Embrace the downturn and scoop up these stocks on the cheap.
In the simplest of terms, 2022 was a year dominated by rising inflation, soaring interest rates and recession fears. The S&P 500 lost 18.3% through Dec. 15, growth and tech stocks were slammed, and the energy sector walked away as the runaway winner as commodities soared and the sudden onset of the Russia-Ukraine war disrupted global energy markets. The rapid rotation out of more growth-focused names, however, has left opportunities on the table entering 2023. With a number of high-quality names now on sale, investors have a chance to scoop up shares of proven companies at a discount, simply due to some short-term fears. Picking up stocks in a downturn, while against most investors’ base emotional instincts, is historically a good practice. Here are 10 of the best stocks to buy for 2023.
Apple Inc. (ticker: AAPL)
First up is Apple, the largest publicly traded company in the world, if you exclude government-backed behemoths such as oil giant Saudi Aramco. Like other tech stocks, AAPL shares had a rough go of it in 2022, as recession fears and soaring interest rates spooked investors in the sector. Following a rare 23% pullback, Apple now trades at 22 times earnings, offering investors a sound entry point into the $2.2 trillion iPhone maker. Apple’s incredibly sticky ecosystem — customers tend to stay with Apple products, which integrate seamlessly with one another — and ability to upsell more advanced smartphones year after year, lends its revenue a degree of predictability and its stock a measure of safety. While its 0.7% dividend is nothing to write home about, the company is committed to returning its massive cash flows to shareholders in the form of its steadily rising dividend and share buybacks; AAPL spent about $90 billion on stock buybacks last fiscal year alone.
Dutch Bros Inc. (BROS)
While massive, established companies like Apple can offer investors some stability, smaller companies have more room for expansion and can boost portfolios. Enter the rapidly expanding coffee chain Dutch Bros, which for comparison’s sake, is roughly 0.25% the size of Apple despite being worth more than $5 billion. Revenue is growing like a weed, advancing 53% year over year in the third quarter. With initial roots on the West Coast, Dutch Bros locations are almost entirely in the West and Southwest at the moment, with 641 locations in 14 states. The small footprint of its drive-thru stores means they are relatively cheap to open, allowing for faster expansion. That shows up in the numbers: Dutch Bros opened 103 new stores through the third quarter, which works out to location growth of 19.1%, far outpacing the 2.8% growth in locations seen by industry giant Starbucks Corp. (SBUX).
Citigroup Inc. (C)
Next up is Citigroup, an $86 billion multinational bank with both retail and investment banking arms. What Citigroup offers investors going into 2023 is twofold: First, it pays a healthy 4.4% dividend yield, which is a nice buffer for shareholders in an era of rising rates and high inflation. Importantly, that dividend is sustainable over time, with Citigroup using less than 30% of earnings to finance its payouts. Aside from its high dividend, Citigroup also looks like a value stock at current levels, trading for less than 7 times forward earnings and just 0.5 times book value. Famed investor and financial guru Warren Buffett began buying Citigroup stock in the first quarter of 2022, with Berkshire Hathaway Inc. (BRK.A, BRK.B) owning a roughly $2.3 billion stake in the company at the end of the third quarter.
Amazon.com Inc. (AMZN)
Dominant internet retailer Amazon also looks like an attractive purchase entering the new year, with shares trading at a roughly 50% discount to where they were just a year ago. The stock has been hammered as cost inflation, a tight labor market, supply chain challenges and dwindling consumer confidence took a toll. But the market has been far too eager to write off Amazon, whose crown jewel is Amazon Web Services, its large, fast-growing and massively profitable cloud services arm. AWS has an annual revenue run rate of about $84 billion and growing. Given cloud services rival Microsoft Corp. (MSFT) trades for about 9 times sales, AWS should garner about 10 times sales due to its faster pace of growth. If AWS is worth $840 billion, at Amazon’s current $900 billion valuation, investors are getting the rest of Amazon’s massive operations — its retail business, Amazon Prime, digital advertising and so on — for just $60 billion.
Walt Disney Co. (DIS)
One of the most important things to consider when selecting stocks to buy and hold for the long term is a company’s management team. And with the recent return of longtime CEO Bob Iger, Disney has that in spades. Considered one of the best CEOs this side of the millennium, Iger presided over a series of wildly successful acquisitions — including Pixar, Marvel Entertainment and Lucasfilm — before passing the CEO role to Bob Chapek in February 2020. While Chapek was hit with a series of challenges, including COVID-19 and soaring inflation, he also failed to inspire Disney employees, waded into cultural controversies and arguably overspent on content for streaming service Disney+. With Disney shares down more than 30% in the nearly three years since Chapek first took the helm, no one is more qualified than Iger to oversee a turnaround at the House of Mouse.
PayPal Holdings Inc. (PYPL)
A time-tested and well-run financial stock, PayPal is curiously trading for less than its pre-pandemic levels, despite earnings per share of $4.08 expected in 2022 — higher than any year between 2018 and 2020. Shares were absolutely hammered in 2022, shedding 63% through Dec. 15 due to a weaker macro environment and the loss of its highly profitable relationship with eBay Inc. (EBAY). Shares now trade for just 15 times expected 2023 earnings, despite a five-year average price-earnings ratio of 38. Between 2015 and 2021, PayPal’s lowest P/E ratio was 20.3, and applying that multiple to expected 2023 earnings of $4.73 yields a price of around $96 per share by early 2024, implying upside of more than 37% in about a year’s time. Recently announced deals with Apple Pay to accept PayPal- and Venmo-branded cards should expand its presence in brick-and-mortar retail, while Amazon also now accepts Venmo, giving PayPal exposure to its vast online marketplace.
EOG Resources Inc. (EOG)
A return pick from last year’s best stocks to buy list, EOG is a U.S. oil and gas producer coming off a successful 2022 in which shares posted a total return — which includes dividends — of 53.4% through Dec. 15. Shares nonetheless are still priced like a value stock, trading for less than 10 times earnings and about 8 times forward earnings. Growth will, no doubt, decelerate in 2023 — as the red-hot energy market is unlikely to skyrocket as it did in the inflation- and war-plagued year of 2022 — but investors shouldn’t forget the value of an inflation hedge in their portfolios. A 2.6% dividend yield and impressively low payout ratio of less than 24% give EOG some credibility with income investors as well.
Grupo Aeroportuario del Sureste SAB de CV (ASR)
Another return pick from last year’s list, this off-the-beaten-path stock is a $7 billion Latin American airport operator. The only industrial on this list, ASR also offers geographic diversification and is a mid-cap company that isn’t on most investors’ radars. The stock was a diamond in the rough in 2022, with a total return of 19.8% through Dec. 15. It helped, of course, that passenger traffic returned with a vengeance this past year: In the third quarter, passenger traffic shot up 24.5% year over year, which was a 22.8% jump from the pre-pandemic third quarter of 2019. Airport operators earn money when airlines rent out gates and pay landing fees, as well as from parking, ground transportation, airport retail and advertising, among other sources. ASR’s largest airports are in Cancun, Mexico; San Juan, Puerto Rico; and Medellin, Colombia. The stock pays a 3.1% dividend.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor Manufacturing, a $400 billion business and the dominant high-level foundry with more than 90% of the market share for advanced chips, is next on the list. In the semiconductor industry, foundries are companies that manufacture chips for other companies, and TSM enjoys dominant market share for chips 7 nanometers and under. Apple, which has started to shift its supply chain away from China, is one of TSM’s biggest customers. In response to federal incentives for domestic chip manufacturing, TSM recently committed to building a second plant in Arizona, bringing its committed investments in U.S. manufacturing to $40 billion. Trading at just 13 times forward earnings and paying a 2.2% dividend, TSM is, incidentally, yet another Buffett holding, and Berkshire holds a $4.1 billion stake in the firm as of its third-quarter disclosure.
Diageo PLC (DEO)
Last up is Diageo, the $100 billion, U.K.-based beverage giant. A consumer defensive stock, Diageo should be able to hold up in a strained macro environment, as alcohol tends to be relatively recession-resistant. As with tobacco, alcohol consumers tend to have a fair degree of brand loyalty, and the company’s slate of elite brands gives it enviable positioning in its space, with brands such as Johnnie Walker, Guiness, Tanqueray, Don Julio, Smirnoff, Baileys, Ciroc and Bulleit all under its umbrella. Despite net sales jumping 21.4% in fiscal 2022, the stock has suffered recently, shedding 17.1% in 2022 through Dec. 15. This is largely due to its base in the U.K. and a bad year for the British pound. That slump can’t last forever, and shares now trade for 18 times fiscal 2024 estimates, a discount to its five-year average of 24.5.
10 of the best stocks to buy for 2023:
— Apple Inc. (AAPL)
— Dutch Bros Inc. (BROS)
— Citigroup Inc. (C)
— Amazon.com Inc. (AMZN)
— Walt Disney Co. (DIS)
— PayPal Holdings Inc. (PYPL)
— EOG Resources Inc. (EOG)
— Grupo Aeroportuario del Sureste SAB de CV (ASR)
— Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
— Diageo PLC (DEO)
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10 of the Best Stocks to Buy for 2023 originally appeared on usnews.com
Update 12/16/22: This story was previously published at an earlier date and has been updated with new information.
