Our predictions for 2023 were all fulfilled with the stock portion providing extremely strong performance. This was on the heels of poor performance in 2022 as it was one of the worst years in the past 50 for the stock market in general, and for my stocks in particular. In delineating the stock recommendations in our Top Ten predictions for 2023 we pointed out that the 6 stocks, on average had fallen nearly 49% in 2022 despite average revenue growth of about 38%. Since we expected all 6 to continue to grow in 2023 (and both Amazon and Shopify to increase their growth rates), we felt they were all poised for a recovery. This clearly proved accurate.

What went right for my stock picks in 2023 was great company results coupled with the benefit of an apparent end to the rate hike cycle. I have always pointed out that I am not amongst the best at forecasting the market as a whole but have been very strong at selecting great companies which over the long term (5 years or more) typically have solid stock appreciation if their operating performance is consistently good. But even great company’s stock performance can be heavily impacted in any given year by market conditions. Two key drivers of negative market conditions in 2022 were the huge spike in inflation coupled by the Fed raising rates to battle it.

At the beginning of 2023 we felt that inflation would be on the decline from its peak of 9.1% in June 2022 (see prediction 9). Given the expected decline in inflation we believed the Fed would slow and then stop increasing interest rates. Since the rise in interest rates was a major reason for the decline in our long-duration stocks, we believed that slowing and then stopping this rise would be a factor in driving elevated stock performance.

So, the big question for the market at the beginning of 2023 was whether the expected additional rate increases projected at just under 1% for the year (which theoretically was built into share prices at the end of 2022) would be enough for The Fed. It pretty much was as the Fed raised rates 1.0% during the year but stopped making increases after July and subsequently indicated that rates could start declining in 2024.

Stocks reacted well to what appears to be end of the upward climb in rates and tech stocks reacted particularly well as long duration investments tend to be influenced greatly by rate changes. Coupling this with what appears to be a soft landing created a positive environment for our recommended stocks.

Our six recommended stocks were up an average of 96% with 3 of the 6 appreciating over 100%. While we will have a longer discussion of the reasoning behind it in our next post, we wanted to disclose that all 6 will be recommendations in our 2024 Top Ten.

2023 Stock Recommendations

1. Tesla will outperform the market (it closed 2022 at $123.18/share)

As usual, Tesla was a wild ride in 2023. Partly, this was based on continued controversy surrounding Elon especially his actions post his October 2022 purchase of Twitter (now called X). But in addition, concerns over price drops, potential slowing momentum of Battery Electric Vehicles, challenges to Tesla market share and more weighed on the stock at times. These concerns buried the stock in 2022. In 2023 they continued to be sighted by shorts but proved overblown as the company reached its unit sales target of 1.8 million vehicles (up 40%), launched the CyberTruck in Q4 and substantially increased its market share of overall vehicles sold. As a result, Tesla stock was very strong in 2023 and closed the year at $248.48/share, a rise of 102%.

2. CrowdStrike (Crwd) will outperform the market (it closed 2022 at $105.29/share)

The most recently reported quarter for CrowdStrike, Q3 FY24 was another strong one as the pandemic had little impact on its results. Revenue was up over 35% and earnings 105%. Existing customers continued to expand use of the company’s products driving Net Revenue Retention to exceed 120% for the 20^th consecutive quarter. The company’s stock, which had declined nearly 50% in 2022 (despite a revenue increase of 54%), had a dramatic recovery. It closed 2023 at $255.17/share, up 142%.

3. Amazon will outperform the market (it closed 2022 at $84.00/share)

As we expected, Amazon improved revenue growth in each quarter of 2023 from its low point of 8.6% in Q4 2022. In Q3 2023 growth was back to 12.6%. Additionally, the company increased its focus on profitability with Q3 profits up well over 200% versus the prior year’s weak numbers. This coupled with the improved environment for tech stocks helped drive Amazon’s share price to $151.75 at year end, up 81% from the close on December 31, 2022.

4. The Trade Desk (TTD) will outperform the market (it closed 2022 at $44.83/share)

Fears of a potential recession caused great concern for advertising revenue. After dropping sequentially in Q4 2022 (to 24.1%) and again in Q1 2023 (to 21.5%) TTD’s revenue growth began recovering in Q2 (to 23.1%) and again in Q3 (to 27.7%). The stock reacted well to the improvement and closed 2023 at $71.80 up 60% from year end 2022.

5. Datadog will outperform the market (it closed 2022 at $73.50/share)

Like many other high growth subscription-based software companies, Datadog experienced another solid year in 2023 with Q3 revenue growth at 26.7%. Also, like CrowdStrike, Datadog has a very high gross margin (GM) and is now at the point where it has started to leverage its GM driving up earnings (+96%) at a much faster rate than revenue. This level of success helped Datadog stock close the year at $121.65/share, up 66%. 

6. Shopify (Shop) will outperform the market (it closed at $34.71/share)

In our post of Top Ten predictions, we pointed out that the pandemic had created a major warping of Shop revenue growth.  Instead of the normal decline for high growth companies from its 47% level in 2019 it jumped to 86% growth in 2020 and still was above “normal” at 57% in 2021. Once physical retail normalized in 2022, Shopify growth plunged against the elevated comps declining to a nadir of 16% in Q2, 2022. When we included Shop in our Top Ten for 2023, we pointed out that we expected its revenue growth to return to 20% or more throughout 2023. This indeed did occur and the stock reacted well, closing the year at $77.88 up 124% year/year.

Non-Stock Specific Predictions

While I usually have a wide spectrum of other predictions, last year I wanted to focus on some pressing issues for my 3 predictions that are in addition to the fun one. These issues are Covid, inflation and California’s ongoing drought. They have been dominating many people’s thoughts for the past 3 years or more.

7. The Warriors will improve in the second half of the current season and make the Playoffs

This forecast proved correct as I expected the Warriors to make the playoffs but be unsuccessful at winning a title. They did rally in the latter part of the season to finish 6^th (avoiding the play-in) and won the series against the Kings but failed to progress to the Western Finals.

8. Desalination, the key to ending long term drought, will make progress in California

Some of the pressure to create desalination plants throughout California was reduced by substantial rainfall last year that ended the drought and filled reservoirs. Despite this there was progress as the California Coastal Commission approved a $140 million desalination plant in Orange County (at Dana point) in late 2022. Resistance to its construction has been mounted by environmental groups but in 2023 the planning continued to move forward.

In April 2023, the Department of Water Resources (DWR) announced 3 more projects that will receive support from DWR and an additional 6 projects that will receive funds through a partnership with the National Alliance for Water Innovation. While the total water generated through all projects currently approved is still far short of fulfilling California needs, the tide seems to have begun to turn (no pun meant) towards favoring use of desalination.

9. Inflation will continue to moderate in 2023

This forecast proved pretty accurate as inflation moderated to just over 3% in 2023 (very slightly higher than my projected range). It was at 6.3% when I made the forecast.

10. Covid’s Impact on society in the US will be close to zero by the end of 2023

I consider this prediction mostly right. On the positive side I believe Covid no longer has much influence on people venturing out to shop, dine, go to the theater, travel, etc. Even cruise lines are experiencing a substantial return towards normal. The number of new Covid cases has waned significantly and deaths from it are close to zero. However, I would not say we’re quite at zero impact as there are still some spikes (of modest magnitude versus before) that cause concern to a portion of the population.