The year 2022 was a lousy one for the stock market. Even after factoring in dividends, the S&P 500 fell 19.4% in those 12 months, while the tech-heavy Nasdaq composite took a 33.1% haircut. The catalysts behind Wall Street's sell-off are all too familiar: Inflation, soaring interest rates, persistent recession fears and the Russia-Ukraine war snowballed into an avalanche of worries that investors couldn't ignore, and many previously high-flying stocks took a beating as the "risk off" mindset came to dominate markets. This, thankfully, provided a window of opportunity for investors to snap up great companies at a discount entering the new year.
Before each new year, U.S. News selects 10 stocks to buy for the year ahead. Here's a rundown of the 10 best stocks to buy for 2023 and how each has fared thus far based on total returns, which include dividends:
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 26.4% pullback in 2022, Apple now trades at 26 times earnings, offering investors a sound entry point into the $2.5 trillion iPhone maker. Although its most recent earnings report technically missed expectations, that was more due to supply chain snarls than demand issues. In fact, Apple reported an active-installed base of more than 2 billion devices, and revenue in its high-margin services segment surpassed $20 billion. AAPL stock is bouncing back from its 2022 woes, with shares up 22.5% in 2023 through March 23.
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 0.2% the size of Apple despite being worth about $5 billion. Revenue is growing like a weed, surging 48.4% in 2022. With initial roots on the West Coast, Dutch Bros locations are almost entirely in the West and Southwest, with 671 locations in 14 states through the end of last year. 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 133 new stores in 2022, which works out to location growth of 25%. Shares are up 5.3% through March 23.
Next up is Citigroup, a nearly $90 billion multinational bank with both retail and investment banking arms. What Citigroup offers investors is twofold: First, it pays a healthy 4.6% 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 seven times forward earnings and just 0.47 times book value. Famed investor and financial guru Warren Buffett began buying Citigroup stock in the first quarter of 2022, and Berkshire Hathaway Inc. (BRK.A, BRK.B) now owns a roughly $2.4 billion stake in the company. Citigroup stock is down 3% in 2023 through March 23.
Another return pick from last year's list, this off-the-beaten-path stock is a $9 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, posting a total return of 17% in a bear market. It helps, of course, that passenger traffic has been surging: In February 2023, passenger traffic shot up 23.9% year over year, driven by a 25.6% surge in Mexico. 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 2.7% dividend, and shares have posted a total return of 24.2% in 2023 through March 23.
Taiwan Semiconductor Manufacturing, a $500 billion business and the dominant high-level foundry for advanced chips, is next on the list. In the semiconductor industry, foundries are companies that manufacture chips for other companies, and TSM enjoys a massive 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. The company reported fourth-quarter results that beat both top- and bottom-line expectations, with revenue jumping 43% and earnings per share surging 78%. Trading at just 14 times earnings and paying a 2% dividend, TSM is, incidentally, yet another Buffett holding, and its shares have been crushing it in early 2023, posting gains of 27.7% through March 23. TSM is the best-performing stock among the best stocks to buy so far in 2023.
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 bar staples such as Johnnie Walker, Guinness, Tanqueray, Don Julio, Smirnoff, Baileys, Ciroc and Bulleit all under its umbrella. Despite net sales jumping 21.4% in fiscal 2022, the stock fell with the broader market last year, losing 17.4%. That's 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 about 20 times forward earnings, a discount to its five-year average forward P/E of 24.4. The defensive DEO has traded more or less flat in 2023, adding 0.3% through March 23.
When seeking out the best stocks to buy now, investors will need to be brave and patient in regard to timing, as well as agile as the stock market eventually transitions from bear market to bull market. Go ahead and add resolute to the character traits you'll need this year, because many market strategists say you can't get from one market to the other without going through a recession first.
Given the uncertain, sometimes roiling backdrop for stocks, where should investors look when seeking out the best stocks to buy now? A popular piece of advice among Wall Street strategists now is to resist the bargain-basement appeal of the most beaten-up stocks and focus instead on high-quality shares. "Investors should avoid volatile names and be cautious on both deep-value and unprofitable growth companies," says Koesterich. "Instead, emphasize quality with a focus on earnings consistency and good profitability."
Now may be a good time to tilt toward value-oriented companies and small-cap stocks, both longtime underperformers that are showing signs of new life. Over the past five years, for example, the S&P 500 Value Index (opens in new tab) has returned 6.2% annualized, compared with 9.1% for the S&P 500 Growth Index (opens in new tab). Through early 2023, value has outperformed growth, with a 4.1% return compared to growth's 3.8% gain. "We would stick with value. These cycles last a while," says Ryan Detrick, chief market strategist at money management firm Carson Group (opens in new tab). Sectors typically grouped in the value style include energy, financials, industrials and materials.
So, with all of this in mind, here are 12 of the best stocks to buy now. The names featured here vary by size and industry and are not meant to compose a diversified portfolio. But all, for one reason or another, are well positioned to benefit from a transition to a bull market from a bear market in 2023.
Don't ignore the tenets of diversification and shun tech or the growthier side of the market completely when adjusting your portfolio to include the best stocks to buy now. Instead, take a barbell approach, says Tony DeSpirito, a managing director and portfolio manager at BlackRock (opens in new tab). This will allow you to scoop up value-focused shares at historically attractive relative price-to-earnings ratios (P/Es) and high-growth stocks at valuations that have come down from the stratosphere and are now at normal, if not yet underpriced, levels.
Take Advanced Micro Devices (AMD (opens in new tab), $76.61), a leading semiconductor manufacturer. Analysts have mixed ratings on one of Wall Street's best semiconductor stocks in part because an economic slowdown and negative investor sentiment are near-term obstacles.
Still, analysts on average expect a 27% jump in annual earnings over the next three to five years, according to S&P Global Market Intelligence, ahead of the company's peers, fueled in part by market-share gains for its data-center chips (sales climbed 42% in the most recent quarter compared with the year before). Analyst Vijay Rakesh, at Mizuho Securities USA, rates the semiconductor stock a Buy and recently assigned the shares a 12-month price target of $90.
Amazon fits the bill. The stock is down 36% over the past 12 months. Is this growth-stock darling now a value stock? Shares are cheap relative to historic levels. At $96, Amazon stock trades at 56 times forward earnings; its five-year historical forward P/E is 71.
Haliburton (HAL (opens in new tab), $35.71) is one of the world's largest energy services companies, according to Argus Research (opens in new tab), with more than 40,000 employees and operations in over 70 countries. It supplies products and services to assist in energy exploration and production, from locating the oil to constructing and completing the well to managing geological data.
BofA likes DECK'S historically conservative management team, which has a strong track record of beating expectations. In short, Deckers is a "high-quality stock with a compelling growth trajectory," say the analysts. 781b155fdc