Stock Picks for November 2024
Today is November 14, 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.
For the video of this article please click here.
Last year’s stock picks
This time last year, I picked a utility stock, Endesa, symbol ELEZY. The stock was up 7.0% including dividends in US dollars. Then I picked a consumer staple, British American Tobacco, symbol BTI. This one was up 26.9% including dividends. Lastly, I picked Mercedes-Benz Group, symbol MBGYY. Mercedes-Benz was down 1.8% The average of these three stocks was 10.7% which compares with 31.7% for the MSCI World Index including dividends in US dollars, as represented by the URTH ETF.
Economic Outlook
The world economy over the last 12 months or so has not performed that well with real GDP growth for advanced economies as projected by the IMF coming in at about 1.8%. It definitely avoided recession however. The markets were pricing in some probability of a recession so as the months went by without a recession, stock market valuations went higher. One strong investment theme has been artificial intelligence with stocks like NVIDIA performing exceptionally well. The markets generally pushed growth stocks higher rather than value stocks such as my picks from last year.
With Trump getting elected president in the US last week and the Republicans gaining control of the House and the Senate, the markets further pushed ahead anticipating a stronger economy, deregulation, some degree of “America first” protectionism, and possibly a reduction in government spending, if reports of Tesla’s Elon Musk assisting the new Trump Administration and Congress in boosting efficiency in government and reducing government spending by roughly one third are true!
While it is unlikely that President-elect Trump will be able to push through such an ambitious agenda, if he succeeds, long term eliminating deficit spending and reducing the size of government should be extremely beneficial for the economy and the majority of individuals as the erosion of purchasing power of savings through inflation should come to a halt. The initial reaction may be something analogous to a hangover or alcohol withdrawal symptoms. The economy and the markets have gotten used to huge deficit spending providing liquidity to both the economy and the markets and if such liquidity is withdrawn abruptly it could be painful. In my estimation, it is not likely that such ambitions agenda will succeed.
If he succeeds even partially, the following may happen: The US economy should do better than Europe’s, China’s and any other country’s the US will be imposing tariffs on; The US dollar is likely to get stronger; Commodities may not do well while the US dollar is strong as this is what usually happens; Depending on the size of any deficit reduction, the US stock market may correct due to the reduction in liquidity. Other markets may decline too. If this happens, it should be viewed as a buying opportunity. Smaller government sector leads to larger private sector which is what we want as investors!
WisdomTree Bloomberg U.S. Dollar Bullish Fund
For my first pick, for the next 12 months and beyond, I have a fund that tracks the Bloomberg US Dollar Index, Wisdom Tree Bloomberg US Dollar Bullish Fund, symbol USDU. Its holdings are US T-Bills and Treasuries long, and short major world currencies such as the Euro, the Japanese Yen, the Canadian Dollar and the British Pound. The US economy should outperform most of these economies in the next few years and the US Dollar may therefore strengthen against these currencies. Additionally, the proposed US tariffs may hurt some of these currencies. There is also an interest rate differential with USD short term interest rates being higher than all of those of these other currencies causing this fund to yield higher than normal US T-bills. As an added benefit it usually exhibits a negative correlation to the stock market, meaning it usually goes up when the market goes down. Conversely, usually when this fund is down the stock market is up so if you own it you should be happy that most of your other holdings are up and you are making money!
Preferred Bank
My second pick will be Preferred Bank, symbol PFBC. A relatively small California bank with a market cap of 1.3 billion. It was founded in Los Angeles in 1981 to serve primarily the Chinese American market. It became public in 2005 and hit troubles around 2010 with the regulators for not having sufficient capital. They have since turned around and hopefully learned their lessons through those hard times. They are ranked #11 in America’s Best Banks 2024 by Forbes magazine. Since 2015 they have been able to generate a double digit return on equity with recent years being in the high teens and low twenties. With this kind of profitability the stock should be trading at about 3 times book value yet it trades at 1.7 times. So what we have here is quite possibly a good company at a good price. Plus with the recent de-inversion of the yield curve, meaning long term interest rates are now higher than short term rates, they have a favorable economic environment to operate under. Banks typically borrow on the short end of the curve through deposits and lend on 5 year terms or more, making a higher spread when short term rates are lower than medium and long term rates.
Otter Tail Corp
My thirds pick is Otter Tail Corp, symbol OTTR. It’s mostly in the production of electricity business but it also in manufacturing, fabricating metal components and producing pipes for water uses. The majority of its revenue comes from the states of Minnesota and North and South Dakota, with the biggest customers being commercial electricity as well as industrial users. This stock is an interesting mix of a utility and an industrial stock. It’s profitability was decent at around 10% return on equity before 2021 and quite good since then at around 20%. It’s valuation is reasonable at 2 times book value and 11 times forward earnings. Decent company, good price, I like it.
Give Us a Call
If you have questions about whether these stocks fit in your portfolio or if you have any other investment related questions, give us a call! 604-288-2084
- Stock Picks for December 2024 - December 10, 2024
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- Stock Picks for October 2024 - October 17, 2024
