At the end of November, I usually buy myself some equities. This time of year, most companies have divvied out the final portion of their dividends. It is also the time of year when I sell away the dogs in my portfolio. Hence, I got some liquidity sloshing around.
I usually buy shares in three companies in this cycle. Like most retail investors, I don’t have endless funds. By narrowing my picks down to three, each of the picks gets large enough to constitute a meaningful position while at the same time being considered a “group operation” (Graham and Dodd, 1934) in investment terms. Eventually, I will announce my three top picks for 2024 but let us first review last year's performance.
My top picks for 2023
For those who have followed me on other platforms, you might remember that last year's recommendations included Uber Technologies Group (UBER), Salesforce (CRM), and Evolution AB. The results are summarized below:
The results speak for themselves. As you can see, I got two things right, and one not-so-right. The results are good but not spectacular. It is like what Andrew Bolton once said, ‘if you pick 5 stocks and 3 of them work out, you can consider it to be a fairly good result’.
UBER
2022 was a bleak year for American tech stocks. In fact, upon my purchase, UBER continued its downward trajectory towards year-end and well out in January 2023. Then, slowly but surely things started to turn around, and the share price doubled in the first half of 2023. After an early autumn swoon, Uber announced spectacular results in its last quarterly report and looks to have stabilized over $50.
CRM
CRM’s fiscal year ends in January, anyway, its share price has more or less moved in tandem with UBER, albeit with slightly less volatility. However, while UBER’s story in the last year has consisted of strong top-line expansion, CRM’s story has centered on cost-cutting and increased profitability. This story has been driven by the demand of activist investor groups who entered the stock in the early parts of 2023. We are still waiting for the results from the third quarter, nevertheless, I expect the report to show increased progress in profitability and fairly good sales results. Hopefully, this is going to be enough to send the stock into a year-end upswing.
EVO
This stock followed UBER and CRM in the first half of 2023. Then, market sentiment has completely broken down, and the share price is now back to start. I don’t know why investors suddenly have turned bearish on this name. Results have been following consensus estimates, the management says it experiences more demand than what the company can meet. and the CFO admitted to analysts during its last earnings presentation that the company was overcapitalized. Dividends and buybacks are, therefore. likely to be increased considerably in 2024.
The weak development in recent months is a conundrum when measured against the aforementioned facts. My only explanation is that investors in Northern Europe are exceptionally bearish for the time being. In Scandinavia, almost every tech company has gotten the rug pulled away from under them this autumn. It looks like higher interest rates have pulled enormous amounts of liquidity out of the markets, and that the stocks with high sales growth (high beta) are being punished especially hard, and this is where many tech stocks and EVO are grouped. We have to see where this ends up, it could be a soft patch, but it can also be the start of a typical resecionary multiple decompression. In any case, the divergence from the American tech sector is weird.
Going forward looking back
Looking back, my picks for 2023 seem fairly self-evident. Tech stocks had been hammered down during 2022 and were poised for a turnaround. Well, things didn’t look so straightforward last year, most market pundits expected the markets, and especially tech stocks, to fall even more in 2023, and positioned themselves for a recession. Alas, my picks were a contrarian call on the expert consensus.
As we all know, my bet paid off. The recession hasn’t materialized and has now been pushed out to the first half of next year by the gloom crew. We have to see what happens. In any case, going forward I am keeping all the investments I made last year. All of them are still underpriced according to my valuation methods. I am, therefore, feeling confident in keeping them as part of my portfolio. They are all quality companies that are going to grow further in the next decade, regardless of what the economy is going to do short term.
My three picks for 2024 will be announced in the latter part of November.