With the potential recession in the first half of 2023, investors are looking for stocks with attractive fundamentals that have seen their valuations and expectations decline. This article will look at the TOP 5 stocks to trade in Q1 2023. Shopify, Advanced Micro Devices, Amazon, Netflix, and Alphabet have strong fundamentals. These companies trade at attractive valuations and have the potential to rebound in 2023.
Table of contents:
1. Will Wall Street’s Performance Rebound in 2023 Amidst High-Interest Rates and Inflation?
The S&P 500 had a poor performance in 2022, ending the year down almost 20% due to investor concerns about rising interest rates, slowing economic growth, and persistently high inflation. However, a bull market may be right around the corner due to subsiding inflation, potential further action from the Federal Reserve to address rising prices, and the possibility of a recession in the first half of 2023.
Inflation and interest rates will likely be the primary concerns for Wall Street and trading stocks in the first quarter of 2023. The consumer price index (CPI) and personal consumption expenditures (PCE) price index decreased in November compared to the previous month but are still above the Federal Reserve’s target of 2% for its preferred measure of inflation, the core PCE.
Read also: TOP 10 Rising or Falling Stocks of 2022
2. Fed Funds Target Rate Hikes Could Lead to Stock Market Decline in 2023
The Federal Open Market Committee (FOMC) raised its fed funds target rate by 50 basis points in December. This way, it follows four consecutive hikes of 75 basis points each. The bond market is currently pricing in an 86% chance that the Fed will raise rates by at least another 50 basis points by March 2023.
The first few months of 2023 will be crucial for the economy, as inflation may be stickier than expected, and the risk of a recession has increased. Economic indicators have decreased. The Federal Reserve lowered its forecast for GDP growth and raised its forecast for unemployment. The labor market has remained economic, adding more jobs than expected in November.
3. Rising Interest Rates and the Risk of Recession Put Pressure on Stock Prices
There are a few reasons why rising interest rates and the risk of a recession can create pressure for stocks to fall:
- Higher interest rates can make borrowing more expensive for companies, leading to reduced profitability and slower growth. This can make stocks less attractive to investors, leading to a decrease in demand and a fall in stock prices.
- A recession can also negatively impact corporate profits and lead to a decrease in demand for stocks. As economic activity slows down and unemployment increases, consumer spending may decrease, leading to lower sales and profits for companies. This can also cause investors to become more risk-averse and sell off their stocks.
Overall, both rising interest rates and the risk of a recession can create uncertainty and negative sentiment in the stock market, leading to a decline in stock prices.
4. TOP5 Stocks To Trade In Q1 2023
– Shopify
In 2022, Shopify experienced a significant drop in its stock price, losing almost 80% of its value since reaching its all-time high. The slowdown in e-commerce growth and the stock’s high valuation may have contributed to this decline. However, the company has continued to grow and expand its offerings. Shopify Plus, a software package for large and high-growth businesses, has gained market share. The company’s Fulfillment Network (SFN) allows it to serve as a one-stop shop for logistics needs.
Why Trading Shopify Can Be A Good Investment
Despite returning to losses due to the cost of building the SFN and slower revenue growth, some experts predict that Shopify will have slowing operating expense growth and a higher percentage of merchant solution revenue. The stock is currently trading at a low valuation of 9 times sales. With the company’s growth potential, Shopify may recover in 2023.
Shopify Sees Revenue Increase and Growth in Merchant Solutions
Shopify’s merchant solutions segment, which includes the Fulfillment Network and other business management services, accounted for 72% of the company’s revenue in Q3. The company also reported a 26% year-over-year increase in revenue, beating the overall average for the industry.
Shopify Plus, the company’s software package designed for large and high-growth businesses, continued to gain traction. In the Q3 earnings call, Shopify President Harley Finkelstein revealed that Plus accounted for 35% of all point-of-sale pro sales in Q3, up from 14% in the same quarter the previous year.
The company’s Fulfillment Network (SFN) also contributed to its growth by facilitating customer order fulfillment and returns. With the acquisition of Deliverr, Shopify can now offer a full range of logistics services, with Amazon being its only major competitor.
– Advanced Micro Devices (AMD)
When deciding which stocks to invest in for 2023, it’s important to consider diversification and not only focus on tech or high-growth companies. One way to do this is to take a “barbell” approach, which means investing in value-focused stocks currently trading at low price-to-earnings ratios and high-growth stocks that have come down in valuation but still have growth potential. It allows you to take advantage of both types of stocks.
Why Trading AMD Can Be A Good Investment
Advanced Micro Devices (AMD) is a semiconductor company receiving mixed ratings from analysts. Despite near-term challenges such as an economic slowdown and negative investor sentiment, analysts expect AMD to see a 28% increase in annual earnings over the next three to five years, driven partly by market-share gains for its data-center chips. One analyst, Vijay Rakesh at Mizuho Securities USA, rates AMD a buy and has assigned a 12-month price target of $95 for the stock.
– Amazon (Amazon Web Services)
Amazon’s stock has fallen 46% in the past year, making it an attractive buy for investors looking for companies with “attractive fundamentals where expectations and valuations have declined.”
Currently trading at $92, Amazon’s stock is relatively cheap compared to its five-year historical price-to-earnings ratio of 73. Even though a recession may affect the company’s near-term results, Amazon’s dominant position in its key markets is expected to help it recover.
Why Trading Amazon Can Be A Good Investment
One of the main reasons to buy Amazon’s stock now is the company’s Amazon Web Services (AWS) division. AWS has experienced rapid growth and generates a significant portion of Amazon’s net sales and operating income.
Amazon’s expansion into warehouses, delivery, and logistics needed better timing. Still, Still, its strong financial performance and potential to become the largest U.S.-based company by market capitalization in the next decade make it a good investment opportunity. It is an attractive option for investors seeking long-term growth.
The recent sell-off of Amazon’s stock is unusual because the company performs better now than it did a few years ago. In 2018, Amazon’s Amazon Web Services (AWS) division generated $25.7 billion in net sales and $7.3 billion in operating income.
Read also: TOP 4 Energy Stocks to Trade with SimpleFX
In the first three quarters of 2022 alone, AWS generated $58.7 billion in net sales and a staggering $17.6 billion in operating income. This significant growth and profitability in such a short period are impressive.
Amazon Stock Struggles to Recover from Five-Year Low
Amazon’s stock has underperformed in the S&P 500 for the past five years. It is now close to the pre-split level it reached during the sell-off on Christmas Eve, 2018. This sell-off, caused by panic about the U.S.-China trade war, resulted in a significant drop in Amazon’s stock price, briefly bringing it down to the low $1,300s.
The stock has not recovered to its pre-sell-off levels and is now close to its five-year low. This makes the current sell-off especially unusual. Despite this, Amazon remains a strong company with a lot of potential for future growth.
– Netflix
Netflix is a solid stock to buy as we move into 2023. The stock is currently undervalued, whether you see it as a high-growth or value investment. In the past, Netflix has often been misunderstood by investors and analysts. Still, it has consistently proven itself to be a successful company.
Why Trading Netflix Can Be A Good Investment
Whitney Tilson, a hedge fund manager, argued in 2010 that the stock of Netflix was overvalued and that the digital streaming idea would fail, so he sold the stock short. However, if you had invested $1,000 in Netflix, it would now be worth $11,000.
In addition to its strong track record, Netflix has excellent potential as a creative content creator. The company has already produced several successful movies and TV shows, and even bigger blockbusters may come in 2023. As more people turn to stream services for entertainment, Netflix is well-positioned to continue its success in the media industry.
On January 19, 2023, Netflix will release its earnings report for the previous period. Analysts expect the company to report $0.45 per share, a 66.17% decline from the previous year. The consensus estimate for revenue predicts $7.84 billion, an increase of 1.67%. Wall Street will pay attention to this report to see how the company performs.
– Alphabet (Google)
Alphabet, the parent company of Google, is expected to report revenue of around $280 billion in 2022, with the majority coming from its Google Search product. This is expected to translate to profits of nearly $70 billion, which is larger than the market capitalization of almost 80% of the companies in the S&P 500.
Despite its cash stockpile of $116 billion as of September 30, 2022, Alphabet’s stock dropped 40% during the same year. It was due to worries about a decline in growth and rising competition. The stock is currently trading at a lower price than its anticipated cash flow. This way, it demonstrates its potential to keep generating cash flow.
Here are three reasons why Alphabet is a good investment:
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- Strong financial performance: The company’s revenue and profits are expected to be large in 2022, and it has a significant cash stockpile.
- Cheap valuation: Despite its financial strength, the stock is currently trading at a low valuation relative to its projected cash flow.
- Strong cash flow generation: Alphabet has a history of generating strong cash flow, which is expected to continue.
5. A Wide Range of Stocks to Trade on the SimpleFX App
Apart from the TOP 5 stocks to trade in Q1 2023 mentioned above, there are many other great stocks to trade in the SimpleFX trading app. Some of these stocks may be undervalued, offering the potential for significant price appreciation. Others may have strong financial performance and a track record of steady growth. Still, others may be leaders in their respective industries, with a substantial competitive advantage and a bright future.
Whatever your investment strategy, the SimpleFX trading app provides a convenient and user-friendly platform. All for trading a wide range of stocks worldwide.
Read also: TOP 8 Most Undervalued Stocks Available on SimpleFX
