When seeking out the best stocks to buy in 2023, investors will need to be brave and patient in regard to timing, as well as agile as the stock market 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 pace and intensity of Fed tightening, there's a strong likelihood that the U.S. will enter a recession in 2023," says Russ Koesterich, portfolio manager of the BlackRock Global Allocation Fund (opens in new tab). "That said, given strong household balance sheets and resilient consumption, our base case is that it will be a mild recession."
Kiplinger's current economic forecast calls for gross domestic product (GDP) growth to likely slow to 1.9% in 2022 and slow further to 0.5% in 2023 if there is a mild recession. But if the economy can avoid a recession this year, then growth will likely expand at about a 1.1% rate. Look for inflation to fall to a 3.2% rate by the end of 2023, down from the 6.5% seen at the end of 2022. By the time the Federal Reserve finally stops hiking interest rates, perhaps in the second quarter of 2023, the federal funds rate will likely be in the 5% range, up from 0.25% in March 2022.
For stocks, the turn from tighter monetary policy to easing will be a compelling all-clear signal – as will rock bottom valuations in prices. "History tells us that markets don't find a bottom until investors can see Federal Reserve rate cuts or a trough in economic activity on the horizon, or when valuations are so low that they price in a bear-case scenario," says Mark Haefele, chief investment officer at UBS Global Wealth Management (opens in new tab). "Today, none of those conditions are in place." The most recent inflation news was encouraging. But stock investors have gotten their hopes up more than once that the Fed would signal a pause in hiking rates or, even better, telegraph cuts – only for rallies to fade when it becomes clear that the Fed remains hawkish.
Given the uncertain, sometimes roiling backdrop for stocks, where should investors look when seeking out the best stocks to buy for 2023? 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."
Generous and growing dividends are a hallmark of high quality and are likely to make up a much bigger portion of total returns than they have recently, says Caroline Randall, a portfolio manager at mutual fund company Capital Group (opens in new tab).
Move beyond the utilities and consumer staples stocks – these defensive plays are likely too expensive now. Healthcare is an exception, offering both growth and defensive characteristics. "It's where our money is today – we're always going to have money in healthcare," says David Bailin, chief investment officer at Citi Global Wealth. The demographics of an aging population, and the innovation in pharmaceuticals and treatments that go along with increased longevity, are working in the sector's favor, he says.
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 5.2% annualized, compared with 8.4% for the S&P 500 Growth Index (opens in new tab). Through early 2023, value has outperformed growth, with a 5.1% return compared to growth's 2.9% 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 in 2023. 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.
Data is as of Jan. 17. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Amazon.com
- Market value: $979.9 billion
- Dividend yield: N/A
E-commerce and cloud-computing juggernaut Amazon.com (AMZN (opens in new tab), $96.05) is so cheap these days that the managers at the Dodge & Cox Stock fund – one of the best low-fee mutual funds – who are sticklers about price, scooped up shares recently. The managers say they take the long view and are drawn to companies with "attractive fundamentals where expectations and valuations have declined."
Amazon fits the bill. The stock is down 40% 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 50 times expected earnings in 2023; its five-year historical P/E is 73.
A recession may dent near-term results, but the company's dominant role in its key markets will buoy AMZN – and help it secure a place on this list of best stocks to buy in 2023. After a sum-of-the-parts analysis, Shyam Patil, of investment firm Susquehanna International Group, recently set a 12-month price target on shares of $140, representing implied upside of nearly 46%.
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Advanced Micro Devices
- Market value: $115.4 billion
- Dividend yield: N/A
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 for 2023. 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.
Companies will continue to invest in software and hardware solutions to high labor costs, he says, and many of the firms have "fantastic" balance sheets.
Take Advanced Micro Devices (AMD (opens in new tab), $71.59), a leading semiconductor manufacturer. Analysts have mixed ratings on AMD in part because an economic slowdown and negative investor sentiment are near-term obstacles.
The shares have fallen roughly 50% from their 52-week high and now trade at 16 times expected earnings for the year ahead – more than half the typical price-earnings multiple over the past decade.
Still, analysts on average expect a 25% 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 45% 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 $95.
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Halliburton
- Market value: $38.6 billion
- Dividend yield: 1.1%
Haliburton (HAL (opens in new tab), $42.53) 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.
Oil was already in short supply as the global economy opened up post-pandemic; then came the war in Ukraine. Haliburton stands to benefit as oil companies ramp up production.
Jeffrey Miller, Haliburton's CEO, told analysts that it was entering a "multiyear upcycle," according to Argus. The investment-research firm expects Haliburton to generate strong free cash flow in the coming quarters and notes that the company nearly tripled its dividend (opens in new tab) in January 2022.
The shares trade at 15 times forward earnings estimates, well below the five-year average of 26.5.
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Deckers Outdoor
- Market value: $11.1 billion
- Dividend yield: N/A
Deckers Outdoor (DECK (opens in new tab), $420.00) may be known for its Uggs brand of cozy sheepskin footwear, but analysts at BofA Securities (opens in new tab) believe that the small-midsize company's crown jewel is its HOKA brand running shoes, with a (pun intended?) "clear runway for growth." BofA expects HOKA brand sales to double to $2.2 billion by fiscal year 2025 (ending March 31). Total company revenues in fiscal 2022: $3.2 billion.
Uggs is Deckers' largest business, though, with high profit margins and strong cash flow. The brand has a good chance of seeing its pandemic-era popularity stick.
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.
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Rexford Industrial Realty
- Market value: $10.8 billion
- Dividend yield: 2.2%
Real estate investment trusts (REITs), among the most interest-rate-sensitive industries, have fallen an average of roughly 20% over the past year.
"The recent selloff is overdone," say analysts at investment firm Stifel. You may still be reluctant to invest in office parks or shopping malls, but industrial REITs, which provide warehouse and logistics services, present an opportunity for growth at a reasonable price, according to Stifel.
The firm initiated coverage of Rexford Industrial Realty (REXR (opens in new tab), $58.57) in mid-October with a Buy rating and a 12-month price target of $64. Rexford focuses on just one huge market – Southern California, which, according to Stifel, is the largest industrial market in the U.S. The firm's "deep roots and long history" within the region provide the team with a great sense of market demand, the analysts say, adding that the scarcity of available space allows Rexford to push above average rental rates. Rexford's balance sheet is solid; the shares yield 2.2%.
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T-Mobile US
- Market value: $181.9 billion
- Dividend yield: N/A
T-Mobile US (TMUS (opens in new tab), $146.10) is the second-largest wireless carrier in terms of U.S. market share. But it is sprinting ahead of the others in terms of growth, says analyst Keith Snyder, at investment research firm CFRA (opens in new tab). "Our Strong Buy recommendation reflects our expectation that T-Mobile will continue to outgrow peers," he says. The rollout of T-Mobile's 5G network is at least 12 months ahead of both Verizon (VZ (opens in new tab)) and AT&T (T (opens in new tab)), says Snyder. That, and aggressive phone plan pricing, "has enabled T-Mobile to capture market share, while competitors struggle to keep up," he says.
Moreover, the carrier is on track with its goal of doubling its share of the large-business and government market from less than 10% to nearly 20% over five years. CFRA expects earnings to jump from an estimated $2.27 a share in 2022 to $6.40 in 2023; the shares could see $175 within 12 months.
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Workday
- Market value: $42.8 billion
- Dividend yield: N/A
Workday (WDAY (opens in new tab), $166.69) is a leader in cloud-based software for human-resources management.
"It has really been able to carve out a strong position based on its patented technology," says Parnassus Mid Cap fund co-manager Lori Keith. Half of the Fortune 500 (opens in new tab) uses its platform. And once installed, customers tend to stick – Workday has a customer retention rate of 95%.
Like most tech stocks, WDAY has been losing ground over the past 12 months, down more than 34%. And Workday isn't very profitable – it eked out a small profit last fiscal year (ending in January). But analysts expect that to turn in 2024, buoyed by revenue growth of roughly 20% in 2023 and 2024.
Investors seeking out the best stocks to buy in 2023 might consider holding for longer than one year: Keith says she sees "significant market-share opportunity" for Workday, and over the next three years, the stock's potential reward outweighs the risk.
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Matador Resources
- Market value: $7.1 billion
- Dividend yield: 0.7%
Matador Resources (MTDR (opens in new tab), $59.97) is an oil and gas exploration and production company that has risen alongside its fellow energy stocks over the last 12 months. Specifically, MTDR stock is up more than 32% year-over-year.
Analysts think there's more room to run, too. The consensus price target, according to S&P Global Market Intelligence, is $71.77, representing expected upside of nearly 20% over the next 12 months or so.
Even with its impressive growth on the charts, MTDR is one of best values on this list of the best stocks to buy in 2023. Shares are currently trading at just 6.4 times forward earnings, well below Matador's five-year average of 11.7%.
What's more, Matador's natural gas business is a bridge to the time when renewables will provide most of the fuel for electricity. We'll need that gas for the next 20 or 30 years.
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Merck
- Market value: $279.8 billion
- Dividend yield: 2.6%
Why is Merck (MRK (opens in new tab), $110.45) on this list of the best stocks to buy in 2023? The pharmaceutical giant is known for its high returns over the past decade. Analysts are upbeat toward MRK, too, as evidenced by a consensus rating of Buy. Of the 26 analysts that follow Merck tracked by S&P Global Market Intelligence, 12 say it's a Strong Buy, six call it a Buy and eight have it at Hold.
Speaking for the bulls is Credit Suisse (opens in new tab) analyst Trung Huynh, who has an Outperform (Buy) rating on MRK. "Change is afoot with a new management team, which faces the patent expiration of its most important asset, Keytruda, by year-end 2028," Huynh writes in a note to clients. "However, MRK's high, consistent earnings growth, which is considerably above peers, should be the key to outperformance over the next few years."
And for investors seeking out the best defensive stocks, Huynh says MRK's growth is "low risk," and that cancer drug Keytruda and HPV vaccine Gardasil are "well established and less affected in the near term by healthcare reforms under the Inflation Reduction Act (IRA) than peers."
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Lululemon Athletica
- Market value: $41.3 billion
- Dividend yield: N/A
Lululemon Athletica (LULU (opens in new tab), $323.82) is a retailer of leisure attire. The stock is down 3.3% in the last 12 months, despite comparable-store sales rising 22% in the last reported quarter compared with a year earlier. Rarely do you get to buy such a fabulous company at a price that appears so depressed.
Shares are currently trading at 28 times forward earnings. At first glance, this certainly seems pricey, but not quite as much when compared to the five-year forward P/E ratio of 43.
Argus Research analyst John Staszak certainly believes LULU is one of the best stocks to buy for the long term. "Lululemon has a strong brand and growing direct-to-consumer sales, which we expect will lead to higher margins over the next several years," the analyst writes in a note. Despite headwinds, we expect the company’s momentum to continue." He adds that LULU's selloff creates a "buying opportunity," and has a long-term Buy rating on the consumer discretionary stock.
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Archer-Daniels-Midland
- Market value: $48.4 billion
- Dividend yield: 1.8%
Archer-Daniels-Midland (ADM (opens in new tab), $88.09) buys, transports and processes food commodities. An inflation hedge, ADM stock has been a big winner over the last year, benefiting from rising prices caused by supply-chain disruptions. Food scarcity seems like a longer-term problem, and the stock is reasonably priced at a forward P/E of 14.
"Our bullish outlook reflects the company's strong recent performance and our expectations for further growth in the oilseeds business and improvement in the origination and nutrition division," says Argus Research analyst Taylor Conrad (Buy). "The balance sheet is clean and management signaled confidence with the increased dividend."
As for that dividend, ADM has issued 47 years of consecutive increases to its payout – most recently lifting it by 8.1% in January 2022. This not only makes Archer-Daniels-Midland one of the best dividend stocks to own, but one of the best stocks to buy for 2023 and beyond.
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Amgen
- Market value: $140.9 billion
- Dividend yield: 3.2%
Many analysts are neutral about Amgen (AMGN (opens in new tab), $269.42), a bio-pharma firm. Though some new drugs are off to a good start and selling well, that's been offset by slowing sales for its older treatments, which are under pressure from competitors.
But Amgen is an 800-pound gorilla in its industry, with a diversified roster of 26 drugs on the market (opens in new tab) (and dozens in development). It boasts a robust cash flow and a solid 3.2% dividend yield. In other words, it's somewhat defensive.
Morgan Stanley (opens in new tab) analyst Matthew Harrison upgraded the stock recently to Overweight, the equivalent of Buy, citing the strength of the company's pipeline and the stock's undervalued price. Amgen shares have gained more than 12% over the past 12 months but trade at 15 times 2023 expected earnings, a fraction of the P/E of 70 that's typical for biotech firms. With all this in mind, it's easy to see why AMGN is on this list of the best stocks to buy now.
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