CUKPF - 7 Investments To Avoid In 2023: The Reckoning

2023-12-13 21:06:54 ET

Summary

• As is usual at the end of the year, many Seeking Alpha contributors will have their lists of where to put your money during the next year.
• But not losing money with your investments is almost as important as making money.
• At the beginning of this year, I wrote an article about which stocks to avoid in 2023.
• Of course, 2023 still has some weeks to go, but unless some major event happens, we can already judge whether my predictions were right or wrong.
• To hold myself accountable, I will investigate how well I did with my predictions in comparison with the S&P 500 in this article.

The end of the year is quickly approaching. As is almost a yearly tradition, many Seeking Alpha authors will present their lists with predictions for the new year. At the beginning of 2023, I also presented my own list. Not a list of assets to invest in, but quite the opposite: 7 investments to avoid in 2023 . I promised to hold myself accountable for this advice, which I will do in this article.

I will take a look at the results of these predictions: how many of the 7 were right, and how many were wrong? In 2022, 6 out of my 7 investments to avoid turned out to be correct, which even surprised me. I do not expect to match this score this year. But without further ado, let us look at my predictions and see which ones were right and which ones were wrong.

2023: the benchmark

To investigate how well (or poorly) I did with my predictions, I will use the S&P 500 (SP500) as a benchmark and see whether I was right or wrong. But let us first recap what we did and didn't know at the start of 2023.

First, I expected that 2023 would be a year of recession, and at the start of the year, it looked quite likely that this could really happen. Right now, of the major economies, Germany, the Eurozone, and New Zealand are officially in recession. But the other main economies have not experienced a recession (yet), and inflation has come down during the last part of this year. I based most of my predictions on the expectation that the world would slip into recession in 2023.

Let us look at the performance of the S&P 500 in 2023:

The S&P 500 is up 22.58 percent in 2023 until now. Barring any major event, this benchmark is likely to end the year quite a bit higher than it started. Of course, this 22.58 percent is still bound to change before the year's end, and I will use a safety margin when analyzing my predictions. So let us go through my predictions from the start of the year and see if they performed significantly better or worse than the S&P 500.

#1 Tesla

The main reasons why I expected Tesla ( TSLA ) to underperform in 2023 were a decrease in its margins and overvaluation compared with its competitors.

Yes, Tesla's margins dropped a bit in 2023, but their stock showed some great outperformance. Tesla continued its strong revenue growth during this year, and while its gross profit and net earnings dropped in 2023, this did not seem to hurt the stock's valuation, as we can see in the graph below.

Ironically, the start of the year was the moment when Tesla's stock started to rise again, and its PE ratio was at a temporary low at that moment. Exactly the moment when I predicted the stock would fall even more. Instead, Tesla went on to double since the start of the year. Though the stock is still far away from its all-time high in 2021, shares have recovered very nicely. For me, this was a spectacular miss, I was WRONG.

#2 Oil and big oil producers

This was a call I made with the likelihood of a recession in the back of my mind. During recessions, usually demand for oil and raw materials drops, which impacts the price. Although many more factors impact the price of oil, demand is one of the aspects that have much influence. I expected that after the post-covid recovery of the oil price, it would consolidate in 2023 and not outperform anymore.

As we can see in the graph below of the price of Brent Oil ( BNO ), this was more or less what happened:

I also predicted that this would impact the share prices of large oil producers, more specifically Exxon Mobil ( XOM ), Chevron ( CVX ), BP ( BP ), Shell ( SHEL ), and TotalEnergies ( TTE ).

Though there were no crashes or dramatic underperformance among these stocks (although in the case of Chevron, minus 20 percent is quite bad compared to 22 percent positive), all of them performed worse than the S&P 500, even if we include the dividend payouts of these stocks. So I will count this prediction as RIGHT.

#3 Luxury goods stocks

Also based on my expectations of a recession occurring in 2023, I expected shares of some luxury goods stocks to underperform during the past years, namely LVMH Moët Hennessy ( OTCPK:LVMHF ), Kering ( OTCPK:PPRUF ) and Christian Dior ( OTCPK:CHDRF ).

For a long time during this year, it looked like I would be proven wrong with this call, but since late August, these three stocks dropped after expectations of slower future growth.

Though two of the three still showed positive returns this year, and the strong underperformance that I expected did not happen, no stock came close to the performance of the S&P500. This call still counts as a RIGHT .

#4 ZIM Integrated Shipping

ZIM Integrated Shipping ( ZIM ) was a much-discussed stock on Seeking Alpha a year ago, mostly propelled by its enormous dividend payout of a total of $27.55 in 2022, almost four (!) times its current share price.

It was quite clear at the start of 2023 that investing in this stock was a bit of a gamble, with the Baltic Dry Index at a 2.5-year low. Though the shipping rates did not return to an old high level at the times of the post-covid supply chain crunch and the Suez Canal blockage, this did recover quite a bit.

A thing that did not recover is ZIM's share price. During the first months of 2023, it was up almost 40 percent, but it has corrected to a drop of 57% percent right now. Even if we include the huge $6.40 dividend that ZIM paid out in 2023, the returns of investing in ZIM were negative. An individual shareholder usually had to pay 25% of dividend tax on ZIM, and including this tax, the 2023 return on ZIM shares were -28%. With ZIM Integrated Shipping, I was RIGHT .

#5 Dogecoin and Shiba Inu

I expected this to be a home run. Dogecoin USD ( DOGE-USD ) and Shiba Inu experienced a, in my view, inexplicable boom in 2021 and as such I have named them on my list of investments to avoid for two subsequent years. In 2022 I was right, but 2023 does not look the same at all.

Dogecoin's price gained almost 32% during 2023, mostly caused by a dramatic upsurge and risk-on mentality starting in October lately. Shiba Inu (which is not listed on YCharts graphs) followed more or less the same pattern, ending 2023 with a gain of 20%. Shiba Inu performed more or less in line with the S&P 500, while Dogecoin outperformed.

This means that Dogecoin has a market capitalization of almost $14B and Shiba Inu of almost $6B. Though they are merely meme coins with clear technical disadvantages over their competitors, these market capitalizations seem to indicate that this is not the case. Both of these coins have shown that the 'descent into obscurity', as I called it at the time, did not happen (yet). In contrast with my other predictions where I was wrong, I do not understand this, but this counts as a clear WRONG .

#6 Cruise lines

Boy, was I wrong on this one? I expected cruise lines to experience a double whammy of a decrease in demand (because recession) and increased interest rates while carrying larger amounts of debt.

I used the companies Carnival Corporation ( CCL ), Royal Caribbean ( RCL ), and Norwegian Cruise Line Holdings ( NCLH ) as the standard bearers of this sector, and see for yourself how wrong I was:

Yes, the stocks experienced major fluctuations during 2023, probably making them great trading vehicles. But the companies experienced some nice growth (especially when compared with the disastrous years 2020 and 2021), and their debt-to-equity ratios dramatically declined. Even struggling Norwegian Cruise Line Holdings gained almost 55% during 2023, and the two others more than doubled. A big, fat WRONG .

#7 Plug Power

Plug Power ( PLUG ) has been struggling. And although the company is still growing its revenues, its losses have grown even more, while the margins have deteriorated. I recently wrote an article about Plug highlighting their problems, and their Q3 2023 earnings report almost says it all. The company even included 'going concern' language, which shows it will need to raise capital sooner or later. As I reasoned, this is likely to lead to heavy dilution in Plug's share price.

Coupled with a 'return to the mean' of previous optimism about many stocks engaged in renewable energy or hydrogen, 2023 was a bad year for the share price of Plug.

Though I am very positive about the long-term prospects of renewable energy, Plug is a different kind of story. The company is continuing to burn cash and is likely to force existing shareholders into dilution. The company lost more than 66% of its share price during 2023, I was RIGHT.

Overview and recap

As we can see, in 2023 my predictions were not nearly as good as in 2022. Also, some of my misses were spectacular (especially the cruise lines and Tesla), while two of the predictions where I was right only slightly underperformed (oil and luxury goods). But still, a score of 4 out of 7 is not that bad for a year in which I predicted a recession which did not happen.

In hindsight, it all looks obvious (except for maybe the meme crypto coins): cruise lines were undervalued, Tesla was bound to recover and Plug Power was burning cash and suffered from a deflating renewable energy bubble at the same time. At the moment, it was not that easy though, and I expect that making predictions for 2024 will be difficult as well.

In one of my next articles, I will try to improve my score. The rules will stay the same: I will predict 7 investments that I believe are likely to underperform the market in 2024 and compare them with the performance of the S&P 500 in 2023. I already have a couple of investments in mind. Stay tuned!

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