Best Stocks To Buy For 2023 – Forbes

December 23, 2022 Kim Martel

More stocks are trading at reasonable valuation in 2023

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The 2022 economic story has one big headline: inflation. After an era of ultra-low inflation, the year-over-year growth in the Consumer Price Index (CPI) touched as high as 9.06% this year. In response to those rising prices, the Fed raised the federal funds rate seven times, for a cumulative increase of 4.25%.

Higher input costs and higher interest rates took a toll on businesses and the financial markets. Case in point, the S&P 500 is on track for its worst year since 2008.

Heading into 2023, there is more uncertainty than usual about what will happen next. The Fed may continue to push interest rates higher and the U.S. economy may slip deep into recession. Or not. A recent Morgan Stanley report predicts inflation will dip down to 2.4% by the end of 2023, the rate hikes will end and the economy will flatline but not shrink.

Picking the right stocks for 2023 amid that uncertainty is challenging. For most investors, this is a time to be conservative. That typically means choosing mature, stable companies over smaller, nimbler investments. It can also mean settling for lower growth capacity.

The sweet spot for 2023 may be the established company that’s poised for growth in the year ahead. That growth may come from a renewed focus on efficiency, pricing power, favorable trends, product launches or some combination thereof.

Mispriced stocks are hiding in plain sight and present great investment opportunities in 2023. Forbes’ top investment experts share 7 overlooked stocks for the year ahead in this exclusive report, 7 Best Stocks To Buy for 2023. Click here to download it now and make 2023 your best year yet.

Below are seven stock picks for 2023 that fit that mold. All carry buy or higher ratings from the analyst community and consensus price targets representing upside of 5% to 56%.

1. Amazon (AMZN)

Business Overview

You know Amazon as the mega e-commerce retailer. What you may not know is that Amazon does more than sell products online. For example:

Amazon is the world’s largest cloud computing provider. The Amazon Web Services (AWS) platform has a larger market share than Microsoft’s Azure or Alphabet’s Google Cloud.
Amazon earns commissions and sells warehousing and fulfillment services to third-party sellers on Amazon.com.
Amazon also generates revenue through Prime, Kindle Unlimited and other subscription services.
The e-commerce giant owns physical stores, including the Whole Food Market chain, purchased in 2017.

Recent Trends And 2023 Outlook

2022 has been a tough year for Amazon. Through the end of the third quarter, the company lost about $8 billion on its e-commerce business worldwide. The high-margin AWS segment is profitable, but growth slowed in the third quarter and missed analysts’ expectations. The company also announced plans to lay off up to 20,000 employees across distribution centers, IT departments and executive staff.

Since January 1, Amazon’s stock price has fallen about 50%. That’s the bad news.

The good news is that a challenging 2022 positions Amazon for a better 2023. The profit comparisons will be easier, for one. More importantly, CEO Andy Jassy is focused on streamlining the company’s cost structure. Amazon spends a lot of money in areas that aren’t profitable, including its international and devices segments. The efficiency focus should usher in strategic changes in those areas, plus cost-cutting in ongoing activities like package delivery.

Amazon also repurchased billions in common stock in 2022, for the first time since 2012. The company has $6 billion remaining on its share repurchase authorization. Continued share buybacks would support higher earnings per share later.

On top of those factors, Amazon’s stock price looks cheap right now relative to its history. The consensus price target for Amazon is about $140, while the stock currently trades below $90.

2. Chipotle Mexican Grill (CMG)

Business Overview

Chipotle owns and operates more than 3,000 fast casual restaurants serving made-to-order tacos, burritos and bowls. The chain has locations in the U.S., Canada, France, Germany and the U.K. All those locations are corporate-owned.

Recent Trends And 2023 Outlook

Chipotle stock is down about 20% since the start of 2022. The restaurant chain has been managing the same headwinds that are putting pressure on your household grocery budget: higher prices on dairy, avocados, and tortillas. Packing costs have been on the rise, too.

Still, Chipotle’s food, beverage and packaging costs as a percentage of total revenue declined by 50 basis points in the third quarter vs. the prior year. That’s possible because the chain has pricing power—meaning it can increase menu prices to offset rising costs.

How far Chipotle can push its menu prices remains to be seen. CEO Brian Niccol has said they may be losing some lower-income customers, but they’re gaining higher-income households at the same time.

Chipotle also continues to open new locations, many with the chain’s drive-through format, Chipotlane. These expansion efforts along with price increases contributed to third quarter revenue growth of 13.7% over the prior year. Operating margin also increased from 12.3% to 15.1%. The third quarter adjusted diluted earnings per share of $9.51 beat analysts’ estimates by $0.40.

Continued inflation in 2023 could prove challenging for Chipotle. But the chain has demonstrated its pricing power and has a long runway for geographic expansion. Management expects to open 255 to 285 new restaurants next year. Chipotle stock trades below $1,500 currently and the average consensus price target is about $1,775.

3. Dollar General (DG)

Business Overview

Dollar General is an established chain of discount stores selling consumer staples for low prices in neighborhood locations. The company sells its own private-branded goods alongside popular products from Clorox, Procter & Gamble, Coca-Cola, Kellogg’s, General Mills and more. There are more than 18,000 Dollar General stores in 47 U.S. states.

Recent Trends And 2023 Outlook

Dollar General stock is up 3% in 2022, even as the S&P 500 has fallen nearly 20%. Throughout this year, the chain has reported increases in foot traffic and in how much customers spend at each transaction.

Dollar General is feeling the pressures of higher costs, though. In response, company leaders are focused on streamlining their supply chain. Those efficiency efforts can help with the current inflation trend, but will also create long-term advantages.

Meanwhile, Dollar General is supporting revenue growth through expansion. The third-quarter 2022 revenue increase of 11.1% came from new store openings plus a 6.8% increase in same-store stores, partially offset by store closures. Third quarter net income grew 8% despite some gross margin pressures related to higher product costs.

Dollar General actively returns value to shareholders through share repurchases and dividends. Share repurchases in the third quarter totaled 2.3 million shares, and the company has $2.5 billion remaining on its share repurchase authorization. The dividend yields about 0.9%, which isn’t world-beating, but Dollar General’s annualized three-year dividend growth rate is more than 13%.

Tough economic times are good for Dollar General. If the economy stagnates or worsens in 2023, the trends of increasing traffic and higher average transactions should continue. The company also expects to open 1,050 stores in 2023, including 35 stores in Mexico.

The consensus price target on Dollar General is $265, up from its current price of about $248.

4. Eli Lilly (LLY)

Business Overview

Eli Lilly is a pharmaceutical company that develops important treatments for diabetes, obesity, Alzheimer’s disease, immune system disorders, certain cancers and Covid-19. The company distributes its products around the world through wholesale distributors and marketing agreements with other pharma companies.

Recent Trends And 2023 Outlook

Eli Lilly’s stock is up 31% in 2022, an uncommon bright spot in a down market. The company benefited from a third-quarter launch of its type 2 diabetes drug, Mounjaro, plus growth from breast cancer drug Verzenio, diabetes drug Trulicity, migraine drug Emgality, and others.

The pharma company’s revenue grew 7% on a constant-currency basis in the third quarter. Earnings per share in the same quarter increased 12% on a non-GAAP basis.

Analysts largely expect Lilly’s momentum to continue, thanks to a strong product pipeline. Before the end of 2023, Lilly should launch four more products plus another major indication for Mounjaro. One product to watch is Donanemab, a treatment for early-stage Alzheimer’s patients.

Lilly EVP and CEO Anat Ashkenazi says the product portfolio can support “top-tier, volume-driven revenue growth” through 2030. In 2023, the company expects $30.3 to $30.8 billion in revenue and non-GAAP earnings per share of $8.10 to $8.30. Both ranges show growth from expected year-end 2022 results—$28.5 to $29 billion in revenues and $7.70 to $7.85 in non-GAAP earnings per share.

Lilly does pay a dividend, yielding about 1%. Shareholders have enjoyed dividend increases in each of the last eight years. The company’s three-year annualized dividend growth is nearly 15%.

The consensus price target on Eli Lilly is about $378, up from its current price of about $360.

5. T-mobile (TMUS)

Business Overview

T-Mobile provides voice, messaging and data services to more than 100 million customers in the U.S., Puerto Rico and the U.S. Virgin Islands. The company’s two brands are T-Mobile and Metro by T-Mobile, formerly MetroPCS.

Recent Trends And 2023 Outlook

T-Mobile stock is up 20% in 2022 on the strength of industry-leading customer acquisition. Two years after its merger with Sprint, T-Mobile is growing its postpaid phone business faster than ever (and faster than peers Verizon and AT&T). The company is also showing momentum in its high-speed internet business—adding nearly 1.5 million customers year-to-date.

Third-quarter revenues increased 4% over the prior year, while free cash flow increased 32%. Net income of $508 million in the third quarter was down 26.5% due to merger-related costs of $972 million.

The company is still working through its Sprint integration plan. With progress to date ahead of schedule, T-Mobile recently raised its merger synergies guidance. The company had previously estimated merger-related cost savings of $5.4 billion to $5.6 billion. The new estimate is $5.7 billion to $5.8 billion.

T-Mobile has also announced that its 5G network now covers 323 million people. That includes 260 million people covered by T-Mobile’s super-fast Ultra Capacity 5G network. More coverage and faster speeds, combined with competitively priced plans, low customer churn and an investment-grade balance sheet, can only help T-Mobile’s momentum going forward.

The consensus price target on T-Mobile is $177.87, which equates to 25% upside from the telecom’s current share price.

6. Walt Disney Company (DIS)

Business Overview

Entertainment company Walt Disney has two segments. Disney Parks, Experiences and Products operates theme parks around the world. Disney Media and Entertainment Distribution operates TV networks, runs film studios, produces and distributes television content and runs direct-to-consumer streaming networks Disney+, ESPN+, Hulu and others. Disney also licenses trade names and characters to third-parties for use on merchandise and games.

Recent Trends And 2023 Outlook

Disney stock is down about 45% since January, 2022. The entertainment company has been losing money in its streaming business and not generating enough to cash to meaningfully reduce its debt load. Share buybacks and dividends are also off the table for now.

After Disney missed consensus earnings estimates in its September quarter by $0.20, the company announced the replacement of CEO Bob Chapek. Chapek had made some unpopular moves, including raising theme park prices and initially overlooking Florida’s “Don’t Say Gay” bill. Chapek’s replacement is his predecessor, Bob Iger. Iger, now on a two-year contract, was well-liked as Disney’s CEO between 2005 and 2020.

Amid leadership controversy and disappointing earnings, there are bright spots for Disney. The subscriber growth in its streaming business has been impressive. The company added 57 million subscribers in its last fiscal year. That brings the subscriber base to 235 million—which beats Netflix. Disney also recently launched Disney+ Basic, an ad-supported subscription offering with a lower price point.

Theme park revenues are picking up after the Covid-19 shutdown, which helps the bottom line. In fiscal year 2022, the theme park business generated less revenue but higher operating income than the media business.

In the coming quarters, expect Disney to continue growing its streaming revenue, but with a greater focus on profitability. Chapek, in his last earnings release, predicted Disney+ would be profitable in fiscal year 2024. Iger oversaw the launch of Disney+ in 2019 and likely doesn’t want to miss Chapek’s prediction.

Disney’s low stock price, along with recovering theme park revenues, a stronghold in streaming, and a respected CEO at the helm add up to a good 2023 buying opportunity. The consensus price target for Disney is $124.05. The stock currently trades at about $85.

7. Wells Fargo (WFC)

Business Overview

Wells Fargo provides banking and investment services to consumers and businesses. The financial services company serves 33% of U.S. households and 10% of U.S. small businesses. Its lending operation also has a stronghold with mid-sized U.S. companies.

Recent Trends And 2023 Outlook

Wells Fargo is down 16% for the year. The bank is working through lingering regulatory issues resulting from the fake accounts scandal that went public in 2016.

Notably, the Federal Reserve imposed an asset cap of $1.95 trillion, which remains in place today. The Fed will only lift that cap once the bank has strengthened its internal processes to prevent similar abuses in the future. For now, the cap limits the bank’s loan growth potential.

Wells is also still accruing costs for litigation and customer remediation. These totaled $2 billion in the third quarter of 2022. Amid these pressures, the bank is working to improve its internal processes as it lowers expenses, expands product offerings, and strengthens technology platforms. These efforts should help Wells Fargo navigate an economically uncertain year ahead.

Rising interest rates are good for Wells Fargo as long as loan delinquencies remain low. That’s been the case so far. Net interest income in the third quarter was up 36%. Annualized net charge-offs as a percentage of total loans only rose slightly from the prior quarter to 0.17% from 0.15%.

Wells Fargo does pay a dividend yielding nearly 3%. The bank did slash its dividend in the third quarter of 2020, but it’s been rising since then. The consensus price target on Wells Fargo is $53.86. That’s up 30% from a recent closing price of $41.19.

Investing For 2023

2023 is sure to bring some economic and financial market surprises. Fortunately, there is a strategy that can insulate you from unexpected stock market declines. Buy good companies and be ready to hold them for the long-term.

If the economy does go sideways next year, good companies should emerge from a downturn—eventually. Wait for that recovery and any price declines in the interim become largely irrelevant. On the other hand, if you get impatient and sell when share prices are falling, you lock in losses unnecessarily.

So stay the course, no matter when 2023 brings. That’s the toughest job of investing, but also the surest way to grow your wealth.

Our Forbes Experts Reveal Their Stocks to Buy for 2023

No doubt, the stock market is coming off the most bruising year since 2008. The good news is mispriced stocks are hiding in plain sight and present great investment opportunities in 2023.

Forbes’ top investment experts share 7 overlooked stocks for the year ahead in this exclusive report, 7 Best Stocks To Buy for 2023. Click here to download it now and make 2023 your best year yet.