Investors aren’t thinking enough about what can go right in 2023. Veteran manager offers five stocks to play the biggest tech theme to come.

2022 may be remembered as the year investors fell out of love with tech stocks.

While the Nasdaq Composite COMP
is up about 5.7% this quarter, that’s after three dismal ones, and a 28% loss for the year so far is steering it towards the worst annual return since 2008.

But don’t turn your back completely on tech, says our call of the day from Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, who has around $1 billion under management and whose Equity Income and Dynamic US Inflation strategies have earned five-star ratings at Morningstar.

“If the tech trade is over, then we’re all in trouble because the labor force is not growing…you’re seeing the participation rate shrink and productivity is terrible,” Tengler — who’s been a part of financial markets since the 1980s — told MarketWatch in an interview. “We need technology to solve the labor shortage problems.”

That might sound odd as layoffs have trickled out from tech names, including Amazon.com AMZN
and Meta META,
but Tengler wants investors to keep their eyes on what’s ahead when they think about tech.

“I think the theme is more about embracing digitization, the digital revolution of the economy and picking the best in breed of old economy companies that are doing this, and then the companies that are providing the digital solutions,” she said.

They also have to tick the quality, cheap and dividend-paying boxes for Tengler. In that target zone, she likes CVS Health CVS,
which now has 46 million and counting digital relationships. “I get a text, they send me whatever the prescription is, and I pick it up,” she said.

Public storage group PSA PSA
gets a nod because it’s an old economy company benefiting from digitization. The company lifted guidance on its third-quarter earnings call, with operating margins now above 80%, and its portfolio is growing through acquisitions, she notes. “Customers are staying longer with their storage units due to the cost of housing,” and the interaction is all digital, Tengler said.

Tengler likes Honeywell HON
— an industrial conglomerate providing solutions for the digital revolution. A beat and higher guidance in the most recent quarter suggests Honeywell will be looking actively at acquisitions, and a weaker dollar will also be a benefit, she said.

From the Big Tech batch, Tengler says they’ve been picking up beaten-down shares of Microsoft MSFT.
“If the company’s fundamentals are solid, if the management team is excellent, if they are an industry leader and good operators, which Microsoft is, then this has historically proven to be the kind of period where you want to add to names like that, she said.

“This is a company that investors will return to because they have reliable earnings growth,” she said, touching on a key quality that she believes will shield investors as the overall economy slows.

Also mentioned is Goldman Sachs GS,
her favorite financial group headed into a slowdown that has “embraced digital.” The stock is trading at 11 times forward earnings, with a price/book ratio of 1.2 times, well below that of JPMorgan JPM,
and should benefit from advisory, underwriting, trading and retail banking, and any increase in deal flow, she said.

As for Tengler’s 20,000 feet view, she’s worried about deficit spending and the Fed slowing the economy, but even amid 2023 earnings uncertainty, says she’s starting to add risk back to portfolios.

“I think maybe investors are not thinking enough about what can go right in 2023,” Tengler said, in a nod to extreme pessimism among investors and institutions this year. “Because when the Fed stops, or if earnings aren’t as bad as expected…we’re in a position for stocks to rally pretty hard and there are a lot of people who are going to be caught.”

The markets

MarketWatch

Stock futures ES00

YM00

NQ00
are lower, as Treasury yields BX:TMUBMUSD10Y

TU00
and the dollar DXY
rise. Oil prices CL
are drifting south, and bitcoin BTCUSD
is up slightly at $16,579.

The buzz

Following disappointing Target TGT
results, Macy’s stock M
is flying after the retailer lifted guidance.

Alibaba BABA
reported stronger-than-forecast earnings on worse-than-forecast revenue and a stock buyback increase of $15 billion. Shares are down.

NVIDIA NVDA
revenue came in slightly better than forecast, but earnings were cut in half due to an inventory charge as data-center demand slowed in China. A record glut in inventories could be a worry for investors.

Cisco Systems CSCO
stock is up after better-than-expected results and guidance from the tech group, and announced a restructuring.

US-listed shares of China tech group NetEase NTES

HK:9999
are tracking a slump in Hong Kong after Blizzard Entertainment said it would suspend some game services in the country.

Weekly jobless claims, housing starts and building permits and the Philly Fed manufacturing index are all due at 8:30 am, with Fed speakers sprinkled in between. Atlanta Fed Pres. Raphael Bostic will speak ahead of the market open, followed by St. Louis Fed Pres James Bullard, then Fed Gov. Michelle Bowman and Fed Gov. Phillip Jefferson later.

The president of El Salvador has pledged to buy one bitcoin a day, following the collapse of FTX.

Russia has agreed to extend a grain deal with Ukraine, Turkey and the United Nations.

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Some GOP megadonors are feeling less generous when it comes to former President Donald Trump’s 2024 run

The chart

Food for thought ahead of housing data:

Twitter

Read the whole thread from @nickgerli1 here.

The tickers

These were the top searched tickers on MarketWatch as of 6 am:

Ticker

Security name

TSLA

Tesla

GME

GameStop

AMC

AMC Entertainment Holdings

NVDA

NVIDIA

NIO

NIO

AAPL

Apple

AMZN

Amazon.com

APE

AMC Entertainment Holdings preferred shares

BBBY

Bed Bath & Beyond

BABA

alibaba

random reads

New Zealand homeowners toss in a free Tesla to entice buyers as house prices fall in the country.

Astronomer locked out of Twitter for months after sharing meteor shot.

Danish reporter forced off the air while reporting from World Cup in Qatar

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