Stocks rose for the second consecutive week of 2023, fueling hope that the worst was left behind in 2022. The Dow finished the week 2% higher, the S&P 500 added 2.7%, and the Nasdaq stacked on 4.8%.
In just nine months, interest rates have climbed from net zero to a target range of 4.25% to 4.5%. However, recent signs of cooling inflation have added to expectations that the Fed may not raise rates much further. With a slowdown in the pace of consumer price inflation in December reported last week, expectations are growing that the central bank could raise interest rates by just 0.25 percentage points next month, a step down from the most recent 0.5 percentage point rate increase.
A handful of major banks kicked off earnings season Friday with mixed results. According to FactSet, analysts forecast that fourth-quarter earnings for the S&P 500 companies fell by an average of 3.9%, which would mark the first year-over-year decline since the third quarter of 2020. Earnings season continues in the holiday-shortened week ahead, with more reports due from big banks, including Goldman Sachs, Morgan Stanley, and Charles Schwab, among others.
Markets will be closed on Monday in observance of Martin Luther King, Jr. Day, but the short week will be packed with points of interest for market participants. On Wednesday, we’ll get a critical update on consumer spending during the holiday season with the Census Bureau’s December retail sales report. Also, on Wednesday, the Bureau of Labor and Statistics will release December’s Produce Price Index (PPI) reading, which tracks inflation from the standpoint of goods manufacturers and wholesalers.
Throughout 2022, established automakers like Ford, GM, and Mercedes unveiled plans for dozens of new electric vehicles. Mass production of most of these vehicles will kick into gear starting in 2023 and 2024. Our first of three stock recommendations for the week ahead is a small cap with extreme growth potential over the next few years on the black of upcoming E.V. production.
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By 2029, electric vehicles could account for a third of the North American market and about 26% of vehicles produced worldwide, according to AutoForecast Solutions. Lithium Americas Corp (LAC) is one company hoping to ride the wave of anticipated global E.V. demand. Launched in 2007, the Canada-based firm searches for lithium deposits in the U.S. and Argentina. While the company is still a pre-revenue concern, its pipeline is brimming with potential, including one project set to enter production stages this year.
The company has full ownership of two development-stage operations in Argentina. One of which is approaching initial production, expected to come later this year. The timeline has been disrupted on LAC’s U.S. project –The Thacker Pass, Nevada lithium mine – due to ongoing legal and regulatory discrepancies. However, a U.S. judge said on Thursday she would rule “in the next couple of months” on whether former President Donald Trump erred in 2021 when he approved the company’s right to begin mining the U.S.’s largest-known lithium resource. It seems likely that the outcome of the case will be positive for LAC, considering Washington’s push to boost domestic production of metals crucial to the green energy transition and wean the country off of Chinese supplies.
The high-growth -potential small-cap has been gaining the attention of the pros on Wall Street. “We believe 2023 could be an eventful year as there could be a number of key announcements on growth projects and Argentina divesture, which could be catalysts for the share price,” explained HSBC analyst Santhosh Seshadri. To this end, Seshadri recently initiated coverage of LAC with a Buy rating, backed by a $36 price target.
Most analysts agree with Seshadri’s thesis. LAC claims a Strong Buy consensus rating, based on 13 Buys versus 1 Hold and no Sell ratings. At $37, the average price target makes room for 12-month gains of 79%.
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A logical move in times like these is dividend stocks, which pay you just to hold them. Dividend-paying companies regularly reward investors directly with a portion of the cash flow. The most desirable dividend stocks have a history of raising payouts over time as the company’s profits grow.
Pioneer Natural Resources Company (PXD) has long viewed sustainability as a balance of economic growth, environmental stewardship, and social responsibility. Its emphasis is on developing natural resources in a manner that protects surrounding communities and preserves the environment.
In the wake of the pandemic, when energy prices were, cheap Pioneer struck an almost perfectly timed agreement to buy fellow Permian Basin producer Parsley Energy for $4.5 billion. If you’re wondering how the company managed to finance that transaction, the answer lies in the fact that it was an all-stock deal that ensured Pioneer didn’t have a new giant debt load hanging over its head. The fact that Parsley operated primarily in the same region of West Texas, where Pioneer had both expertise and existing staff, has paid off over time.
That deal was a coup for Pioneer shareholders, built on the fact it was large and well-capitalized at a time when stressed and debt-reliant shale plays were looking for a white knight. On top of that acquisition, PXD also boosted its dividend by 25% at the start of the year as further evidence of its strong balance sheet.
Investors can look forward to upcoming tailwinds, including Pioneer’s recently announced partnership with the world’s largest renewable energy producer, NextEraEnergy (NEE), to develop a 140-megawatt wind generation facility on Pioneer-owned land. The project will supply the company’s Permian Basin operations with low-cost, renewable power and is expected to be operational next year.
In the third quarter, revenue was up 22% YOY to $6.09 billion, smashing the consensus estimate of 4.57 billion. The company reported earnings of $7.48 per share, beating consensus expectations of $7.27 per share. So far, in 2022, the company has rewarded its investors handsomely with $20.73 per share through its generous 10.78% cash dividend. Chief Executive Officer Scott D. Sheffield stated, “Pioneer continues to execute on our investment framework that provides best-in-class capital returns to shareholders. This framework is expected to result in $7.5 billion of cash flow being returned to shareholders during 2022, including $26 per share in dividends and continued opportunistic share repurchases.”
Even after gaining 33% over the past year, Pioneer shares likely still have valuation upside in addition to their tremendous dividend income potential.
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Booz Allen Hamilton (BAH) is one of the world’s largest cybersecurity solutions providers. Specializing in marketing cybersecurity products that are produced by other companies, nearly every U.S. federal, intelligence and defense agency uses its services. In other words, Booz Allen is poised to scoop up a significant portion of the whopping 15.6 billion that the U.S. is expected to spend on cybersecurity in 2023.
For its fiscal 2023 second quarter, which ended September 30, revenue surged 9.16% year over year to $2.3 billion, while its net income jumped an impressive 10.4% to $170.93 million. Booz Allen reported quarterly earnings of $1.25 per share, exceeding Wall Street expectations of $1.13 per share. The company raised its full-year EPS view to $4.24-$4.50 from $4.15 – $4.45. Wall Street expects $4.88 EPS for the entire year, indicating a reasonable forward P/E of 24 times.
Cowen analyst Cai von Rumohr recently raised the firm’s price target on BAH to $123 from $109 after hosting the company at the firm’s London Industrials & Renewables Summit and coming away with a favorable outlook, driven by continued demand tailwinds and an easing labor market. The current consensus recommendation is to Buy BAH. A median price target of $115 implies an 11% upside. The stock comes along with a 1.66% dividend yield.
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