The market rally this year has been impressive. However, last week uncertainty and volatility returned to markets. The S&P 500 was down 1.1% on the week, its worst week of the year thus far. The Nasdaq posted a steeper decline of 2.4%, while the Dow slipped about 0.1%. Markets seem to be approaching somewhat of a crossroads: Does the rally continue unabated, or does volatility build?
The latest inflation reports will be in the spotlight this week. A Consumer Price Index report scheduled for release on Tuesday will show whether the recent moderation in inflation extended into January. In December, inflation rose at an annual rate of 6.5%, marking the smallest year-over-year increase since October 2021. Earnings season will continue to wind down with reports from The Coca-Cola Company, Airbnb, DoorDash, Marriott International, Cisco Systems, and Paramount Global, among others.
Gold prices have ripped higher over the past few months, and experts expect momentum to continue amid heightened recession concerns. It may be a bumpy year, but the overall outlook for gold in 2023 is positive. Investors looking to expand their precious metals position would do well to include operations with smaller market caps for their growth potential and as portfolio diversifiers. Our first recommendation for the week is low-priced gold stocks that seem well-positioned for the next leg up.
Centerra Gold Inc. (CGAU)
Centerra Gold Inc. operates, explores, develops, and acquires gold and copper properties in British Columbia, Canada, and Turkey. As of Dec. 31, 2021, the company had roughly 4.9 million ounces of gold reserves. Centerra said it produced almost 244,000 ounces of gold in 2022. CGAU has a trailing twelve-month P/E ratio of just 5.6.
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Value will likely continue to outperform growth in the near term as the Fed continues down its rate-hiking path. Today’s featured stock is a discerning selection from the materials sector that boasts an outstanding track record and seems significantly undervalued compared to peers.
CF Industries Holdings, Inc. (CF)
CF Industries is a major distributor of North American nitrogen fertilizer products. Disruption in fertilizer supplies caused by the war in Ukraine has sent fertilizer prices soaring to record highs. CF is generating plenty of cash flow to achieve a net cash position, buy back an estimated $1.5 billion in stock in 2023, explore targeted acquisitions, and invest in clean nitrogen projects. CF is a good value at 5.2 times earnings compared to the US Chemicals industry average of 14.5 times earnings. With its low 9.1% payout ratio, CF’s 1.9% dividend is reliable and thoroughly covered by earnings.
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Pure Storage (PSTG)
Software stocks were among the market’s biggest losers in 2022 amid drastic shifts in Fed policy. But amid signs of cooling inflation over the past few months, the pace of interest rate hikes has slowed. With inflation collapsing, it seems likely that interest rates will continue falling through 2023. If they do, then it could be up, up, and away for certain software stocks, such as our next recommendation.
The next-generation data storage market is predicted to grow by 8.5% to $81 billion by 2025. All-flash data storage hardware and software products developer Pure Storage has upward solid top and bottom-line results, a healthy balance sheet, and growing cash flow. PSTG investors benefit from its subscription-based model, which is now at over $1 billion in annual recurring revenue. With a growing customer base in a market with substantial long-term growth potential, investors may want to take a bullish stance on this company.
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