap company: not small, not huge. The company’s been doing well and hopefully it will continue to do well with a stable gold price. If gold goes up, they will do even better. Again, a small portion of the portfolio can be in gold stocks.
AGCO Corp. (NYSE:AGCO)
Next stock pick is still a kind of a cyclical company, But more stable than a gold company I think. AGCO (NYSE:AGCO), a global manufacturer of agricultural equipment. Its competitors will be companies like Deere.
Inflation has hit food prices a lot over the last couple of years. It’s making the need for possibly higher production and higher yield even more apparent. For that, you need better equipment and newer equipment. I don’t think the agricultural equipment market is going to slow down as much as it normally would, even if we go into a recession. Therefore, it should be a good area to invest in.
This particular company is nicely profitable, the stock is very reasonably priced and it is trading about nine times earnings. Meanwhile, for example, Deere is trading closer to 14 times earnings, which is still reasonable, but this is better. Cheaper is better, of course, so this should be good.
Grupo Aeropuerto del Sureste (NYSE:ASR)
The final stock pick is a little bit of a riskier company, Grupo Aeropuerto del Sureste (NYSE:ASR). It’s a an own-operator of airports in Mexico, Colombia and Puerto Rico. Travel is coming back after COVID big time. And even though people may not be spending on other things, they still want to travel. People missed out on vacations for three years and Mexico is a popular destination; probably Puerto Rico, as well. I’m not sure about Colombia.
The company’s revenue is very nicely up, they’re nicely profitable and the stock is cheap. It is travel-related, so if we ever go into any pandemic lockdowns again, it’s going to be a disaster. But hopefully that’s not going to happen anytime soon! And having, again, a very small portion of one’s portfolio in something that’s travel related, reasonably priced and with that decent growth that you can see over the next two, three years, it’s not a bad idea.
As always, if you have any questions about whether these picks fit into your hopefully well diversified portfolio, or if you have any other questions about investments, please give us a call. Thank you. Have a great day.