5 of the Best Stocks for 2023
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As we usher in a new year, it's certainly the case that some market jitters have carried over from 2022. As a result, there are some very solid companies that have had their stock prices adversely affected. They've been beaten up. And, of course, this presents buying opportunities for investing money! I consider the companies detailed below to be 5 of the best stocks for 2023 because their stock prices have declined significantly in the past year, so they're now selling at relative discounts. Yet the company fundamentals remain strong in each case, and the long-term business economics are excellent. These are all established, well-capitalized companies with competitive advantages in their respective industries. They also present relatively lower risk than many other companies while possessing solid financial strength.
NVIDIA Corporation (NVDA)
Nvidia is still a great long-term growth story and one of the best stocks for 2023. With a forward P/E of 44, it's not exactly "cheap," but with the stock being down more than -50% in the past year, it's knocking on the door as a great opportunity. It's a $28.6B semiconductor company that provides graphics and networking solutions on a global scale. The recent pullback by the market and China's initiative to quickly reopen from lockdowns should drive growth in the new year. China accounted for 26% of fourth quarter revenue in 2022, so a reopening in China should give Nvidia a very nice lift in 2023.
The semiconductor industry is prone to cyclicality, and it's also very competitive. But Nvidia has carved out a nice niche with a unique business model. Nvidia's competitive advantages are its pace of innovation, strong workforce, and high barriers to entry, as also detailed by Value Investors Central. The gaming segment fell into decline in 2022, partly driving the decline in the stock price. But that appears to be bottoming out, and gaming is poised to snap back significantly. Its data center segment will also likely continue to see solid growth as a result of new product cycle launches and continued customer spending in 2023.
More importantly, while the stock remains somewhat pricey, the company displays strong fundamentals to support long-term money investment. In the past 5 years, earnings per share (EPS) have grown 43% and are projected to grow an additional 21% over the next 3 to 5 years. Return on Equity has been solid at 24% in the past year. Return on Invested Capital has similarly been strong, averaging 26% in the past 5 years. Total debt to equity stands at a fairly healthy 48%, reflecting a pretty healthy balance sheet.
As highlighted in an earlier post back in Nov 2022, Adobe was and still remains an excellent money investment. The stock price has pretty much been flat since that time, so the buying opportunity is still there! At $333 per share, it's declined -41% in the past year and is trading at a forward P/E of only 22. The stock is fairly valued intrinsically and undervalued relative to historic multiples.
Adobe has established itself as a powerhouse software company with a robust brand. In the digital media, publishing, and advertising space, it has clearly set itself apart from peers with truly innovative products. It creates the tools that many artists, videographers, and editors use daily to create content, and there are high switching costs for customers who use Adobe products. The only formidable competitor to surface recently - Figma - is now being acquired by Adobe.
Adobe reported solid financial results in fiscal year 2022. Full year revenue was $17.6B, a 15% increase from the prior year. Earnings also increased year-over-year by 9.86%, and forward projections are anticipating additional growth of +11.7% in 2023 and +14% in 2024. As a huge company with a strong track record, they're not poised to grow as fast as some of these younger companies. Growth remains steady but where growth may be lacking, they have strong profit margins to drive performance and wealth creation for shareholders.
Key fundamentals as a whole remain strong, with EPS having grown 25% in the past 5 years and projected to grow 14% in the 3 years ahead. They've managed debt well. The company is mostly capitalized with equity and only 33% with debt. Return on Equity stands at a robust 34% in the past year, and Return on Invested Capital has averaged a strong 25% in the past 5 years. All of this reflects why it's one of the best stocks for 2023.
Lululemon Athletica Inc (LULU)
Another excellent company that I highlighted in a Nov 2022 post is Lulu. It's also one of the best stocks for 2023. Its stock is down -15% in the past year, but it has also rebounded +14% in the past 6 months. As is the case for others in this particular post, the company's stock remains a solid long-term money investment.
At 32 times forward earnings, Lulu is a bit pricey. But growth is projected to remain strong for the foreseeable future. Revenue is projected to increase 27% in 2023 and 14% in 2024, with earnings projected to grow at similar rates during the next two years as well. If you're focused on the long-term, I expect Lulu to pan out as a solid money investment and wealth creation tool.
Brand power is critical in the athletic apparel industry. And Lulu has leveraged its brand to become a leading athletic apparel and accessories company. Profit margins and investment returns reflect its competitive advantage, supported by differentiated products as well as a solid and loyal customer base. It also has a growing menswear segment, which has grown at a 56% compounded annual growth rate over the past 2 years. This compares to a 37% CAGR for the women's segment over the same period. Both have really solid growth rates, and the comparison just details the promise of the menswear segment in the years ahead.
I've highlighted some key financial metrics related to Lulu below. But a view of the Profitability chart above also highlights Lulu's competitive advantage. It maintains high profit margins against key competitors. Additionally, margins have remained at high levels despite rising supply chain costs which details Lulu's pricing power. Lulu also fairs very well against top competitors such as Adidas (ADDYY) and VF Corp (VFC), the maker of North Face products in EBITDA Margin, ROE, asset turnover, and other key metrics. The stock is one of the best ways to invest money right now.
LULU: Key Financial Metrics
- 5 yr EPS growth 27%
- Projected EPS growth 3-5 years: 22%
- 5 yr revenue growth 22%
- Return on Equity (TTM): 41.4%
- 5 yr Return on Invested Capital: 24.3%
- Low debt-to-equity ratio: 33.4%
Microsoft Corp (MSFT)
Microsoft has had a long run! And it remains one of the best stock investments one can make, and one of the best stocks for 2023. A $10K investment in Microsoft stock made as recently as 2017 would now be worth $27.3K. The stock has performed very well! However, with the pullback and market correction taking place in Tech as a whole, Microsoft's stock is now down nearly -30% in the past year. In my view, this presents a buying opportunity!
Business fundamentals matter more than the stock price's recent movements. Microsoft remains a great long-term investment, especially considering its competitive advantages. It maintains a strong market position relative to a full suite of comprehensive products. It owns the leading operating system Windows, as well as the second largest cloud provider, Azure. Azure is generally viewed as the most comprehensive and most trusted cloud, providing the best integration across technology platforms. And the ability for Azure SQL to convert data into AI also drives its competitive advantage. Ultimately the market will realign its valuation of the stock with the overall strength of its fundamentals.
Internal development allows Microsoft to maintain competitive advantages that come from product differentiation and closer technical control over its products and services. As one of the best stocks for 2023, the company is well positioned to capture massive opportunities ahead, specifically as applies to digital transformation and gaming. It's innovating and expanding its entire portfolio.
Forward-looking Growth Strategy
Microsoft’s research and development (R&D) efforts focus on three areas going forward:
- Reinvent productivity and business processes.
- Build the intelligent cloud and intelligent edge platform.
- Create more personal computing.
All 3 segments experienced solid growth in FY22 versus the prior year and are poised for continued growth going forward. Revenue in the Productivity and Business Processes segment grew 18% versus FY21. The global cloud computing market is expected to grow at a 17.9% CAGR through 2028 to a size of $791B according to Fortune Magazine, creating apt opportunity for Microsoft to experience growth in this area.
I personally own stock in Microsoft, and I’ve seen that investment perform very well since becoming a shareholder. Currently, Microsoft stock is trading at $228 per share, and the future of the company for the foreseeable future looks very bright. It's one of the best stocks for 2023 and would be a good part of one's investment strategy.
MSFT: Key Financial Metrics
- 5 yr EPS growth 28%
- Projected EPS growth 3-5 years: 13%
- 5 yr revenue growth 17%
- Return on Equity (TTM): 42.1%
- 5 yr Return on Invested Capital: 22.7%
- Low debt-to-equity ratio: 47.3%
Toward the end of 2022, Crocs was highlighted as one of the best ways to invest money. With the new year recently launching, it remains one of the best stocks for 2023 as well! It has generated a total return of 626% in the past 5 years, and it's future outlook appears strong. Crocs stock is on sale! It's a great way to invest money for long-term wealth creation.
The 5-year trend of Crocs stock above highlights a compounded annual growth rate of 69.8%! This has translated into a 5-year total return of 626%. Crocs stock is now down -27.6% in the past year, but it has also nearly doubled in the past 6 months. Nevertheless, the stock is still considerably undervalued both historically and relative to peers. At only $95 per share now, I view this as a solid money investment opportunity.
Crocs is a growing, high margin company with a strong and durable competitive advantage. With the stock being down -27% in the past year, opportunity is knocking. It’s trading at only nine times earnings which is still pretty cheap for a high-margin business that has increased its bottom line by more than ten times in the past 5 years. Crocs stock is currently one of the best ways to invest money.
The companies detailed above are some of the best stocks for 2023. The prices of those stocks have declined significantly in the past year, presenting potential buying opportunities. All of the companies have solid operating histories and competitive advantages within their respective industries where they provide differentiated products or services in high-demand. These companies are also very well positioned in the market for future growth and/or cash flows.
Investing money is an opportunistic art. Part of any sound investment strategy is recognizing great opportunities and seizing upon them when they knock at your door. A large part of the time, such opportunities will arise as a result of external factors. With no real or meaningful change in company fundamentals, stocks may experience declines because of economic factors or short-term issues. The 5 stocks detailed above all retain excellent fundamental business economics. They remain strong long-term investments and are 5 of the best stocks for 2023 and beyond.
The information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website. I also may own stock in all of the aforementioned companies.