We asked our freelance writers to reveal the stocks that they believe investors should buy in 2023. Here’s what they picked!
What it does: Greggs is a popular UK-based food-on-the-go retailer. It sells a variety of fresh baked goods, sandwiches and sweet treats.
In 2013, it started its transition from bakery to food-on-the-go. Since then, sales, profits and margins have steadily gained.
Today, it’s a business that offers impressive cash flow generation, a solid brand, and a fully integrated supply chain.
Future growth is likely to come from its ambition to double sales over the coming years. It expects to do so by growing its pipeline of shops, expanding evening trade, and investing in its digital channels.
Despite recent price rises, its low-cost offering remains competitively priced. And during a recession, I think sales will prove to be resilient.
Inflation has pushed costs higher, though. That said, raw material costs have already fallen in recent months. The effects of this should support profit margins later in the year.
Its share price weakness is an opportunity for investors to buy this quality stock at an attractive price in 2023.
Harshil Patel does not own shares in Greggs.
What it does: Prudential is a savings and insurance company that has a focus on the high growth Asian and African markets.
By Edward Sheldon, CFA. Prudential (LSE: PRU) underperformed the FTSE 100 index by a wide margin in 2022. This underperformance was largely the result of strict Covid restrictions in China, which had a significant impact on its revenues and earnings.
The outlook for 2023 looks more promising, however. Recently, China has begun to relax its Covid restrictions, and there is talk that we could see the border between Hong Kong and Mainland China opened up soon. A reopening of this border would most likely give Prudential’s profits a big boost. In 2019, new business profit from its Chinese Mainland business contributed $694m to Hong Kong’s total new business profit, compared with close to zero in the first half of 2022.
The big risk here is that Covid returns and China goes into lockdown again. We can’t rule this out. However, with the stock currently trading on a P/E ratio of just 11, and offering a yield of around 1.5%, I think the overall risk/reward skew is attractive.
Edward Sheldon owns shares in Prudential
The PRS REIT
What it does: The PRS REIT is a real estate investment trust (REIT) with a portfolio of almost 5,000 residential rental homes.
By Royston Wild. 2023 is shaping up to be another turbulent year for stock markets. The global economy is endangered by factors like surging interest rates and disappointing Chinese growth, putting corporate profitability under threat.
In this environment the scope for capital appreciation might be limited. Share prices could also slump if the economy tanks. One way to get round this and generate a positive return could be to buy dividend-paying shares.
The PRS REIT (LSE: PRSR) is one particular income stock I think could deliver excellent returns next year. It carries a 4.6% dividend yield for the 12 months to June 2023. The yield moves to 4.7% for the following financial year, too.
PRS rents out family homes. This provides it with dependable rental income and thus the means to pay decent dividends at all points of the economic cycle. An added bonus is that REITs are obliged to pay at least 90% of annual profits out by way of dividends.
I think this income stock’s a top buy for next year even as rising construction costs threaten projected profits growth. City analysts think earnings will rise 30% and 13% in fiscal 2023 and 2024 respectively.
Royston Wild does not own shares in The PRS REIT.
What it does: NatWest is one of the UK’s main high-street banks. It provides banking services and loans to consumer and business clients.
Rising interest rates are providing a long-awaited boost to the bank’s profits. NatWest’s net interest income rose by £771m to £2,640m during the third quarter. This helped to increase underlying profits for the period by 76% to £1,333m.
One risk is that late payments on mortgages and other loans could rise next year if the UK economy continues to slow. NatWest set aside an extra £247m to cover possible future losses during the third quarter, but management say there’s no sign of any repayment problems yet.
Broker forecasts suggest earnings will rise by a further 31% in 2023. Despite this strong outlook, the stock currently trades on just six times 2023 earnings with a dividend yield of 6.1%. I see NatWest as one of the best stocks to buy for 2023.
Roland Head owns shares in NatWest Group.
What it does: Shell is a global group of energy and petrochemical companies with 82,000 employees and operations in more than 70 countries.
By Andrew Mackie: Energy stocks, and particularly oil and gas, have been the standout performers in 2022. Shell (LSE: SHEL)’s share price has risen 45%. However, despite record profits and gushing free cash flow, this has not translated into bumper shareholder payouts. A dividend yield of 3.5% hardly justifies its status on a star buy list. But its share price is cheap — dirt cheap.
Although 2023 is likely to be a year mired by stagflation, the underlying case for commodities remains as strong as ever.
Today, we have one of the most haphazard energy policies in history. The US is releasing its strategic petroleum reserves at a rate that is completely unsustainable. Central banks are aggressively raising interest rates to fight inflation. China, a net importer of oil, is still doing rolling lockdowns. These factors are all helping to keep a lid on energy demand.
Despite these forces, supply-side constraints are keeping the price of oil elevated. Viewed over a long-term horizon, until the issue of under investment is resolved, the downside risk for Shell is significantly less than the upside.
Andrew Mackie owns shares in Shell.
Alpha Group International
What it does: Alpha Group is a fintech service provider enabling international businesses manage their currency exchange risks.
By Zaven Boyrazian. Alpha Group (LSE:ALPH) is a currency risk management and alternative banking fintech group. The firm provides a host of services that enable enterprises to hedge against adverse movements in the foreign exchange markets to protect their bottom line while simultaneously processing and executing large international transactions instantly.
It’s quite a specialist field. And one that’s traditionally offered by corporate banking institutions. However, these are often too expensive for small- and medium-sized businesses to take advantage of. And that’s created quite a niche for Alpha to thrive in.
As per its latest interim results, revenue and pre-tax profits are growing at a rapid double-digit pace, fuelling the company’s international expansion into Australia. So much so that management now expects profits to be significantly ahead of its recently upgraded performance expectations for 2022.
The stock carries a fairly expensive valuation, which does invite increased volatility. But given the long-term potential, I feel it’s a price worth paying and a risk worth taking.
Zaven Boyrazian owns shares in Alpha Group.
What it does: S4 Capital is a digital advertising agency network based in London that generates most of its revenue in the Americas.
By Christopher Ruane. I came into 2022 bullish on my holding in S4 Capital (LSE: SFOR). But things went south from the first week of January. The share price has collapsed 69% in 2022 as I write this. S4’s valuation reeled from results being delayed on multiple occasions. Costs rose faster than expected. Fast-growing costs remain a risk to margins. An advertising slowdown could hurt 2023 revenues.
Investors remain wary of the group headed by former WPP visionary Sir Martin Sorrell after its annus horribilis. Sir Martin has not bought any shares since January, despite them being available now for around a third of what he paid then.
However, I think S4 is shaping up to be a remarkable business. Its most recent quarter saw like-for-like revenues grow 24% year on year. Total revenues grew 68% compared to the equivalent quarter last year. S4’s growth story is phenomenal. I have increased my position in 2022.
Christopher Ruane owns shares in S4 Capital.
What it does: Ashtead Group is a construction and industrial equipment rental company operating in the UK and North America.
By Ben McPoland. My stock to buy for 2023 is Ashtead (LSE: AHT). This company has been relentless in hoovering up smaller competition over the last few years. In fact, it has spent over $2bn on dozens of bolt-on acquisitions since 2020.
This has helped deliver solid growth and growing profits. In fact, the company raised its full-year guidance earlier this month.
Yet the equipment rental market remains an extremely fragmented one, particularly in the US. The leading firm there only commands 16% market share, with Ashtead not far behind (with 12%). That leaves ample room for further consolidation in the coming years.
However, there are very real risks relating to a US recession. Nobody knows how long or severe such an economic downturn might be.
Still, I suspect a recession could actually help Ashtead mop up weaker competition at more attractive valuations. I think there’s plenty of profitable growth left in the tank.
Ben McPoland does not own shares in Ashtead Group.
JD Sports Fashion
What it does: JD Sports Fashion is a retailer of sports fashion and outdoor footwear/apparel, including brands such as Nike, Adidas and The North Face.
By Paul Summers: Let’s be real: 2022 has been a shocker. There’s a possibility that 2023 won’t be all that great either. Still, these are the periods to go hunting for quality stocks that have been ‘thrown out with the bathwater’.
An investment in JD Sports Fashion (LSE: JD) is clearly contrarian. A new pair of trainers isn’t a priority compared to heating or food. Having lost more than 40% in value this year at the time of writing, however, I suspect a lot of negativity is priced in.
Margins are pretty good relative to the industry average. Recent news that JD has extended its links with Nike to give customers access to more of the latter’s products can’t be bad either.
A price-to-earnings (P/E) ratio of 10 might prove excellent value when inflation begins falling back.
Paul Summers has no position in JD Sports Fashion or Nike Inc
What it does: Barratt Developments builds houses across the UK.
By Alan Oscroft. From an investment perspective, I love a good recession. It depresses so many share prices and can provide some cheap long-term buys.
I also like a cyclical sector when it’s down. It can then be a great time to buy and lock in healthy long-term dividend yields.
Put the two together, and we have the housebuilding sector. It’s taken a hammering in 2022, with Barratt Developments (LSE: BDEV) losing close to half its value.
But I see persistent long-term demand, in a defensive business that’s strongly cash generative. Yes, there’s short-term risk, and 2023 might see the shares continue downwards. But I don’t try timing the bottom, and instead I look to long-term value.
I think I’d be happy to buy any FTSE 100 housebuilder, and I came close to picking Taylor Wimpey as my top stock for 2023. But I’ve chosen Barratt for its bigger market cap, and its forecast 9% dividend yield.
Alan Oscroft does not own shares in Barratt Developments or Taylor Wimpey.
What it does: Redde offers vehicle rental and ancillary services like insurance, accident repair and fleet management and disposal.
By James J. McCombie: Redde Northgate (LSE: REDD) shares trade at a P/E ratio of 8.1. That is cheap for a company with a 13.3% average annual growth in revenues over the last five years, and a 5.9% dividend yield. What’s more, is that the current share price of 400p is almost fully asset-backed: the book value per share is 385p.
Vehicle rentals might slow during a recession, but the other side of the business, accident repair and claims management should hold up better and lend a defensive edge to this stock.
Redde has undoubtedly benefitted from having a supply of vehicles during a supply chain crunch. The end of the crunch might not be pretty. But the transition to electric vehicles, which have higher price points and require additional infrastructure and knowledge to support, might tempt traditional owners into renting — which might benefit Redde in the long term.
James J. McCombie does not own shares in Redde Northgate.
What it does: Diploma is a distributor of industrial components used in specialist equipment and machinery.
I’m expecting the company to hold up well in an economic downturn, though. The components Diploma distributes are (i) inexpensive and (ii) indispensable.
As a result, they are typically bought from operating budgets, rather than capital expenditures. That means that Diploma should be protected from spending cutbacks.
Away from the macroeconomic environment, I think Diploma is a brilliant business. Its financial metrics are some of the most impressive I’ve seen anywhere.
Revenues and profits are growing at around 29% and approximately 90% of the company’s operating income becomes free cash. This makes it a company that can generate serious returns for shareholders.
Moreover, the company’s scale makes it difficult to disrupt. That’s why it’s my best British stock to buy for 2023.
Stephen Wright owns shares in Diploma
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The Motley Fool UK has recommended Alpha FX and Prudential Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.