To find the best stocks to buy in 2023, investors need to be bold and patient with timing, as well as nimble as the stock market moves from a bear market to a bull market. Go ahead and add determination to the character traits you’ll need in 2023, because many market strategists say you can’t get from one market to another without going down first.

“Given the pace and intensity of the Fed’s tightening, there is a good chance the US will be in recession in 2023,” said Russ Kosterich, portfolio manager at BlackRock Global Allocation Fund. (opens in new tab). “So 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 slow to 1.9% in 2022 and to 0.5% in 2023, if there is a mild contraction. If a recession can be avoided, the economy is likely to grow by about 1.1 percent in 2023. Look for inflation to ease to 3.5% in 2023 from 7.7% expected in late 2022. Until the Federal Reserve finally stops raising interest rates, likely in the second quarter of 2023, the federal funds rate will rise. likely to be in the 5% range from 0.25% in March 2022.

For equities, a shift from tighter monetary policy to easing would be a compelling all-clear signal, as would lower price estimates. “History tells us that markets don’t bottom out until investors can see Federal Reserve rate cuts or a slowdown in economic activity on the horizon, or when valuations are so low that they’re worth it in a bear scenario,” says Mark Hefele. : , Chief Investment Officer of UBS Global Wealth Management (opens in new tab). “None of those conditions exist today.” The latest inflation news was encouraging. But equity investors have repeatedly held out hope that the Fed will signal a pause in campaign interest rates or, better yet, telegraph cuts, only for the rally to falter as it becomes clear the Fed remains dovish.

Given the uncertain, sometimes turbulent backdrop for stocks, where should investors look when searching for the best stocks to buy in 2023? The common advice among Wall Street strategists now is to resist the allure of trading overbought stocks and instead focus on high-quality stocks. “Investors should avoid volatile names and be wary of both deep value and unprofitable growth companies,” says Kosterich. “Instead, emphasize quality by focusing on earnings consistency and good returns.”

Generous and growing dividends are a hallmark of high quality and are likely to be a much larger share of total returns than they have been recently, said Caroline Randall, portfolio manager at mutual fund firm Capital Group. (opens in new tab).

Move away from utilities and consumer staples stocks. these defensive plays are probably too expensive now. Health is an exception, offering both growth and defense attributes. “This is where our money is today. we will always have money in health care,” said David Bailin, chief investment officer at Citi Global Wealth. He says the demographics of an aging population and innovations in pharmaceuticals and treatments combined with increased longevity are working in the industry’s favor.

Now may be a good time to look to value-oriented companies and small-cap stocks, both long-time 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) returned 8.1% annually, compared with 10.5% for the S&P 500 growth index. (opens in new tab). In early November 2022, the value outpaced growth big time, with a 7.6% loss compared to a 30.7% free fall. “We will be true to value. These cycles take a while,” said Ryan Detrick, chief market strategist at money management firm Carson Group. (opens in new tab). Sectors commonly grouped by value style include energy, financials, industrials and materials.

So with all that in mind, here are the 12 best stocks to buy in 2023. The names presented here vary by size and industry and are not intended to constitute a diversified portfolio. But all, for one reason or another, are well positioned to take advantage of the 2023 bear market to bull market transition.

Data is as of December 13. Dividend yield is calculated by annualizing the most recent payment and dividing by the share price.

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