Invest in the best stocks for 2023
One major headline dominates the 2022 economic narrative: inflation. After a period of extremely low inflation, this year's Consumer Price Index (CPI) rise reached a high of 9.06%. The Federal Reserve increased the federal funds rate seven times, totaling a 4.25% rise, in reaction to the growing prices.
Businesses and the financial markets suffered as a result of rising input costs and interest rates. As an illustration, the S&P 500 is projected to have its worst year since 2008.
There is more ambiguity than normal concerning what will happen beyond 2023. The U.S. economy might enter a severe recession if the Fed keeps raising interest rates. Or not. According to a recent Morgan Stanley analysis, the economy will plateau but not contract by the end of 2023, the rate hikes will stop, and inflation will fall to 2.4%
It is difficult to choose the best stocks for 2023 in the face of this uncertainty. For the majority of investors, this is the moment to exercise caution. Typically, this entails favoring larger, more established businesses over younger, more nimble enterprises. It can also entail compromising for less growth potential.
The organization that is well-established and anticipated to grow in 2023 may be the sweet spot. A renewed emphasis on efficiency, strong pricing, positive trends, new product introductions, or some combination of these factors may contribute to that increase.
The following list of seven stocks for 2023 fits that description. All have consensus price goals that suggest gains of 5% to 56% and carry buy or higher recommendations from the analyst community.
1. Chinese Restaurant Chipotle
Business Summary
More than 3,000 fast-casual locations owned and run by Chipotle serve made-to-order tacos, burritos, and bowls. The chain operates throughout the United States, Canada, France, Germany, and the United Kingdom. The corporations own each of those locations.
Recent Trends and the Outlook for 2023
Since the year 2022 began, Chipotle's stock has decreased by around 20%. The dining establishment chain has been coping with the same financial challenges that are straining your family's food budget: rising costs for dairy, avocados, and tortillas. Prices for packing have also increased.
However, compared to the same period last year, Chipotle's food, beverage, and packaging expenses as a proportion of total revenue decreased by 50 basis points. The business has pricing power, so it can raise menu prices to balance rising expenses, making it conceivable.
It will be interesting to watch how high Chipotle can raise its menu prices. According to CEO Brian Niccol, while they may be losing some lower-income clients, they are also adding higher-income ones.
Additionally, Chipotle keeps adding additional locations, many of which use Chipotle, the chain's drive-through concept. These growth initiatives and pricing hikes helped the third quarter's revenue to increase by 13.7% over the same period the previous year. Additionally, the operating margin rose from 12.3% to 15.1%. The $9.51 in diluted earnings per share for the third quarter was above analysts' expectations by $0.40.
Inflation in 2023 could present a problem for Chipotle. However, the company has proven its pricing strength and has a wide window for global expansion. The management anticipates opening 255 to 285 brand-new restaurants in 2019. Currently, Chipotle stock is trading below $1,500, while the consensus price target is at $1,775
2. Dollar General (DG)
Business Summary
A well-known chain of discount retailers, Dollar General offers everyday items for reasonable costs in nearby locations. Along with well-known goods from brands like Clorox, Procter & Gamble, Coca-Cola, Kellogg's, General Mills, and others, the company also distributes its private-branded goods. In 47 U.S. states, there are more than 18,000 Dollar General locations.
Recent Trends and the Outlook for 2023
In 2022, Dollar General stock is up 3%, despite a nearly 20% decline in the S&P 500. The chain has noted gains in both foot traffic and average consumer spending throughout this year.
But rising prices are putting pressure on Dollar General. As a result, business executives are concentrating on optimizing their supply chain. These efficiency improvements will have long-term benefits in addition to assisting with the current inflation trend.
In the meantime, Dollar General is expanding to accommodate revenue growth. In the third quarter of 2022, new shop openings and a 6.8% increase in same-store sales increased revenue by 11.1%, somewhat offsetting store closures. The third quarter's net income increased by 8% despite considerable pressure on the gross margin brought on by rising product costs.
Dollar General regularly rewards shareholders by repurchasing shares and paying dividends. The third quarter saw 2.3 million shares repurchased, and the business still has $2.5 billion in authorized share repurchases. Although the annualized three-year dividend growth rate of Dollar General is greater than 13%, the dividend yield is only about 0.9%, which isn't impressive.
Economic hardship benefits Dollar General. The patterns of increased traffic and greater average transactions should continue even if the economy stagnates or gets worse in 2023. Additionally, the business anticipates opening 1,050 locations in 2023, including 35 in Mexico.
Dollar General's consensus price objective is $265, which is higher than its current price of approximately $248.
3. Amazon (AMZN)
Business Summary
You may be familiar with Amazon as a major online store. You might be surprised to learn that Amazon does more than only sell goods online. For instance:
* The largest provider of cloud computing in the world is Amazon. More people use the Amazon Web Services (AWS) platform than Microsoft Azure or Google Cloud, which are both owned by Alphabet
* On Amazon.com, Amazon sells third-party sellers' warehousing and fulfillment services in exchange for commissions.
* Amazon also makes money from its membership services like Prime and Kindle Unlimited.
* The e-commerce behemoth owns physical establishments, notably the 2017 acquisition of the Whole Foods Market chain.
Recent Trends and the Outlook for 2023
Amazon has had a difficult year in 2022. The corporation lost roughly $8 billion on its global e-commerce operation by the end of the third quarter. Although profitable, the high-margin AWS segment's third-quarter growth slowed and fell short of analysts' projections. Additionally, the corporation disclosed plans to fire up to 20,000 workers from its senior team, IT division, and distribution hubs.
Amazon's stock price has decreased by roughly 50% since January 1. The bad news is that.
The good news is that a difficult 2022 will put Amazon in a better position for a better 2023. One benefit is that profit comparison will be simpler. CEO Andy Jassy is more interested in simplifying the organization's cost structure. Amazon invests a lot of money in its international and gadgets divisions, two divisions that are not profitable. The emphasis on efficiency should lead to strategic adjustments in those areas as well as cost savings in continuing tasks like package delivery.
For the first time since 2012, Amazon also repurchased billions of shares of common stock in 2022. The company's authorized share repurchase amount is still $6 billion. Higher earnings per share, later on, would be supported by ongoing share repurchases.
In addition to these elements, the current stock price of Amazon appears low in comparison to previous prices. While the stock is now trading below $90, the consensus price objective for Amazon is roughly $140.
4. Walt Disney Company (DIS)
Business Summary
Walt Disney is a media corporation with two divisions. Theme parks are run by Disney Parks, Experiences, and Products all over the world. Disney Media and Entertainment Distribution manage Disney+, ESPN+, Hulu, and other direct-to-consumer streaming networks in addition to operating TV networks, movie studios, and other businesses. For use on goods and video games, Disney also grants trade names and fictional people licenses to third parties.
Recent Trends and the Outlook for 2023
Since January 2022, Disney stock has decreased by nearly 45%. The entertainment company's streaming division has been losing money, and it isn't making enough money to significantly lower its debt load. Dividends and share buybacks are currently off the menu as well.
Disney replaced CEO Bob Chapek after the company's September quarter earnings fell $0.20 short of consensus expectations. Chapek has made several unpopular decisions, such as raising the cost of theme parks and initially ignoring Florida's "Don't Say Gay" law. Bob Iger, who was Chapek's predecessor, will take his position. Iger, who currently has a two-year term, enjoyed success as Disney's CEO from 2005 until 2020.
There are positive developments for Disney despite leadership controversies and underwhelming financial results. Its streaming business has seen tremendous subscriber growth. In its most recent fiscal year, the corporation attracted 57 million customers. This increases the number of subscribers to 235 million, surpassing Netflix. Disney just debuted Disney+ Basic, a lower-cost subscription service financed by ads.
After the Covid-19 closure, theme park revenue is increasing, which benefits the bottom line. The theme park industry produced less revenue but better operating income in the fiscal year 2022 than the media industry.
Expect Disney to continue increasing its streaming revenue in the upcoming quarters, but with a stronger emphasis on profitability. In his most recent earnings report, Chapek made the forecast that Disney+ would turn a profit in the 2024 fiscal year. Iger, who oversaw the 2019 launch of Disney+, probably doesn't want to fall short of Chapek's forecast.
Disney's low stock price, improving theme park attendance, dominance in streaming, and a reputable CEO all combine to make 2023 a favorable year to buy. Disney's consensus price target is $124.05. Currently, the stock is trading for roughly $85.
5. Eli Lilly (LLY)
Business Summary
Recent Trends and the Outlook for 2023
In a bearish market, Eli Lilly's stock is up 31% in 2022, which is unusually positive. The firm profited from the third-quarter introduction of Mounjaro, a medication for type 2 diabetes, as well as growth from Verzenio, a medication for breast cancer, Trulicity, a medication for diabetes, Emgality, and other medications.
Lilly's momentum is anticipated to continue because of a robust product pipeline, according to analysts. Lilly should introduce four more drugs before the end of 2023 in addition to a significant new Mounjaro indication. Donanemab, a medication for those with early-stage Alzheimer's, is one to keep an eye on.
The product portfolio can support "top-tier, volume-driven revenue growth" through 2030, according to illy EVP and CEO Anat Ashkenazi. The company anticipates revenue of $30.3 to $30.8 billion and non-GAAP earnings per share of $8.10 to $8.30 in 2023. Both ranges represent increases over anticipated results for year-end 2022: $28.5 to $29 billion in revenues and $7.70 to $7.85 in non-GAAP profits per share, respectively.
There is a dividend paid by Lilly, yielding roughly 1%. In each of the previous eight years, dividend hikes have been enjoyed by shareholders. Nearly 15% has been added to the company's three-year annualized dividend growth.
Insuring Against 2023
Unexpected developments in the economy and financial markets are likely in 2023. Fortunately, there is a method that can protect you from unanticipated drops in the stock market. Purchase reputable businesses and be prepared to hold them for a long time.
If the economy does experience a slowdown next year, good enterprises should eventually recover. Any price drops that occur in the interim become largely meaningless if you wait for that rebound. On the other side, you unnecessarily lock in losses if you lose patience and sell during a decline in share prices.
Keep going regardless of what 2023 brings. The hardest part of investing is that, but it's also the most reliable way to increase your wealth.
Our Forbes experts reveal the shares they plan to purchase in 2023.
The stock market has undoubtedly just had its most difficult year since 2008. The good news is that in 2023, mispriced stocks are readily available and offer excellent investing possibilities.
5. Eli Lilly (LLY)
Business Summary
Eli Lilly is a pharmaceutical business that creates critical drugs for Covid-19, obesity, Alzheimer's disease, diabetes, and immune system problems. Through marketing agreements with other pharmaceutical businesses and wholesale distributors, the company sells its goods all over the world.
Recent Trends and the Outlook for 2023
In a bearish market, Eli Lilly's stock is up 31% in 2022, which is unusually positive. The firm profited from the third-quarter introduction of Mounjaro, a medication for type 2 diabetes, as well as growth from Verzenio, a medication for breast cancer, Trulicity, a medication for diabetes, Emgality, and other medications.
On a constant-currency basis, the pharmaceutical company's revenue increased by 7% in the third quarter. On a non-GAAP basis, earnings per share climbed by 12% in the same quarter.
Lilly's momentum is anticipated to continue because of a robust product pipeline, according to analysts. Lilly should introduce four more drugs before the end of 2023 in addition to a significant new Mounjaro indication. Donanemab, a medication for those with early-stage Alzheimer's, is one to keep an eye on.
The product portfolio can support "top-tier, volume-driven revenue growth" through 2030, according to illy EVP and CEO Anat Ashkenazi. The company anticipates revenue of $30.3 to $30.8 billion and non-GAAP earnings per share of $8.10 to $8.30 in 2023. Both ranges represent increases over anticipated results for year-end 2022: $28.5 to $29 billion in revenues and $7.70 to $7.85 in non-GAAP profits per share, respectively.
There is a dividend paid by Lilly, yielding roughly 1%. In each of the previous eight years, dividend hikes have been enjoyed by shareholders. Nearly 15% has been added to the company's three-year annualized dividend growth.
From its present price of roughly $360, the consensus price goal for Eli Lilly is about $378.
Insuring Against 2023
Unexpected developments in the economy and financial markets are likely in 2023. Fortunately, there is a method that can protect you from unanticipated drops in the stock market. Purchase reputable businesses and be prepared to hold them for a long time.
If the economy does experience a slowdown next year, good enterprises should eventually recover. Any price drops that occur in the interim become largely meaningless if you wait for that rebound. On the other side, you unnecessarily lock in losses if you lose patience and sell during a decline in share prices.
Keep going regardless of what 2023 brings. The hardest part of investing is that, but it's also the most reliable way to increase your wealth.
Our Forbes experts reveal the shares they plan to purchase in 2023.
The stock market has undoubtedly just had its most difficult year since 2008. The good news is that in 2023, mispriced stocks are readily available and offer excellent investing possibilities.
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