10 Stocks to watch in Q4 2023

High inflation and energy prices, poor Sino-Western relations, the artificial intelligence revolution and the performance of economies across the world have created quite the backdrop for the stock market this year.

As we enter the fourth and final quarter of the year, Nikos Tzabouras, Senior Financial Editorial Writer at FXCM, takes a look at 10 stocks to watch in Q4 2023.

 
‘Major stock markets around the world had a strong first half of the year but things turned murkier during the third quarter.

Inflation remains high and rising energy prices add another layer of complications.  Furthermore, Sino-Western relations remain at a low point. The world’s second-largest economy faces hardships with a troubled property sector, suppressed consumer demand, weak factory activity and subdued trade, although recent data offered a ray of hope. These problems not only endanger China’s post-pandemic recovery but also create headwinds for key Western corporations with large exposure to the country.

The artificial intelligence (AI) revolution continues to drive Wall Street and global sentiment.  But the third quarter was mixed, as the higher-for-longer-prospects by the Fed gained traction.
Although the US economy has generally performed very well, the situation is not so optimistic on the other side of the Atlantic. The Euro area is going through a tough period, with its economic engine, Germany, sputtering. The UK also underperforms and the massive amount of tightening by the Bank of England creates fears for further slowdown and for sparking a mortgage crisis, even though it paused in September.
Against this backdrop and as the fourth quarter gets underway, we examine some of the stocks that will be on our radar over the coming months.
 

Meta Platforms

 
Meta’s CEO, Mark Zuckerberg, dubbed 2023 the “Year of Efficiency”, implementing a series of changes to turn things around following the hardships of the previous year and these efforts are already yielding results. Profitability improved, revenues returned to double-digit growth, its user engagement increased and Meta also expects to see higher sales in Q3.
More importantly, Mr. Zuckerberg pivoted away from the long-term and costly Metaverse, which markets never really embraced and shifted his focus to AI. Back in July, the firm released its own large language model (Llama 2) to rival OpenAI’s ChatGPT and Alphabet’s Bard.
That said, Meta still has catching up to do on the AI front, while Threads is still far from threatening Twitter’s dominance and engagement has fizzled out, according to Similarweb.
 

Ryanair

 
Riding on the increased demand for travelling, Ryanair posted strong results for the April-June quarter (Q1 FY24). Traffic rose 11% y/y, revenues jumped 40% to €3.65 billion and profits after tax (PAT) ballooned to €663 million. CEO Michael O’Leary took note of the firm’s “largest ever summer schedule”, while the latest data showed record traffic of 18.9 million in August.
Not all is rosy though, since the firm lowered its traffic outlook for the full fiscal 2024, to approximately 183.5 million passengers (from 185m previously), constrained by delays in plane deliveries from Boeing. However, this performance would still mark an around 9% y/y increase.
Rising fuel costs pose another source of concern, as energy prices have risen substantially over the summer, amidst supply cuts by OPEC+.
Even though airlines seem to have handled high demand better this year, compared to the scenes of airport chaos of last summer, there are still difficulties. These were underscored by the recent traffic control failure in the UK, which caused 1500 flight cancellations.
 

Arm Holdings

 
Arm does not make semiconductors itself, but licenses its architecture to other companies, with its designs used in many sectors, from cloud computing to automotive. It has a stronghold on the mobile devices market, as nearly all of the world’s smartphones run on Arm-based processors, including Android devices and Apple’s iPhones.
The company tried to capitalise on the AI boom with the timing of its IPO which had driven this year’s tech rally, an area where its designs are essential.
However, its sky-high initial valuation created concerns, as it was more than 100 times its profitability. Arm had a net income of just $524 million in fiscal 2023 (year ended March 31) and its revenue stagnated at around $2.5 billion.
 

XPeng

 
XPeng had a rough couple of years amidst broader industry headwinds, with a greater adverse impact on startups. It saw its net loss ballooning to a historic RMB 2.8 billion (around US$ 385 million) in the second quarter and revenues slumped roughly 32% y/y to RMB 5.06 billion (around US$ 700 million), albeit the figure marked the first sequential growth in over a year.
Its deliveries have also suffered, but the 23,205 units handed over in Q2 offered some reason for optimism since they snapped the five-quarter downtrend. Its latest model, the G6 Coupe SUV, has exceeded 10,000 deliveries within just the first 45 days.
XPeng already sells some of its vehicles in certain European countries, but it announced the expansion of its presence into the important German market. It will launch in 2024 with the P7 sports sedan and the G9 SUV, which it showcased during September’s IAA Mobility show in Munich.
The startup has an appealing offering, but it will need work to gain the trust of European consumers and succeed in the second-largest EV market in the world. The anti-subsidy probe against Chinese EVs launched by the EU commission could create headwinds.

Microsoft

 
Generative AI has emerged as the key battlefield in Silicon Valley, with Big Tech racing for supremacy. Microsoft was able to leverage the investment in OpenAI – the creator of ChatGPT that sparked the AI arms race – to quickly launch an AI-powered Bing search engine. This first mover advantage is crucial but competition is intensifying and its rival is making progress after the late start.
The tech behemoth comes from a strong quarter with record revenues in excess of $56 billion, but its guidance was concerning. It projects lower total sales of $53.8-$54.8 and a decline in the important Intelligent Cloud segment to $23.3-$23.6 billion in the soon to be reported quarter (Q1 FY24). Microsoft is the second largest cloud provider behind Amazon, but its market share dropped sequentially in Q2, based on research by the Synergy Research Group.
Big Tech is also facing regulatory headwinds around the world. The EU Commission recently designated Microsoft and others as “gatekeepers”, under its new Digital Markets Act, giving them six months to ensure full compliance with the DMA obligations.
 

Tesla

 
Tesla’s revenues jumped 47% y/y to a record of nearly $25 billion, but profitability took another hit from lower prices. Operating income slid 3% y/y and margin fell below 10% for the first time in more than a year. The firm has slashed its prices, chasing market share over margins, which are still enviable by the auto industry.
Tesla has an ageing fleet and has not released a new model in years, but this is set to change soon with Cybertruck, after multiple delays. Mr. Musk had previously indicated that deliveries would begin in the third quarter, but during the last earnings call, he was less specific, placing them in this year.
The firm launched a refreshed Model 3 in September and earlier in the year, execs had outlined a next-gen manufacturing procedure that reduces costs and footprint. This could enable the EV king to build an actually cheap electric vehicle, but there are no details around such prospects.
Its charging protocol has been embraced by The Ford Motor Company, General Motors and others. It is also entering lithium refinery that is a key component of EV batteries and pushes on solar panels.
It also positions itself at the peak of AI development, with its Dojo supercomputer, to improve autonomous capabilities and achieve full-self driving (FSD). However Mr. Musk has generally been too optimistic about full autonomy and to his own admission, he is “the boy who cried FSD”.
 

Disney

 
Disney is going through a difficult period, with challenges on multiple fronts. Its studio business is struggling, with just one movie in the top five of the world box office this year. Its cable and broadcast networks underperform amidst softening advertising and cord-cutting. Most importantly, streaming is not a growth story anymore, since its services (Disney+, Hulu, ESPN+) have been losing subscribers for the last three quarters and have allowed Netflix to regain the lead.
The user base contraction seems limited though, in light of the recent (and upcoming) price hikes, with CEO Bob Iger saying that they “didn’t see significant churn or loss” from the increases. The financials of the direct-to-consumer (DTC) segment improved, which indicates that Disney has pricing power.
Furthermore, the ad-supported tier that launched late last year is doing very well, with 40% of new Disney+ subscribers opting for this option and an expansion to more regions is in the pipeline. Disney also plans to monetize password-sharing, with the CEO calling it a “real priority”.
Disney has great content and two of the most important franchises in Hollywood – the Marvel Cinematic Universe & Star Wars. It also owns sports mainstay ESPN, which it intends to transition to streaming in a move that could unlock much more value.
 

Burberry

 
Late last year, Burberry set a strategy to grow its sales to £4 billion in the medium-term and to £5 billion in the long run. Its last results for the full fiscal year 2023 (period ended April 1), showed substantial progress towards this goal since its revenues grew past £3 billion.
The robust results were largely driven by China’s reopening, where sales jumped 13% in the first three months of the current year. However, the country’s post-pandemic recovery is faltering, as indicated by a series of disappointing economic data and Sino-Western relations have deteriorated this year.
Burberry may be one of the most iconic and recognizable fashion brands around the globe, but it is vulnerable in a highly concentrated luxury market. In the most recent manifestation of this consolidation trend, Coach-owner Tapestry agreed to acquire Capri Holdings, home of Michael Kors, Versace and other high-profile designers.
 

Apple

 
Apple comes from a disappointing quarter (Q3 FY2023), when sales of Macs, iPads and iPhones all dropped compared to the same quarter last year, leading to a nearly 1.5% y/y revenue decline.
CEO Tim Cook spoke of a “challenging” smartphone market in the US but saw “continued strength” in emerging markets, due to “robust” iPhone sales.
The firm is turning its attention to India where it opened its first Apple stores and so is the Western world amidst heightened tensions with China. However, the world’s second-largest economy is critical for Apple’s production and consumption. It accounted for nearly 20% of revenues in the last quarter and its economic challenges and strained relations with the West pose a source of risk for the tech giant.
Apple has not innovated in a long time but leaped forward with an augmented reality headset a few months back. With Vision Pro, it will enter a niche market, where Meta is currently the biggest player. Its $3,499 price tag is prohibitive for mass adoption though. Furthermore, it won’t ship until early 2024 and such devices have failed to gain broad appeal so far, but if any company can change that, it is Apple.
 

Nvidia

 
Nvidia is a US chip heavyweight, traditionally known for its gaming graphics cards, but its biggest business is now data centres and does leading work on AI.

It was named one of this year’s 100 most influential companies by TIME magazine, while its stock valuation recently hit $1 trillion, ushering it to the coveted Trillion Dollar Club.
OpenAI blew the tech world away in late 2022 with ChatGPT, leading to an AI arms race. This revolution would not be possible without Nvidia, whose accelerated computing has enabled the creation and launch of such applications.
As a result, revenues doubled from a year ago to a record of $13.507 billion and profits ballooned to $6.188 billion. More importantly, it dismissed concerns around supply and demand, expecting sales to increase further during the soon to be reported quarter, to $16 billion.
It’s ahead of its competitors, but the gap may begin to close as they make progress and the need for more AI infrastructure increases. Furthermore, trade restrictions on critical chip technology towards China may create headwinds for the broader industry.
 

_{Our Website is a financial data and news portal, discussion forum and content aggregator; we are not a broker/dealer, we are not an investment advisor, we have no access to non-public information about publicly traded companies, and this is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. We are not regulated by the Financial Services Authority.}

_{We are an educational forum for analysing, learning & discussing general and generic information related to stocks, investments and strategies. No content on the site constitutes – or should be understood as constituting – a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in our site content. We do not provide personalised recommendations or views as to whether a stock or investment approach is suited to the financial needs of a specific individual}.