The financial landscape in 2022 was notably challenging, with the S&P 500 declining 19.4% over the course of the year, even when dividends are considered. Meanwhile, the technology-centric Nasdaq Composite suffered an even more severe contraction of 33.1%. A confluence of factors—ranging from escalating inflation and surging interest rates to ongoing recession concerns and geopolitical instability stemming from the Russia-Ukraine conflict—engendered a pervasive “risk-off” sentiment among investors. This sentiment took a toll on a multitude of previously ascending equities. However, this unsettling phase has also ushered in a timely opportunity for investors to acquire high-quality companies at advantageous valuations as we transition into the new year.
In the following sections, we will explore the top five equities to consider investing in for the remainder of 2023, accompanied by a performance analysis based on year-to-date total returns.
Apple (AAPL)
Apple Inc., the world’s most valuable publicly traded enterprise endured a turbulent 2022 alongside its tech-sector counterparts. Investor apprehensions surrounding a potential recession and escalating interest rates contributed to a notable 26.4% decline in AAPL stock during that year. However, as of August 11, the stock had rebounded impressively by 37.4%. This resurgence was momentarily punctuated by a dip after the company’s market valuation surpassed the $3 trillion threshold for the first time in its history. Currently trading at a Price-to-Earnings ratio of approximately 30, Apple continues to garner market confidence due to its robust competitive positioning.
Recently, Apple unveiled its latest innovation, the Apple Vision Pro—a high-end virtual reality headset priced at $3,499. Though the premium pricing may confine its initial adoption to a narrower market segment, investors are optimistic that future iterations of the technology could generate substantial revenue streams, complementing established product lines such as the Apple Watch and Mac computers.
Following its earnings call on August 3, Apple saw a downturn in its stock price, breaking its year-long growth streak. The company reported a third consecutive quarter of revenue contraction, attributing the decline primarily to waning consumer electronics demand. The market is now keenly awaiting the release of Apple’s iPhone 15, slated for a September launch.
Amazon.com (AMZN)
In 2022, Amazon, the leading force in the e-commerce sector, grappled with significant challenges that resulted in a 50% depreciation in share value. The key factors behind this decline encompassed inflationary pressures, a constrained labor market, logistical impediments, and eroding consumer sentiment. However, it would be premature to dismiss Amazon entirely, particularly when considering its most valuable asset, Amazon Web Services (AWS)—a burgeoning and highly profitable cloud computing subsidiary. AWS boasts an annual revenue run rate exceeding $85 billion. Utilizing the sales multiple of approximately 13 times, as demonstrated by its cloud services competitor Microsoft Corporation, AWS’s estimated valuation stands at $1.1 trillion.
In the context of Amazon’s approximate market capitalization of $1.4 trillion, this implies that investors acquire the remaining spectrum of Amazon’s expansive operations—which recorded 2022 sales figures of $434 billion—for an approximate value of $245 billion. Following a positive second-quarter earnings report that outpaced expectations on both sales and earnings, Amazon’s stock surged over 8% on August 4. Moreover, the company provided an upward revision of its guidance for the subsequent quarter. As of August 11, Amazon’s shares have made a remarkable recovery in 2023, appreciating by 64.8%.
Disney (DIS)
When it comes to long-term stock investment, the quality of a company’s executive leadership is an essential factor to consider. The Walt Disney Company benefits substantially from the recent reinstatement of its seasoned CEO, Bob Iger. Widely acknowledged as one of the most impactful corporate leaders of the modern era, Iger’s tenure was marked by a string of lucrative acquisitions, including Pixar, Marvel Entertainment, and Lucasfilm, prior to transferring the CEO responsibilities to Bob Chapek in February 2020.
For the quarter concluding on July 1, Disney reported an uncharacteristic net loss of $460 million, attributable to one-time charges, and a somewhat subdued revenue growth of 4%, falling short of market expectations. However, a recent price increase for its Disney+ streaming service has partially mitigated the impact of a substantial decline in subscriber count, most notably from its Indian platform, Hotstar. As of August 11, Disney’s stock (DIS) has seen a moderate uptick of 2.5% for the calendar year.
Paypal (PYPL)
PayPal, a venerable player in the financial sector, is intriguingly trading below its 2020 pandemic-induced low, notwithstanding its earnings per share of $4.13 in 2022—an amount exceeding its yearly earnings from 2018 to 2020. The stock underwent a severe contraction in 2022, depreciating by 62%, primarily due to an adverse macroeconomic climate and the termination of its profitable association with eBay Inc. At present, shares are valued at approximately 17 times the projected 2023 earnings, a stark departure from its five-year average Price-to-Earnings (P/E) ratio of 35.5. For context, the lowest P/E ratio for PayPal between 2015 and 2021 was 20.3.
Utilizing this conservative multiple against the anticipated 2023 earnings of $4.95 per share suggests a share price of $100.48 by early 2024. This represents a potential upside of 63.3% from its August 11 closing price of $61.54. Strategic alliances recently announced with Apple Pay and Amazon—enabling the acceptance of PayPal- and Venmo-branded cards in physical retail stores and on Amazon’s online platform, respectively—should widen PayPal’s market footprint. Nonetheless, shares experienced a decline in May following subpar earnings and encountered another setback on August 3 when the company revealed a decrease in active accounts and a significant reduction in free cash flow. A corporate pivot might be on the horizon, indicated by PayPal’s August 14 announcement that it is appointing Intuit Inc.’s small business executive, Alex Chriss, as CEO. As of August 11, the stock has contracted by 13.6% year-to-date and is merely 4% above its 52-week low.
Citigroup (C)
Concluding the list is Citigroup, a multinational banking institution with a market capitalization of approximately $84 billion, encompassing both retail and investment banking divisions. Citigroup presents investors with two distinct advantages. Firstly, the bank provides a robust forward dividend yield of 4.8%, serving as a financial cushion for shareholders in a landscape marked by escalating interest rates and surging inflation. Importantly, this dividend payout is sustainable in the long run, as it accounts for less than 30% of Citigroup’s earnings.
Secondly, the stock appears undervalued, trading at a forward Price-to-Earnings ratio of less than eight and at a mere 0.45 times its book value. This undervaluation did not go unnoticed by renowned investor Warren Buffett, who initiated a position in Citigroup in the first quarter of 2022. As a result, Berkshire Hathaway Inc. now holds a stake valued at approximately $2.6 billion in the financial institution. As of August 11, Citigroup shares have experienced a modest appreciation of 1.8% for the year 2023.
