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:
|Stock||YTD Total Returns Through March 23|
|Apple Inc. (ticker: AAPL)||22.5%|
|Dutch Bros Inc. (BROS)||5.3%|
|Citigroup Inc. (C)||-3.0%|
|Amazon.com Inc. (AMZN)||17.5%|
|Walt Disney Co. (DIS)||10.3%|
|PayPal Holdings Inc. (PYPL)||1.9%|
|EOG Resources Inc. (EOG)||-17.8%|
|Grupo Aeroportuario del Sureste SAB de CV (ASR)||24.2%|
|Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)||27.6%|
|Diageo PLC (DEO)||0.3%|
|Return of Equally Weighted Portfolio||8.9%|
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.
Dominant internet retailer Amazon was also named one of the 10 best stocks to buy for 2023 heading into the new year after a miserable 2022 in which shares lost 50% of their value. The culprits included cost inflation, a tight labor market, supply chain challenges and dwindling consumer confidence. That said, the market was far too eager to write off Amazon, whose crown jewel is Amazon Web Services, its large, fast-growing and massively profitable cloud services arm. AWS has an annual revenue run rate of more than $85 billion. Given cloud services rival Microsoft Corp. (MSFT) trades for about 10 times sales, putting the same multiple on AWS pegs its value at $850 billion. At Amazon’s current $1 trillion valuation, investors are getting the rest of the company’s massive operations – which posted 2022 sales of $434 billion – for about $150 billion. AMZN has proven to be a good pick thus far in 2023, with shares up 17.5% through March 23.
One of the most important things to consider when selecting stocks to buy and hold for the long term is a company’s management team. And with the recent return of longtime CEO Bob Iger, Disney has that in spades. Considered one of the best CEOs this side of the millennium, Iger presided over a series of wildly successful acquisitions – including Pixar, Marvel Entertainment and Lucasfilm – before passing the CEO role to Bob Chapek in February 2020. Disney’s February earnings report, the first since Iger’s return, saw the House of Mouse topping expectations for both earnings and revenue. After a price hike for streaming service Disney+, subscriber losses were lower than feared, while revenue from its theme parks soared 21% in the quarter. Iger seems not to have lost his magic touch: DIS stock is beating the S&P so far in 2023, with shares up 10.3% this year through March 23.
PayPal Holdings Inc. (PYPL)
A time-tested and well-run financial stock, PayPal is curiously trading for less than its 2020 pandemic lows, despite earnings per share of $4.13 in 2022 – higher than any year between 2018 and 2020. Shares were absolutely hammered in 2022, shedding 62% due to a weaker macro environment and the loss of its lucrative relationship with eBay Inc. (EBAY). Shares now trade for about 15 times expected 2023 earnings, despite a five-year average of 36.5. Between 2015 and 2021, PayPal’s lowest price-earnings ratio was 20.3. Applying that conservative multiple to average expected 2023 earnings of $4.88 yields a price of $99.06 per share by early 2024, implying upside of more than 36% from its March 23 close. Recently announced deals with Apple Pay to accept PayPal- and Venmo-branded cards should expand its presence in brick-and-mortar retail, while Amazon also now accepts Venmo, giving PayPal exposure to Amazon’s vast online marketplace. PYPL stock is up 1.9% in 2023 through March 23.
A return pick from last year’s best stocks to buy list, EOG is a U.S. oil and gas producer coming off a successful 2022 in which shares posted a total return of 56.3%. Shares nonetheless are still priced like a value stock, trading for about eight times forward earnings. Growth will, no doubt, decelerate in 2023 – the red-hot energy market is unlikely to skyrocket as it did in the inflation- and war-plagued year of 2022 – but investors shouldn’t forget the value of an inflation hedge in their portfolios. A 3.1% dividend yield and impressively low payout ratio of less than 24% give EOG some credibility with income investors as well. As inflation concerns ebbed in the early months of 2023, EOG shares have lost ground, making EOG the worst-performing stock on the list thus far. The stock has a year-to-date loss of 17.8% through March 23.
Grupo Aeroportuario del Sureste SAB de CV (ASR)
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 Co. Ltd. (TSM)
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.