Forbes gurus favor dividend, small-caps and 2 crypto banks

Dividend payers, depressed growth stocks and out-of-favor companies are among the seven stocks and one crypto that are on the buy list of Forbes’ top investment newsletter editors.

The best time to be a buyer is when everyone else is chasing the exits, and three of Forbes’ top newsletter editors make the case for cautious contrarian investing for investors with a four- to seven-year horizon in Forbes’ Investment outlook for 2023.

Against a macroeconomic backdrop that includes rising interest rates, widespread layoffs and recessionary scenarios, John Dobosz, editor of Forbes Dividend Investor and Forbes billionaire investor is debt-shy and looks for companies with solid balance sheets that can withstand the difficult conditions.

La-Z-boyLZB

Dobosz didn’t have to go far from the living room to find an armchair maker La-Z-boy (LZB), which allows investors peace of mind with no loans at all. On top of that, while the company’s sales have jumped nearly 60% over the past five years to $2.47 billion, its trailing price-to-earnings ratio of 7.6 has declined 33%. Even allowing for a one-time lift from pandemic-inspired hedging trends, fundamentals appear to ignore with a 2.5% yield from a payout that has risen 80% since 2016. The small-cap recommendation was featured in Forbes Dividend Investor 20 October. The investment advisory, which features 25-30 new ideas every weekend, recommends undervalued dividend payers with high yields and plenty of free cash flow to cover the payout without breaking a sweat.

Consolidated Edison (ED)

The venerable New York City utility Consolidated Edison
OATH
which will celebrate its 200th birthday in March is a selection from the February 9 issue of Forbes billionaire investor, a newsletter that selects stocks owned by the world’s most successful professional investors, ranging from Warren Buffett to Carl Icahn and Ken Griffin. “You want this for all the good reasons you want a utility stock in your portfolio,” says Dobosz, including industry stability and a 3.4% dividend yield.

Forbes’ Taesik Yoon, editor of the long-running Forbes Investor and Forbes Special Situation Survey, is a value investor who finds bargains in an unintuitive place: growth stocks. He says that in a rising interest rate environment that may plateau but won’t reverse as far as an investor’s eye can reasonably see, stocks that will do well are “strictly based” on issuers’ “fundamentals”, their health and their market outlook. “

Audio codecs (AUDC)

That sight brings him to Sound codes (AUDC), a small supplier of advanced communications software included in the issue December 22 of Forbes Special Situation Survey. The company offers services such as Voice over Internet Protocol, secure computer networks and high-quality communication systems for contact centers. It is a voting partner of Microsoft’sMSFT
MSFT
Team’s collaboration service, which drives sales.

Audio Codes entered 2022 as a high-flying growth stock with 500% growth over the previous half-decade, with what was then a “market-rich” forward price-to-earnings ratio of 22. That reflected earnings that had quadrupled in over the five-year period and made it ripe for removal as the overall market swooned. Still, revenue is likely to be just 14% below bullish analysts’ forecasts for last year, with sales on track to miss estimates by just 1%; in fact, the current consensus earnings for the year show a gain of approx. 11% from 2021. The shares still lost 49% of their value during 2022. Yoon sees sales remaining strong and earnings benefiting from reduced costs for training, inventory and currency hedging. Meanwhile, not only is the company debt-free, but it has about $4 per share of net cash on the books and pays a 2% dividend.

Magic Software (MGIC)

A selection from Forbes Investor is Magic software (MGIC), another small technology company, this one offering outsourcing software and recommended on September 22. Like Audio Codes, the stock started last year well enough but then got caught up in the tech wreck, compounded by limited trading volume that may have spooked investors. The company says it sees no negative spending trends among customers and expects recent acquisitions to begin boosting results. It also had a hiring spree, and Yoon says the new hires are only gaining momentum. In common with Audio Codes, it has a cash-rich balance sheet and an even higher dividend payout of 3.2%.

Wildan Group (WLDN)

Willdan GroupWLDN
is a stock that Yoon has recommended i Forbes Investor since April 2021 with unsatisfactory results so far – it’s down about 50% – but he’s sticking to his thesis, and if it was a bargain then, it should be a steal now. The company is an adviser to utility companies, private industry and public agencies at all levels of government, specializing in energy saving. As with Yoon’s other choices, it went on a hiring ticket, but the company was a victim of its own success. “It had to do with a very high number of new programs that increased last year, which required additional manpower,” he says. These projects usually start with modest revenues and thin margins, but as sales increase, so does profitability.

The deals would eventually turn out to be lucrative, adding $150 million in annual revenue to a company that right now makes $400 million a year. Contributions to the bottom line have been “slower than we would have hoped for,” Yoon says, but the company’s third-quarter earnings came in at 42 cents a share on higher-than-expected sales, compared with the 13 cents analysts expected. The consensus for 2023 is a 61% profit increase. “I don’t know too many companies that are going to see that,” says Yoon, “but I think this one will.”

Silvergate Capital (SI)

Steve Ehrlich, who runs Forbes CryptoAsset and Blockchain Advisor make a bold call on two banked bank stocks, Silvergate Capital (SAY)which Ehrlich first recommended in December 2019, and Signature Bank (SBNY), recommended in August 2021. The pair, which serves companies with digital assets such as exchanges, has been toughened by the so-called crypto winter that began early last year, but since the start of 2023 there has been a thaw.

Silvergate has had a rough time, with shares down 86% since the start of last year, in part because of its association with the failed FTX crypto empire, but Ehrlich believes part of that is investor misunderstanding: Silvergate owes FTX money, not the other way around. so there is not a bad debt problem arising from the stock exchange’s bankruptcy proceedings. The reputational damage led to a run on Silvergate as depositors clawed back around 70% of their cash, and that will pressure earnings as the bank had to liquidate some debt before maturity to pay it off. The good news is that Silvergate was able to meet all the withdrawal requests “without any hesitation,” Ehrlich says, leaving it in “a prime position to grow if and when the crypto ecosystem recovers.”

He also has a favorable view of Optimism, a Tier 2 blockchain that sits on top of Tier 1 EthereumETH
and increases the platform’s efficiency for players and decentralized economy. In the brave new world of blockchain, traditional stocks are few and far between, and to invest in optimism, you have to buy its optimism token (OP), recently traded around $3. Ehrlich recommended optimism in September 2022. Buying digital assets is not the same as investing in stocks or bonds, you need a special crypto wallet, which can be either hardware or software, and there are all kinds of technological and security concerns, but if you wanted to take an aviator, Ehrlich is optimistic about this one.

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