As much as we'd like the stock market to increase in value every year, corrections, crashes, and bear markets are a more common occurrence than most people probably realize. In 2022, investors have dealt with all three major U.S. stock indexes plunging into respective bear markets.
On the bright side, bear markets have a reputation for allowing investors to buy high-quality stocks at a discount. Over time, every correction, crash, and bear market in all of the major U.S. stock indexes has eventually been wiped away by a bull market rally. In other words, patience can pay off handsomely for long-term-minded investors.
As we enter the homestretch for 2022, I'll be looking to my largest stock holdings to outperform during this period of short-term instability in the market, as well as to make me significantly richer over the long run. Here are my top five portfolio holdings for 2023.
Image source: Getty Images.
SSR Mining
Gold-mining stock SSR Mining (SSRM -1.11%) has been my largest holding for the past six years -- and actually longer than that if you take into account that my previous top holding, Claude Resources, was acquired by SSR in 2016.
SSR Mining ran into trouble in late June when a small, diluted cyanide spill at its Copler mine in Turkey led to the closure of the mine for repairs and other assorted maintenance and upgrades. Outside of this nearly three-month closure, the company has been firing on all cylinders.
The company's Seabee mine, which was the prize of the Claude Resources acquisition in 2016, continues to produce at an all-in sustaining cost (AISC) per gold ounce that's well below the current spot price for gold. More importantly, SSR Mining is advancing underground projects at Seabee that can produce substantially higher ore grades from mined material.
Despite Copler's close to three-month shutdown, it remains a core reason SSR can sustain 700,000 (or more) gold equivalent ounces of annual production throughout the decade. Copler's low AISC and expansion opportunities should help SSR remain one of the top cash-flow producers among mid-tier mining stocks.
As a final note, gold stocks tend to be at their best during the early stages of a new bull market and when the U.S. economy begins to find its footing. In short, we're getting close to the sweet spot for gold stocks.
Teva Pharmaceutical Industries
The second-largest holding in my investment portfolio is brand-name and generic-drug developer Teva Pharmaceutical Industries (TEVA -0.71%).
For more than five years, Teva has been haunted by Murphy's Law: What can go wrong seemingly has. The company has been hurt by weaker generic drug pricing, the loss of sales exclusivity on blockbuster multiple sclerosis drug Copaxone, and has been hammered by litigation. In particular, it's faced lawsuits from 44 states concerning the role it played in the opioid crisis.
The single biggest catalyst for Teva in 2023 is the expected nationwide resolution of the opioid litigation against the company. Teva will foot a $4.2 billion settlement that'll be spread over 18 years. While having to pay $4.2 billion might not sound like great news, the alternative of losing in court and having juries award larger payments would have been much worse. With this grey cloud about to be put into the rearview mirror, it becomes a lot easier to place a higher valuation multiple on Teva, which is currently trading at less than 4 times Wall Street's forecast earnings in 2023.
The other significant driver for Teva has been the leadership of CEO Kare Schultz. Since he took the reins in late 2017, Teva's net debt has been reduced from more than $34 billion to just $19 billion as of Sept. 30, 2022.Schultz has accomplished this debt reduction by selling off non-core assets, reducing the company's annual operating expenses by billions of dollars, and using Teva's operating cash flow to pay down debt.
Teva should find itself on firmer footing in 2023.
Image source: Getty Images.
First Majestic Silver
My third-largest portfolio holding for 2023 is silver-mining stock First Majestic Silver (AG -0.30%). Similar to how I came to own shares of SSR Mining, my stake in First Majestic carries over from an arbitrage opportunity I saw when First Majestic acquired then-holding Primero Mining in 2018.
First Majestic Silver has a number of potential catalysts in the new year. On a macro basis, the company can benefit from greater adoption of green-energy solutions. Silver is a more-utilized precious metal, compared to gold, and is critical for solar panels, as well as numerous parts used in electric vehicles. From a pure supply/demand standpoint, physical silver is in good shape heading into 2023.
On a company-specific basis, First Majestic Silver will be looking to ongoing investments and exploration to provide a spark. At the company's Santa Elena Ermitano Mine, a steady ramp in production should lead to a doubling in tons processed per day next year. Meanwhile, the restart of new underground mines at Jerritt Canyon -- the gold mine First Majestic purchased in April 2021 -- will improve daily throughput and should lead to higher ore grades in the second half of 2023.
Something else to note about First Majestic Silver is that its Jerritt Canyon acquisition gives it greater gold exposure. Although First Majestic is still the top silver play, this added gold exposure can minimize wild cash-flow swings as well as help the company take advantage of the next bull market. As noted, gold stocks tend to do their best during the early stages of a bull market.
The fourth-largest holding in my investment portfolio for 2023 is social media stock Pinterest (PINS -0.22%).
Pinterest's skeptics have a long list of concerns. They're worried about the company's slowing or reversing monthly active user (MAU) count as well as the potential for data-tracking software to adversely impact Pinterest's ad-pricing power. There's also the growing likelihood of the U.S. entering a recession in 2023, which wouldn't bode well for ad spending.
However, worries about Pinterest's growth have consistently been overblown. Not only have the company's MAUs grown on a sequential basis since the end of the first quarter, but most importantly, Pinterest has had no trouble monetizing its active users. Even amid a challenging ad environment, global average revenue per user (ARPU) climbed 11% during the September-ended quarter. Having watched Meta Platforms' ARPU expand over a decade, I'm led to believe there's a lot of juice left in Pinterest's ARPU figures.
Another noteworthy point about Pinterest is that its entire platform is designed to encourage users to share what things, services, and places interest them. Even if app users choose to opt out of data-tracking software, it really doesn't matter for Pinterest. With users willingly providing the data that advertisers can use to target potential shoppers, Pinterest should be able to maintain superior ad-pricing power more often than not.
I'd also be remiss if I didn't note Pinterest's $2.67 billion in cash, cash equivalents, and marketable securities at the end of the third quarter. This is more than enough capital to allow Pinterest to navigate a challenging environment while not foregoing spending on future innovation(s).
Bank of America
My fifth top portfolio holding for 2023 is bank stock Bank of America (BAC 1.00%). Among the 46 stocks I hold positions in, none has been held longer than BofA.
Historically, holding bank stocks during a bear market is bad news all the way around. Not only do banks suffer from higher loan losses during periods of economic weakness, but the Federal Reserve usually lowers interest rates to spur lending. That usually means less in the way of net-interest income for banks with outstanding variable-rate loans. But this isn't your typical bear market.
After more than a decade of historically low lending rates and aggressive money printing, the nation's central bank has no choice but to rapidly raise interest rates in order to tame inflation. Even if loan losses rise due to economic weakness, Bank of America can more than offset losses due to an increase in net-interest income. In fact, no large bank is more sensitive to interest rates than BofA.
But it's not just rising interest rates that have me excited about Bank of America. As I recently opined, the company has done a bang-up job of improving its operating efficiency via its digitization push. The number of active accounts banking digitally (online or via mobile app) has grown by 5 million over the trailing three-year period, ended Sept. 30, 2022. Best of all, close to half of all loan sales were completed digitally in the third quarter, which is significantly cheaper for banks than in-person or phone-based interactions. If consumers continue to shift their banking habits online or to mobile apps, BofA will be able to consolidate some of its physical branches to reduce its noninterest expenses.
Bank of America remains a heck of a deal at roughly 8 times Wall Street's consensus earnings for 2023.
