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The stock market had a bad year in 2022. Two important stock indexes, the S&P 500 and the Nasdaq composite, both went down by a lot. The S&P 500 fell 19.4%, and the Nasdaq composite dropped 33.1%.
There were a few reasons why this happened. One reason was inflation, which means that prices for things went up. This made people worry because it could make it harder for companies to make money. Another reason was that interest rates went up. When interest rates go up, it can make it more expensive for companies to borrow money, and that can slow down the economy.
People were also worried about a recession, which is when the economy gets worse and people have less money to spend. There was also a war happening between Russia and Ukraine, and that made people uncertain about what might happen next. All of these things together made investors feel like it was too risky to keep their money in the stock market, so they started selling their stocks. This caused the prices of many stocks to go down.
But there was a positive side to this. The lower stock prices created a good chance for investors to buy shares of great companies at lower prices. It was like a sale where they could get good deals. This was a good opportunity for investors to find good companies and buy their stocks at a discount as the new year started.
We have chosen 10 stocks for the upcoming year. These stocks are selected based on various factors, including their potential for growth and positive performance. As we move into 2023, let’s take a closer look at the top 10 stocks to buy and how they have performed so far, considering both stock price changes and dividends received.
Apple Inc. (AAPL)
YTD TOTAL RETURNS THROUGH MAY 17 — (33.3%)
Apple Inc. (AAPL) is the first stock on our list. It is the largest publicly traded company globally, excluding government-backed entities like Saudi Aramco. In 2022, AAPL, like other technology stocks, faced challenges due to concerns about a recession and rising interest rates, which made investors nervous about the sector.
During 2022, AAPL shares experienced a rare decline of 26.4%. However, this setback has presented an opportunity for investors as the stock now trades at a relatively lower valuation, around 29 times earnings. This makes it an attractive entry point for investors interested in the $2.7 trillion company known for its iPhone products.
Despite a 3% decrease in overall second-quarter sales compared to the previous quarter, Apple exceeded Wall Street’s earnings expectations. Furthermore, the company achieved $21 billion in revenue from its high-margin services segment. These positive indicators demonstrate Apple’s resilience and ability to generate revenue.
In 2023, AAPL stock has shown a strong recovery, with shares increasing by 33.3% as of May 17th. This rebound indicates renewed investor confidence in Apple’s prospects and performance.
Amazon.com Inc. (AMZN)
YTD TOTAL RETURNS THROUGH MAY 17 — (37.5%)
Amazon, the dominant internet retailer, is also featured as one of the top 10 stocks to buy for 2023. However, the company had a challenging year in 2022, with its shares losing 50% of their value. Various factors contributed to this decline, including rising costs, a tight labor market, supply chain difficulties, and a decrease in consumer confidence.
Despite these setbacks, Amazon shouldn’t be underestimated. One of its most valuable assets is Amazon Web Services (AWS), a cloud services division that is both large and highly profitable. AWS generates an annual revenue run rate of over $85 billion. Comparing it to Microsoft’s cloud services division, which trades at approximately 10 times its sales, a similar valuation for AWS would be around $850 billion.
Considering Amazon’s overall market capitalization of roughly $1 trillion, investors essentially gain the rest of the company’s extensive operations, which generated sales of $434 billion in 2022, for approximately $150 billion. This represents a significant opportunity for investors.
In 2023, Amazon has proven to be a promising investment choice. As of May 17th, the company’s shares have risen by 37.5%, showcasing its strong performance in the market.
Despite the challenges faced in 2022, Amazon’s impressive presence in the e-commerce industry, along with the continued growth and profitability of AWS, make it an appealing stock to consider for the year ahead. The company’s ability to rebound in 2023 demonstrates its resilience and potential for further success.
Dutch Bros Inc. (BROS)
YTD TOTAL RETURNS THROUGH MAY 17 —( 0.6%)
While established companies like Apple offer stability, smaller companies have the potential for significant growth and can be beneficial additions to investment portfolios. One such company is Dutch Bros., a rapidly expanding coffee chain that, in comparison, is only about 0.2% the size of Apple but valued at approximately $5 billion.
Dutch Bros. has been experiencing impressive revenue growth, with a surge of 48.4% in 2022. Initially rooted on the West Coast, the majority of Dutch Bros. locations are concentrated in the Western and Southwestern regions of the United States. As of the end of last year, the company had 671 locations across 14 states.
What sets Dutch Bros apart is its focus on drive-thru stores, which have a smaller footprint and are relatively inexpensive to open compared to traditional coffee shops. This allows for faster expansion and has contributed to the company’s growth. In 2022, Dutch Bros. opened 133 new stores, representing a location growth rate of 25%.
While the company’s stock has generally performed well in 2023, there was a slight setback in early May following a quarterly earnings report that fell below analysts’ expectations. However, as of May 17th, Dutch Bros.’ shares had increased by 0.6%.
Investing in smaller companies like Dutch Bros. can be appealing for investors seeking potential growth opportunities. Despite the temporary setback in its stock performance, the company’s rapid expansion, strong revenue growth, and unique focus on drive-thru stores make it an intriguing option for investors looking to diversify their portfolios.
Walt Disney Co. (DIS)
YTD TOTAL RETURNS THROUGH MAY 17 — ( 6.8%)
When it comes to selecting stocks for long-term investment, one crucial factor to consider is the management team of the company. In the case of Disney, the recent return of longtime CEO Bob Iger brings strong leadership to the table. Iger is widely regarded as one of the best CEOs in recent history, having overseen a series of highly successful acquisitions during his tenure.
Under Iger’s guidance, Disney made strategic acquisitions of prominent companies such as Pixar, Marvel Entertainment, and Lucasfilm. These acquisitions proved to be immensely successful, expanding Disney’s reach and contributing to its overall growth.
Although Iger passed on the CEO role to Bob Chapek in February 2020, his continued presence within the company provides stability and valuable insights. Disney’s recent earnings report in May demonstrated the company meeting expectations for both earnings and revenue.
While Disney faced a significant loss in subscribers, primarily from its India platform, Hotstar, the impact was softened by a recent price hike for its streaming service, Disney+. The company has been proactive in adapting its streaming offerings to meet market demands.
As of May 17th, DIS stock has shown a positive performance, with an increase of 6.8% since the beginning of the year.
Citigroup Inc. ©
YTD TOTAL RETURNS THROUGH MAY 17 — ( 6.3%)
Citigroup is the next stock on our list, a multinational bank with a market value of around $90 billion. The bank operates both retail and investment banking divisions, offering investors a two-fold opportunity. Here’s what makes Citigroup an appealing choice:
Firstly, Citigroup provides a healthy dividend yield of 4.3%. This dividend acts as a protective measure for shareholders in an environment of rising interest rates and high inflation. Importantly, the bank’s dividend is sustainable over time, as Citigroup uses less than 30% of its earnings to finance these payouts. This reliability adds to the appeal of investing in Citigroup.
In addition to its attractive dividend yield, Citigroup also presents itself as a value stock at its current price levels. It trades at around seven times forward earnings and just 0.47 times book value. These valuation metrics indicate that the stock may be undervalued compared to its potential earnings and assets.
It is worth noting that renowned investor Warren Buffett, along with Berkshire Hathaway Inc., started buying Citigroup stock in the first quarter of 2022. Berkshire Hathaway now owns a stake in Citigroup worth approximately $2.5 billion. Buffett’s investment in Citigroup adds credibility to the stock’s potential value and growth prospects.
As of May 17th, Citigroup stock has shown a positive performance in 2023, with an increase of 6.3% since the beginning of the year.
PayPal Holdings Inc. (PYPL)
YTD TOTAL RETURNS THROUGH MAY 17 — ( -13.7%)
PayPal, a well-established financial stock, is currently trading at levels lower than its pandemic lows in 2020, which is intriguing considering its strong earnings performance. In 2022, PayPal reported earnings per share of $4.13, surpassing the figures from any year between 2018 and 2020. However, the stock experienced a significant decline in 2022, losing 62% of its value due to a challenging macroeconomic environment and the loss of its profitable relationship with eBay Inc.
Despite these setbacks, PayPal’s current valuation appears attractive. The stock is trading at approximately 13 times the expected earnings for 2023, significantly lower than its five-year average of 36.5. Looking at historical data, PayPal’s lowest price-earnings (P/E) ratio between 2015 and 2021 was 20.3. Applying this conservative multiple to the projected average earnings of $4.88 for 2023 suggests a potential price of $99.06 per share by early 2024, indicating a potential upside of over 61.2% from its closing price on May 17th.
PayPal’s recent deals with Apple Pay to accept PayPal- and Venmo-branded cards and its partnership with Amazon, which now accepts Venmo, are expected to expand its presence in both brick-and-mortar retail and the vast online marketplace of Amazon. These partnerships present growth opportunities for PayPal.
It’s important to note that PayPal’s stock experienced a decline in May following a less-than-stellar earnings report and a downward revision of its 2023 operating margin estimate. As of May 17th, the stock was down 13.7% in 2023.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
YTD TOTAL RETURNS THROUGH MAY 17 — ( 22.6%)
Taiwan Semiconductor Manufacturing (TSM) is a significant player in the semiconductor industry, valued at approximately $500 billion. As a leading high-level foundry for advanced chips, TSM manufactures chips for other companies. The company holds a substantial market share for chips with 7 nanometers or less. Notably, Apple is one of TSM’s major customers, and with Apple’s supply chain diversification away from China, TSM stands to benefit.
In terms of financial performance, TSM reported modest gains in revenue and net profit in the first quarter. However, these figures were lower by 18.7% and 30%, respectively, compared to the fourth quarter of 2022. Despite these fluctuations, TSM’s stock is currently trading at around 16 times forward earnings and offers a 2% dividend yield. Furthermore, TSM shares have performed exceptionally well in the early months of 2023, with gains of 22.6% through May 17th.
EOG Resources Inc. (EOG)
YTD TOTAL RETURNS THROUGH MAY 17 — ( -12.5%)
EOG Resources (EOG), a U.S.-based oil and gas producer, was a successful pick from last year’s best stocks to buy list. In 2022, EOG shares delivered a total return of 56.3%. Despite this strong performance, the stock is still considered a value investment, trading at around 9 times forward earnings.
While the energy market’s growth is expected to decelerate in 2023, following the exceptional surge in 2022 driven by inflation concerns and geopolitical tensions, investors should not overlook the value of having an inflation hedge in their portfolios. EOG offers a 3% dividend yield and boasts an impressively low payout ratio of less than 20%, making it attractive for income-oriented investors.
In the early months of 2023, as inflation concerns eased, EOG shares experienced a decline. The stock has recorded a year-to-date loss of 12.5% through May 17th.
Grupo Aeroportuario del Sureste SAB de CV (ASR)
YTD TOTAL RETURNS THROUGH MAY 17 — ( 25.8%)
ASUR (Grupo Aeroportuario del Sureste) is a Latin American airport operator that made a return appearance on last year’s list of the best stocks to buy. With a market value of around $9 billion, ASUR offers investors an off-the-beaten-path opportunity and geographic diversification. As a mid-cap company, it may not be on the radar of most investors.
In 2022, ASUR stood out with a total return of 17% even during a bear market, demonstrating its potential. One of the contributing factors to its success is the growth in passenger traffic. In April 2023, ASUR reported a 2.7% year-over-year increase in passenger traffic, driven by single-digit growth in Mexico and Puerto Rico, partially offset by an 18.2% decrease in Colombia.
As an airport operator, ASUR generates revenue from various sources, such as gate rentals, landing fees, parking, ground transportation, airport retail, and advertising. This diversified income stream provides stability and growth potential for the company.
Investors in ASUR can also benefit from its 2.6% dividend yield. In 2023 through May 17th, ASUR shares recorded a total return of 25.8%.
