Make 2023 a great year for your portfolio

2022 was a great year for mine

The choice to enter the energy space at the outbreak of COVID in retrospect seems genius although it was more good luck than good analysis. I have long been a believer that investors should add to their portfolios when the outlook is bleakest, and the race for the exit door when the pandemic began portended the end of the world and those fleeing lost opportunity while those adding to investments showed both courage and common sense.

My Scotia iTrade account tells the tale since I opened the account just as COVID emerged. Since that time, this small account with a handful of holdings has gained 113.77% while the major indices have been flat or negative. It is a cash account with the returns neither benefitting from or limited by margin debt.

The 2022 outcome is paralleled by the results in my TD Waterhouse margin account which returned ~75% in a down market

Crowing about the past two years isn’t constructive. What now?

Macroeconomic forces remain positive for energy investors despite the short term risk of a recession. That is risk is close to a certainty in my opinion, and the likely result will be a sell-off in commodity prices that could drive energy and mining stocks to much lower prices. If that happens, I will add materially to my resource stock holdings in oil, gas, and copper. In the meantime, I will stand pat keeping all my key holdings despite their large price gains since (and I can’t say this more emphatically) I don’t trade often and when I buy a well-managed and profitable company’s shares at an attractive price I keep that position for an indefinite period and expect it to provide a robust and growing dividend stream for many years to come.

How is that I can argue an imminent recession is consistent with a good macroeconomic environment for energy investors? Simple. Ill-considered “climate” policies by Western democracies have created an deep and growing shortage of fossil fuel production based on a specious theory that CO2 causes climate change and an equally non-sensical but almost religious belief that wind and solar can provide enough reliable and cost-effective power to displace fossil fuels. These so-called “renewables” are costly, inefficient, intermittent and unreliable and pose a greater threat to the environment than anything fossil fuels are capable of doing. Trillions of dollars have been squandered on this inane folly bringing Europe and the United Kingdom economies to the verge of collapse despite the vast natural gas resources literally under their feet in Netherlands and United Kingdom.

When voters can no longer feed their families or heat their homes, democracy will do its work and vote the climate “nutters” like Rishi Sunak, Justin Trudeau, Joe Biden, Olaf Scholz and Emmanuel Macron out of office and common sense will return to the halls of power. When and if that happens, energy will return to its history as a sector with high volatility and sub-par returns over cycles and it will be time to diversify away from the industry holding only an equal weight. I expect we are about a decade away from that point.

In the meantime fossil fuel prices will remain firm (despite likely volatility) and in the event of recession may suffer what could be a steep decline but in my opinion a short-lived one since without added supply, any recovery will run smack into the energy shortage and prices will surge again. Expect short term softness as investors fear the recession risk, and longer term sustained profits for energy companies.

In the energy space I like $BIR.TO $CNQ.TO $TOU.TO $PEY.TO $SDE.TO $PNE.TO $CPG.TO $GXE.TO and $WCP.TO.

Beyond energy, there is a lot of value in the big Five Canadian bank stocks which are trading closer to book value and well below intrinsic value than at any time in recent history except the March 2021 panic selling triggered by COVID. I like CIBC and have added a few thousand shares for the 6% plus dividend which I expect to grow at 3-4% per year for many years to come. Based on the Gordon Dividend Valuation model and assuming investors are happy with a 9% return, CM.TO shares have an intrinsic value of $3.44/(.09 - .035)= ~CAD$62 versus a trading price of about CAD$55.00.

I see the long term outlook for semiconductors as positive and like Intel ($INTC) for its capital expansion and history of leading edge chip development, and am not dissuaded by its recent missteps and share losses. The chance to buy Intel shares in the US$25 range should not be passed.

Good luck in your 2023 investing.