The task of looking for the best stocks to buy for January 2023 is akin to finding a needle in a haystack. There are so many possibilities; it’s hard to pick just seven.
The S&P 500 is coming off one of its worst years in history. In 2022, the index’s total return was -18.11%. Only on six occasions since 1926 did the index do worse than this past year.
In December, the index lost 5.90%, excluding dividends, putting an exclamation point on a rotten year. Compared to some of the other monthly losses, its nearly 6% decline was middle-of-the-road alarming.
Interestingly, heading into December, the S&P 500 had delivered two consecutive months of healthy gains. It was up 7.99% in October and 5.38% in November. However, a third successive monthly gain was just too much to ask from the stock market gods.
The seven best stocks to buy in January are companies whose businesses are performing reasonably well and whose stocks are on a roll. These companies posted a total return of at least 10% over the past three months through Jan. 10, are are likely to keep the momentum going into February and beyond.
| BBWI | Bath & Body Works | $46.14 |
| NUE | Nucor | $155.71 |
| HCA | HCA Healthcare | $255.15 |
| EL | Estee Lauder | $262.25 |
| SPGI | S&P Global | $367.77 |
| XPO | XPO Logistics | $37.76 |
| TSCO | Tractor Supply | $220.74 |
Bath & Body Works (BBWI)
Bath & Body Works (NYSE:BBWI) has a three-month total return of 35.1%. Its three-year total return is 46.7%.
On Nov. 16, the company raised its guidance for the 2022 fiscal year. Previously, its earnings estimate was $2.85 per share at the midpoint of its guidance. It now expects EPS of $3.10 at the midpoint.
“We are continuing to stay close to our customer, and we remain disciplined in our expense and inventory management,” its Q3 2022 press release stated.
“Long-term, we are confident in the fundamentals and potential of our business, and we are excited for Bath & Body Works’ next growth chapter as we officially welcome global personal care and beauty industry veteran, Gina Boswell, as the company’s next Chief Executive Officer in December.”
BBWI stock jumped on the positive third-quarter results and guidance.
Earlier in November, the company announced its new Chief Executive Officer. Gina Boswell is an executive with more than 30 years of experience, including eight at Unilever (NYSE:UL).
Between consumers cutting back on spending and shifting toward more experiential products and services, Bath & Body Works braces for lower demand. However, it’s important to remember that it’s facing 2021 comparables that were record-breaking due to Covid-19. As a result, a return to more normal buying patterns was expected.
Trading at 1.4-times sales, BBWI stock is still reasonably-priced, despite its gains in the past three months. I wouldn’t be surprised if the momentum continued well into 2023.
Nucor (NUE)
Nucor (NYSE:NUE) has a three-month total return of 28.5%. Its three-year total return is 43.7%.
I’ve admired the North Carolina steel producer for some time. In March 2022, I recommended it, along with nine other S&P 500 stocks to buy. I also recommended NUE stock in September 2021. I thought it was among the best stocks that were down, but not out.
In mid-September, the company’s shares tumbled after it announced that its Q3 2022 earnings would be significantly below Wall Street estimates and lower than those from the second quarter. Within a couple of weeks, its shares had fallen to $100.
When Nucor reported its Q3 2022 results on Oct. 20, they were better than the company’s September guidance, to $6.50 a share, 10 cents above the high end of its range.
“Nucor has already achieved a record-breaking year for earnings per share through the first nine months of 2022 and we continue to believe that we will set a new record for full-year earnings in 2022,” stated its Oct. 20 press release.
In recent weeks, analysts have been warming to the innovative steel producer. On Jan. 4, Bank of America reinstated coverage of NUE stock with a buy rating and a $172 price target.
There is no question that the company’s results will moderate from the past year’s record results. Nucor’s return on invested capital is more than double its five-year average of 18.57%.
In my opinion, despite the company likely reverting to the mean over the next 6-12 months, Nucor remains an excellent long-term buy.
HCA Healthcare (HCA)
HCA Healthcare (NYSE:HCA) has a three month total return of 26.1%. Its three-year total return is 19.8%.
The 25 analysts that cover the hospital operator give it an average overweight rating with a target price of $255.45. Its return on invested capital is 16.31%, while its earnings yield is 7.09%,. That’s reasonable, if not historically low, for one of the best stocks in this space right now.
On Jan. 3, HCA finalized its deal to sell three New Orleans-area hospitals to LCMC Health for $150 million, after obtaining approval from the Louisiana Department of Justice to do the transaction. Nurses represented by National Nurses United opposed the sale, as it would leave New Orleans with a duopoly between LCMC and Ochsner Health System.
For the country’s largest hospital owner, the sale of the three hospitals is part of its recycling of assets. In 2021, the company sold 50 home health locations and five hospitals for $1.62 billion. It has one hospital left in Louisiana. That will likely be sold soon enough.
HCA finished the third quarter with 182 hospitals, down from 183 a year ago. It also had 125 freestanding outpatient surgery centers, up from 123 in Q2 2022. Nevertheless, it’s a revenue-generating machine with $44.74 billion year-to-date through Q3 2022, 2.4% higher than a year ago.
Despite higher costs, the company still made $2.90 billion in EBITDA (earnings before interest, taxes, depreciation and amortization) profits in the quarter, an EBITDA margin of nearly 20%.
HCA has a 27.2% market share in some of America’s biggest growth markets. This makes it an excellent long-term play.
Estee Lauder (EL)
Estee Lauder (NYSE:EL) has a three month total return of 21.3%. Its three-year total return is 8.3%.
Estee Lauder remains one of the best long-term holds in the consumer discretionary sector. I’ve liked it for years. I first recommended the stock to InvestorPlace readers in November 2012. Every time the stock approached $50 on the downside, investors should be buying.
From my November 2012 article to the stock’s all-time high of $374.20 hit in January 2022, EL stock gained 545%. So despite losing nearly 23% over the past year, it’s still gained a bunch for shareholders over the past decade.
In September, Goldman Sachs analyst Jason English upgraded Estee Lauder to a Buy from Neutral with a $303 price target.
“[Estee Lauder] is arguably emerging from Covid as a stronger business than when it entered the pandemic,” Barron’s reported the analyst’s comments.
I couldn’t agree more.
On Jan. 10, several media outlets reported that fashion designer Tom Ford bought a $51 million mansion in Palm Beach. But, of course, it’s easy to do that when you sell your brand to Estee Lauder for $2.8 billion.
Estee Lauder beat out Kering (OTCMKTS:PPRUY), the owner of several luxury brands, including Gucci, Balenciaga, and Yves Saint Laurent, to buy the Ford brand in November. Estee Lauder struck preemptively to ensure it retained the Tom Ford Beauty brand license. It is the company’s largest acquisition in its history, and remains one of the best stocks to buy in the consumer discretionary space.
S&P Global (SPGI)
S&P Global (NYSE:SPGI) has a three month total return of 18.9%. Its three-year total return is 8.0%.
The financial services company consistently makes my lists of the best stocks to buy. Most recently, I included it as one of three stocks with high growth and margins. However, you wouldn’t think that, looking at its operating margins for the trailing 12 months ended Sept. 30. They were in the mid-40% range, due to significantly lower revenues from its S&P Global Ratings segment in 2022.
Long-term investors shouldn’t be worried by the company’s near-term slowdown. Instead, it’s a function of the current state of the markets. Once another bull market takes hold, the unit’s revenues will head significantly higher.
The 22 analysts that cover S&P Global give it an average buy rating with a target price of $395.65. Its return on invested capital is 13.34%, considerably below its five-year average of 42.74%, while its earnings yield is 3.34%, in line with its five-year average.
On Dec. 1, the company presented its medium-term financial targets at its 2022 Investor Day. It expects to grow organic revenues by 7-9% annually over the next four years with adjusted operating margins of 48-50%.
“We have full confidence in our ability to achieve these ambitious medium-term targets, which reflect the resilience of our financial model, the ability to accelerate growth and innovation by continued investments, and our focus to deliver unparalleled value for our customers,” said S&P Global Chief Financial Officer Ewout Steenbergen.
Analysts see EPS in 2022 of $11.12 and $12.59 in 2023. Accordingly, this stock is trading action 28.1-times its 2023 earnings.
XPO Logistics (XPO)
XPO Logistics (NYSE:XPO) has a three month total return of 14.3%. Its three-year total return is 12.6%.
XPO CEO Brad Jacobs is a legend in the trucking industry. He’s also got a good sense of humor. Jacobs appeared in a Yahoo Finance interview in October, where he talked about his company’s spinoff of RXO (NYSE:RXO), its automated freight brokerage business, and his next big challenge.
Bloomberg had this to say about the billionaire:
“The billionaire chief executive officer of XPO Logistics Inc. is hunting for a new industry in which to invest after spending just more than a decade building a company that jumped in market value to about $10 billion from about $160 million. He’s now splitting XPO into three parts and, for the most part, exiting the business,” Bloomberg contributor Thomas Black wrote on Oct. 17.
At the same time Jacobs looks for his next adventure, he’ll remain Chairman of XPO, GXO Logistics (NYSE:GXO), which it spun off in 2021, and RXO, which will get spun off in the next month.
Most everything Jacobs touches turns to gold. Indeed, XPO has a lot to do with him getting this reputation, and is the key reason this is one of the best stocks in this space. I expect it to continue to perform over the long haul.
The 23 analysts that cover XPO give it an average buy rating with a target price of $43.95. Its return on invested capital is 18.2%, while its earnings yield is 20.56%, easily its highest in the past decade.
Tractor Supply (TSCO)
Tractor Supply (NASDAQ:TSCO) has a three month total return of 13.8%. Its three-year total return is 35.9%.
The specialty retailer reported Q3 2022 results in October. Despite missing analyst estimates of $3.29 billion in revenue for the quarter by $20 million, this company remains one of the best stocks in retail. Additionally, on the bottom line, its earnings per share were $2.10, three cents higher than the consensus.
“Tractor Supply delivered another record quarter as we continued to gain market share and extended our trend of consistent and stable net sales and earnings growth,” stated CEO Hal Lawton in its Q3 2022 press release.
The 33 analysts that cover Tractor Supply give it an average overweight rating with a target price of $232.34. Its return on invested capital for the trailing 12 months ended Sept. 24, 2022, was 17.80%, while its earnings yield is 4.23%, in line with its five-year average.
Around the same time Tractor Supply reported its Q3 2022 results, it completed its $320 million acquisition of Orscheln Farm and Home. Tractor Supply is taking 81 of the family-owned specialty retailer’s locations.
The other 85 have been sold to two buyers for $72 million. In addition, it is selling Orsheln’s corporate headquarters and distribution center to one of the buyers of the discarded stores for $10 million. Tractor Supply will ultimately pay $238 million or $2.94 million per store.
TSCO continues to be one of the best growth stories in retail.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.