The psychological landmark of New Year is a funny thing. If global stock markets were sentient, I would suggest that they have (like me) taken a healthy attitude to the new year. Unlike me, their commitment to a healthy 2023 has overcome the hurdle of the first weekend in January.
And there are plenty of signs that the markets’ upward momentum is not one of those resolutions that will be abandoned before February. Inflation and US wage growth seem to have peaked, while Christmas updates from UK retailers suggest that a consumer crisis has been averted. Ammunition for bullish forecasters is rife.
The trouble is that forecasting in the new year, though fun to read and write, can be dangerous for private investors. The calendar has ticked over but that doesn’t mean we know much more now than we did at the end of 2022. The trends that started in December have persisted, but we still don’t know how long they will last. No-one does.
But market traits persist. History has shown us that regardless of the wider economic or political conditions, good stocks beat bad stocks, cheap stocks beat expensive stocks and winning stocks beat losing stocks. At Stockopedia, we strongly advocate the use of these traits as the most stress-free way to profit from the stock market.
Traits: Idea generation for 2023
And that is how we will continue to generate ideas in 2023 - by identifying quality, cheap, upward trending stocks. As ever, the best attitude for investors is discipline: have a plan and stick to it. Noise from the markets sometime makes that tricky and so I will be using the screens below to generate ideas and help maintain discipline.
Quality: Best of the Best
Large Cap Quality: Screens for companies with a market capitalisation of over £10bn from any country. It aims to identify companies which have a track record (5yr average) of generating strong profits out of revenue (operating margin >15%) and assets (ROCE >15%) as well as strong cash flows (CROIC >15%). Plus efficient capital management demonstrated by a cash conversion cycle and net gearing less than the market average.
UK Small Cap Quality: Screens for British companies with a market capitalisation between £20m and £500m (small cap). Sales growing at a compound annual rate of more than 10% a year and earnings growing faster than that. A long-term (5yr average)…
