Value-oriented companies have significantly underperformed growth stocks since the 2008 financial crisis. Investors have embraced a growth-at-any-cost strategy to stock choosing due to low-interest rates and inexpensive financing, which have helped turbocharge growth businesses.
The causes of the recent drop on Wall Street are all too familiar: Many previously booming stocks took a beating as the “risk off” mentality emerged to dominate markets due to inflation, rising interest rates, persisting recession fears, and the Russia-Ukraine war. Fortunately, this created a window for buyers to swoop in on fantastic companies at a discount when the new year began.
U.S. News identifies ten stocks as best bets for the coming year each December. The top 10 stocks to purchase in 2023 and how they have performed so far in terms of total returns (return on investment plus dividends).
Apple Inc. (AAPL)
Apple Inc. (AAPL) To start, we have the largest publicly traded corporation in the world. This is true if you disregard state-backed goliaths like the oil giant Saudi Aramco. Shares of AAPL, like many other tech equities, struggled in 2022 as investors were scared off by predictions of a recession and rising interest rates. Now trading at 27 times earnings after a remarkable 26.4% decline in 2022, Apple provides a good entry point for the $2.5 trillion iPhone maker for investors. Its most recent earnings report was below estimates. However, this was attributable more to supply chain hiccups than customer demand. Indeed, Apple claimed more than 2 billion devices with software loaded, and its high-margin services business brought in more than $20 billion in revenue. After a tough 2022, AAPL stock has rebounded this year, rising 26.9 percent through April 6.
BROS, the Dutch Inc ( Bros )
While large, well-established companies like Apple might provide some stability for investors; smaller companies can offer more significant growth opportunities and add value to investment portfolios. The quickly growing Dutch Bros. coffee shop chain is valued at nearly $5 billion, making it about 2% as large as Apple. In 2022, sales were expected to soar by 48.4 percent. Dutch Bros originates on the West Coast, and its 671 stores in 14 states are all concentrated there or in the Southwest. Its drive-thru outlets are compact, making them inexpensive to open and speeding up the company’s expansion plans. This is reflected in the data, which reveals that Dutch Bros. expanded its shop count by 25% in 2022 (to 133 total locations). Through April 6, stock prices have risen 11.7%.
Citigroup Inc. (C)
The next on our list is Citigroup, a global financial institution with almost $90 billion in assets between retail and investment banking. Investors can benefit in two ways from Citigroup: First, it has a dividend yield of 4.5 percent, which is above average in this era of rising interest rates and excessive inflation. Citigroup uses less than 30% of its earnings to fund its pay-outs. Therefore, the dividend is sustainable over the long term. With its strong dividend and low valuation (seven times forward profits and 0.49 times book value, respectively), Citigroup is a value stock at present. Berkshire Hathaway Inc. (BRK.A, BRK.B) now has an approximately $2.5 billion investment in Citigroup, which Warren Buffett, the famed investor and financial guru, began purchasing in the first quarter of 2022. As of April 6, Citigroup stock was up 2.4% in 2023.
Amazon.com Inc. (AMZN)
After a terrible year in 2022, in which its stock lost half its value, Amazon.com, Inc. (AMZN) was designated one of the ten best stocks to purchase for 2023. Inflationary costs, a lack of available workers, difficulties in the supply chain, and flagging consumer confidence were all to blame. However, the market needed to be quicker to dismiss Amazon, which has a substantial, rapidly expanding, and highly successful cloud services business known as Amazon Web Services. More than 85 billion dollars is expected to be earned by AWS this year alone. Comparing AWS’s valuation to that of Microsoft Corp. (MSFT), another cloud services competitor, yields a figure of $850 billion. At its current price of $1 trillion, Amazon is offering investors the remainder of its vast operations, which generated $434 billion in revenue in 2022, for around $150 billion. Through April 6, 2023, shares of AMZN had increased by 21.5%, making the stock a solid investment.
Walt Disney Co. (DIS)
When looking for stocks to buy and hold for the long term, the quality of management is a crucial factor to consider. Disney certainly has that, especially now that longstanding CEO Bob Iger has returned to the company. Before handing over the reins to Bob Chapek in February 2020, Disney CEO Bob Iger, widely regarded as one of the best CEOs since the turn of the millennium, oversaw many hugely successful acquisitions, including Pixar, Marvel Entertainment, and Lucasfilm. The February earnings report was Disney’s first since Iger’s return, and it showed the Mouse House surpassing earnings and revenue estimates. Disney+ subscriber losses were less severe than expected following a price increase, while the company saw a 21% increase in quarterly income from its theme parks. So far in 2023, Iger has kept his touch: DIS stock has outperformed the S&P by 15.1% through April 6.
PayPal Holdings Inc. (PYPL)
(PYPL) is selling at a discount to its 2020 pandemic lows, despite forecasted earnings per share of $4.13 in 2022, which is higher than any year between 2018 and 2020. The combination of a worsening macro climate and the end of a lucrative partnership with eBay Inc. (EBAY) caused shares to plummet 62% in 2022. Despite a five-year average of 36.5 times earnings, shares are currently trading at a multiple of approximately 15. PayPal’s lowest price-earnings ratio was 20.3 between 2015 and 2021. Assuming payments of $4.88 per share on average for 2023, a price of $99.06 per share by early 2024 is calculated, an increase of almost 32% from the stock’s closing price on April 6. Having recently announced partnerships with Apple Pay to accept PayPal and Venmo branded cards, the company stands to get greater exposure to the massive online marketplace Amazon offers. As of April 6, PYPL shares are up 5.3% in 2023.
EOG Resources Inc. (EOG)
Among the most significant stocks to purchase again this year is EOG Resources Inc. (EOG), a U.S. oil and gas company whose stock had a total return of 56.3% in 2022. Although the company trades at approximately eight times the anticipated earnings, it is still valued like a value stock. Even if growth slows down in 2023 since the energy market isn’t expected to soar as it did in 2022 due to inflation and war, investors shouldn’t overlook the importance of having a hedge against inflation. EOG has gained some clout among income investors thanks to its 2.8% dividend yield and a meager payout ratio of less than 23%. EOG shares have fallen, making it the worst-performing stock in 2023, as inflation fears have subsided recently. As of April 6, the stock price is down 6.4% this year.
Grupo Aeroportuario del Sureste SAB de CV (ASR)
An additional stock from last year’s recommended list, Grupo Aeroportuario del Sureste SAB de CV (ASR) is a $9 billion Latin American airport operator. ASR is the sole industrial on this list and appeals to investors because of its regional variety and mid-cap status. In a year when the market was down, this stock was a true gem, returning 17% overall. Increases in the number of passengers have helped: Passenger volume in March 2023 was up 6.7% annually, with the growth in Mexico accounting for 11.8% of the total. Airports make money through various means, including airline gate rentals and landing fees, parking and ground transit fees, airport retail sales, and advertising. Cancun, Mexico; San Juan, Puerto Rico; and Medellin, Colombia, are home to three of ASR’s busiest airports. The dividend yield on this stock is 2.5%, and the total return on the store for 2023 up until April 6 is 29.7%.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Next up is Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), a company with annual revenue of almost $500 billion that is the industry standard for advanced semiconductor foundries. TSM has a dominant share of the market for chips with a feature size of 7 nm or less compared to other semiconductor industry foundries. TSM counts Apple among its top clients because of the iPhone maker’s efforts to diversify its supply chain away from China. Revenue increased by 43%, while earnings per share increased by 78%, above analyst projections for the fourth quarter. Incidentally, TSM is yet another Buffett position, and its shares have been crushing it in early 2023, with gains of 21.8% through April 6. TSM trades at just 14 times earnings and pays a 2% dividend.
Diageo PLC (DEO)
Diageo PLC (DEO) is a drinks conglomerate based in the United Kingdom with a market cap of over $100 billion. Diageo is a defensive stock for consumers that should be able to weather a challenging macro climate, as the alcohol industry is often resilient during economic downturns. Bar classics including Johnnie Walker, Guinness, Tanqueray, Don Julio, Smirnoff, Baileys, Ciroc, and Bulleit are all under the company’s umbrella, giving it an excellent position in the industry, as alcohol customers tend to have a fair degree of brand loyalty, similar to the way tobacco users tend to be entirely devoted to their preferred brand of cigarettes. While net revenues increased by 21.4% in fiscal 2022, the stock price declined by 17.4% along with the rest of the market. That’s because it’s headquartered in the United Kingdom, and the pound has had a rough year. The current projected P/E of 20 is lower than the company’s five-year average of 24.4, but that low price won’t stay forever. As of April 6, the defensive DEO has increased by 5%.
