- I believe that Apple stock will perform well in 2023, after a year of historically pitiful performance.
- But investing is at least as much about a holistic strategy as it is about convictions.
- Therefore, I would consider owning these three other stocks alongside AAPL.
Figure 1: Beyond AAPL: What 3 Other Stocks I Would Own In 2023
Unsplash
(Read more from the Apple Maven: Apple Stock: 23 Reasons To Rally In 2023)
Apple Stock Plus Three
I have been an Apple (AAPL) – Get Free Report stock bull for as long as I can remember, only once or twice advocating for a trim around the edges when shares seemed to rally too far ahead of fundamentals. With shares now down 27% for the past 12 months, I am betting on them again in 2023.
But a strong portfolio should be diversified enough to avoid excessive exposure to a single company – something that Warren Buffett and his team at Berkshire Hathaway (BRK.A) – Get Free Report may not agree with. So today, I talk about three other stocks that I would own in the new year, besides AAPL.
Amazon Stock For Growth
2022 was not great for AAPL investors, but what can be said about Amazon (AMZN) – Get Free Report and its stockholders? AMZN finished the year down a shocking 50% and 55% below the peak levels of July 2021, trading now below the worst of the COVID-19 crisis.
Figure 2: Amazon finished the year down a shocking 50% and 55% below the peak levels of July 2021.
There were plenty of good reasons for investors to be spooked and sell Amazon shares in droves last year. The list below is not all-inclusive, but summarizes the key factors:
- Pandemic-era comps were very tough to beat, which made growth in 2022 look soft compared to what investors have been accustomed to witnessing.
- Amazon invested heavily in e-commerce and cloud during the pandemic, but it now has to deal with the negative effects of a bloated infrastructure.
- Labor and energy costs have climbed sharply, dinging Amazon’s margins.
- Amazon’s strong presence internationally means that the company has been heavily exposed to weaker currencies relative to a strong dollar.
- There have been some indications that Amazon’s cloud business could be suffering from high operating costs and intense competition – maybe more than usual.
- In an environment of rising rates and red-hot inflation, growth stocks like Amazon tend to perform particularly poorly.
Clearly, there is plenty for Amazon investors to worry about, and also to justify (at least partially) the recent selloff. But to me, Amazon at a market cap of only $850 billion will ultimately prove to be a rare buying opportunity.
This is the case because, fundamentally, not much has changed about the business model. Amazon is still the king of e-commerce and the global leader in cloud services. The growth opportunities are significant, while the bottom line should benefit over time from gains of scale.
According to Seeking Alpha, Amazon is expected to produce $4 in EPS in 2025 and $8.25 in 2028. These projections point at a 2025 P/E of 21x and 2028 P/E of only 10x.
It means to me that, given an investment timeframe of three to five years, AMZN is looking cheap at current levels. It is, in my view, a great growth stock to own at the start of 2023.
Costco Stock For Defense
I am an advocate for a balanced investment strategy. This is the case because none of us, even those that claim otherwise, can accurately and consistently predict the future. So, it is usually better for investors to diversify their exposures rather than to place speculative bets.
Figure 3: Costco is the stock to own to benefit from a less constructive economic and market environment this year.
Shutterstock
If Amazon may be a good growth stock to buy in 2023, then I think that Costco (COST) – Get Free Report is the stock to own to benefit from a less constructive economic and market environment this year.
Costco’s business model is one that should thrive during good times, when consumers have extra money in their pockets to spend, and bad times, when they shift focus to saving cash and hunting for deals.
The retailer is known for offering some of the best products at some of the best prices. The catch? Costco charges an annual fee that, I estimate, accounts for over half of the company’s operating profit.
Costco is, therefore, a rare case of non-tech company that runs a subscription model. The recurring revenue flow coupled with the countercyclical features of the business makes COST a good stock to own through a period of economic contraction and/or lingering inflation.
Worth noting, COST dipped 20% in 2022, and the stock currently trades at a fairly rich 2023 P/E of 31.5x – shares rarely, if ever, trade at a discount to market multiples.
If a portfolio already has exposure to a good growth name like AMZN and a good defensive name like COST, then I think that it can benefit further from the diversification features of a commodity stock.
I particularly like Barrick Gold (GOLD) – Get Free Report. The gold-mining company has been around for nearly 40 years. It seems to be well managed, although my interest in the stock has much more to do with the low correlations with gold prices – it is less about company-specific factors.
Figure 4: Barrick Gold, the gold-mining company has been around for nearly 40 years.
Barrick Gold
The graph below shows that a combination of 50% Barrick stock and 50% cash (portfolio 1, in blue) has moved very much in tandem with the market value of gold (portfolio 2, in red).
This tight relationship could be valuable in an environment of high inflation in which commodities (particularly precious metals) appreciate.
Figure 5: Barrick Gold annual returns.
Also notice that the moves in gold price have historically been very much decoupled (or uncorrelated) with the direction of the stock market – the correlation coefficient between the two has been only 0.17. This is great news for the purpose of portfolio diversification.
Ask Twitter
Apple investors: of the three names below, which would you most likely buy and hold alongside AAPL in 2023?
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)
