After a terrible year, investors will hope that 2023 will be more stable. Here are the recommendations of our three City experts for the next 12 months.
Each has advised one share for risk-taking investors and one for those who are more conservative.
Anyone who has invested in the stock market within the previous year is aware that shares can both rise and fall. Following stock advice always carries the risk of losing some or all of your investment capital. Before investing, it is wise to conduct one’s study.
And remember, if you desire to speculate on US stocks, there will be additional transaction expenses, as well as the possibility that dollar strength would wipe out your winnings or exacerbate your losses.
The October completion of the acquisition of Terminix in the United States has placed Rentokil Initial in a dominant position in the world’s largest pest treatment market, delivering a strong revenue stream and enormous prospects to consolidate a fragmented industry.
Even if the United States enters a recession, the need to control mice, rats and other pests will continue to exist and will likely be protected as an essential service.
As nations grow, the quantity of pests increases and hygiene requirements never relax. Its US pest control division faced difficult comparisons with the prior year’s nearly 10% growth, but savings from the acquisition of Terminix should begin to show.
There is a possibility that these combined benefits will not materialize as rapidly as anticipated, or that new obstacles will surface when operations merge.
However, the group’s debt has set interest rates, protecting the corporation from increased borrowing costs.
To the valiant: DS Smith (322p)
Investing in a company that supports the e-commerce industry may be viewed as a risky option in light of widespread concerns about the sector’s future.
But packaging company DS Smith has dispelled fears with solid results, and full-year sales are expected to surpass projections. This is an enviable position to be in, given the suffering that inflation causes for other businesses.
Even though e-commerce sales have decreased since the height of the pandemic, its products are in high demand from a multitude of sellers. Its success has been fueled by methods such as cost-cutting initiatives to protect margins and passing on the greater cost of raw materials in its prices, which customers have not yet found difficult to stomach.
Of course, there is always a chance that they will balk at the thought of further price increases, but with inflation showing signs of abating, DS Smith should remain unscathed.
Andy Bell is the co-founder of AJ Bell.
For the prudent: GSK (1438p)
Due to the unpredictability of recession, inflation, and interest rates, investors may seek refuge in defensive companies, i.e., those whose products and services are in demand regardless of the economic climate.
The healthcare industry is a good place to look for business opportunities, particularly pharmaceutical company GSK is an attractive investment with a low price-to-earnings ratio. Its shares are priced at 9.9 times estimated earnings for 2023, which is lower than the FTSE 100’s 13.7 times and far below peers.
GSK produces vaccines and specialty pharmaceuticals. It boosted its annual profit and sales forecast for the second time in six months in November, indicating that the company is gaining pace.
Due to rumors that the heartburn medicine Zantac causes cancer, the company’s stock price has decreased. A US judge dismissed these allegations at the beginning of December, reviving the share price.
That does not imply that stocks are risk-free. It is possible to file an appeal, and there is no assurance that new medication developments will be successful.
To the valiant: JD Sports (126p)
Those willing to take on some risk in 2023 will find the valuation of JD Sports shares to be attractive, given their outstanding track record.
The challenging consumer environment has been incorporated into the share price decline of about 50 percent this year. As of 30 July 2022, the corporation has £1 billion in net cash, which should be sufficient to see it through a challenging period.
The retailer of sneakers, tracksuits and other sports and leisurewear trades at approximately nine times projected earnings for the fiscal year ending in January 2024, and if the downturn proves to be shorter-lived than anticipated, it could perform better than anticipated.
Why are the stocks so inexpensive?
Consumer spending concerns are part of the solution. JD has also been impacted by negative news regarding governance difficulties under former CEO Peter Cowgill, whose successful tenure made the company a market darling.
However, Regis Schultz has had success in the past with digitization tactics and selling things through several channels at previous employers.
He seems like a good fit.
Zoe Gillespie – Senior investment manager, RBC Brewin Dolphin
For the prudent: Microsoft ($239 million)
This U.S. corporation creates and maintains worldwide software, services, devices, and solutions.
Its “productivity and business processes” division offers a variety of services, such as Office/365 and Teams, and accounts for roughly one-third of sales.
The ‘intelligent cloud’ sector includes the rapidly expanding Azure business, which is expected to drive revenue growth over the next few years.
The category of “more personal computing” comprises devices and gaming. The proposed acquisition of Activision Blizzard for $69 billion (£57.1 billion) is viewed as a future growth engine.
Additionally, it is becoming a major player in digital marketing, which should boost its future revenue streams. As the Federal Reserve has raised interest rates to combat inflation, high US inflation has impacted more growth-oriented corporations like Microsoft.
Inflation in the United States appears to have reached its zenith, and the rate of the interest rate increase is anticipated to slow, providing a more predictable view until 2023. Microsoft is fundamentally in an excellent position and should be able to weather any impending recession.
For the courageous: Estee Lauder ($248.00).
Estee Lauder produces, markets, and sells skincare, cosmetics, perfumes, and haircare products. Its products are offered in over 150 countries and include premium names including Clinique, La Mer, and Jo Malone.
The zero-Covid policy in China hindered the growth of sales of premium cosmetic goods in 2022, a challenging year.
Until the epidemic, the Asia-Pacific area had been driving growth, but this has since slowed.
Interestingly, supply concerns appear to be more of a role than decreased demand, and this has led to the opening of more distribution facilities in China to enhance supply throughout the region.
The share price has shown some signs of improvement and has been especially sensitive to news regarding China’s relaxation of Covid regulations.
Long-term, the strong quality of the brand portfolio supports the company’s fundamentals.
