Will the worst stocks of 2022 become the best stocks to buy in 2023? If you’re a Warren Buffett investor and buying when others are afraid, then this is your chance!
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Nowhere was the stock crash worse last year than internet retail stocks. In a report by Yardeni Research, we see stocks in the Consumer Discretionary sector fell by 37% as Wall Street feared a consumer spending nightmare in a recession. Within that consumer sector, internet retail stocks took the worst of it, crumbling by 48% in just the last 12 months!
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But if you’re a fan of Warren Buffett, you know that could be the best time to buy…that peak fear in the markets for these stocks! Buying when there’s blood in the streets! I’ve found five stocks to watch in 2023 that may have reached that peak fear and are ready for a rebound!
I’ll show you how to find the stocks to buy for 2023 and how to tell if these rebound stocks can make you money. Because of how harsh the stock market crash was last year, how far these stocks have fallen and the fact that a recession will only make matters worse, I’m first looking for measures of survivability here.
First I want to look at the statement of cash flows to find companies that, while earnings might be negative, are still creating positive cash flow on an operational level . We don’t need to go too deep into the financial statement analysis here but just know that the income statement and the earnings per share that you see all the time, that’s not the first place you should look with beaten-down stocks. You want to make sure the company is producing legitimate cash flow from operations.
Next, I go straight to the balance sheet and look for how much cash and long-term debt the company has on its books . Even a company with negative cash flow can survive if it has enough cash set aside and isn’t burdened by too much debt. It can keep operations going until the economy improves or borrow to fund the business…that balance sheet health just gives it more flexibility.
Once we’ve found companies that we know will survive, we want to narrow the list to the best stocks to buy now. For that, I’m looking for sales growth above competitors and preferably still in that growth stage of 10%-plus.
It is going to be a tough economy for retailers in 2023 and even these stocks, the average sales growth is only expected to be around six- or seven-percent from this year. If we can find those retailers though with a competitive advantage in distribution or scale, then those are the companies that will take market share from competitors and have the best shot at rebounding when the economy improves.
My Investing Recommendations
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.