There is no doubt 2023 will be an interesting year for the stock market. This year there are several factors with the potential to dramatically impact stock prices. If you’re going to stay invested, you need to pick winning stocks. Here are 3 factors which could negatively impact the markets.

First, the Federal Reserve has indicated that interest rates need to go higher to stamp out high inflation. The Fed’s goal is to bring inflation back down to 2% target yearly rate. Next, in Congress, there is a battle brewing over the debt ceiling – this will surely be a big topic over the next 6 months. Finally, corporate earnings are very likely to be impacted by the Fed’s historic rate increases in 2022.

All these factors are cause for concern to the individual investor. 

Below are three points to look at when selecting stocks in 2023 to protect your portfolio.

The Stock Must Pay a Dividend

When selecting a winning stock investment, the stock must pay a dividend. Dividends are important because a company that returns money to shareholders through dividends are typically profitable. Profitability of an investment choice is extremely important in a bear market and high interest rate environment. Dividends indicate the company is confident in future earnings and potential growth opportunities. A stock paying a dividend with potential to also appreciate in price is – Paramount Global – PARA pays a 4.79% dividend and is trading at around 5 times earnings.

Low Price to Earnings Ratios

How does an investor value a stock or pick winning stocks? Typically investors look for stocks with low price to earnings ratios (P/E) relative to their peers. For example, when looking at Ford versus General Motors we see – Ford is trading at a P/E ratio of 5.75 where GM is trading at a higher valuation of 6.2. Further Ford offers a 4.72% dividend where GM only offers a .99% dividend.

Here we can say that Ford is relatively cheaper and more attractive of an investment given the larger dividend.

We can confirm the price performance by looking at the 5 year comparison of the two stocks below. Over the last 5 years, Ford stock has appreciated 6% while GM lost 15.39%.

Diversify Your Investments

Make sure to diversify your investments by sectors. For example, limit any sector investments to no more than 10% of your portfolio value. That means, don’t have all your eggs in any one basket. I do not count cash in this calculation. Further, I limit any single position in my portfolio to 5% with the exception of cash.

Now is also a good time to be overweight cash and be ready to invest during a major market downturn. Investment professionals refer to sideline cash as a “keeping the powder dry” for buying opportunities. Make sure to keep a buying list for future investments. Keep an eye out for low P/E stocks that pay high dividends.

Hire a Personal Financial Coach

Remember the journey to achieving personal financial success can be difficult. To pick winning stocks – you may need assistance. You will learn a lot along the way. If you need professional help, consider hiring a Personal Financial Coach to assist. Read my blog posts – Benefits of Working with a Financial Coach – for some information on the benefits to having someone in your corner who is not trying to sell you a financial product – but rather guide you in the right direction.

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Contact Mike Greco