Our Top Stock picks for 2023

Any of the following stocks could be a big hit this year as the market has shown strength so far in January.

Investors have started 2023 with enthusiasm. The S&P 500 is up about 5% so far in January, and prices of many individual stocks are starting to climb again.

It’s too early to tell how the year will go, but even if a bull market returns, investors should heed some of the lessons learned in 2022. One of them is to find good stocks and hold them for the long term, rather than selling in a panic. With that in mind, here’s a group of stocks that all have incredible long-term potential.

Deutsche Post   

We believe that on less-than-feared recessionary trends in Germany, the company should experience a pent-up demand, also on the back of a high savings rating in the euro area which will continue to act as a cushion.  

A return to strong B2C volume growth; a Stronger ability to control costs; A slower normalization of Air freight rates and air freight capacity; A return to robust international trade volume; strong easing in supply chain disruptions should bold well for the company.  Start trading here

Santander

In line with the higher and more normalized interest environment, the Bank should benefit from stronger-than-expected top-line growth in Spain driven by higher-than-expected interest rates also in the Latam regions, namely Mexico and Brazil  

Moreover, stronger-than-expected capital generation due to lower-than-expected regulatory capital headwinds is seen as another catalyst going forward. Better than expected asset quality or lower than expected cost of risk in Brazil and the US. is seen benefitting the bank, while the more stable-than-expected EM FX rates should drive higher-than-expected contribution, especially from Brazil and Mexico. Start trading here 

Mercedes 

Following the reversal of China’s zero-covid policy, and given their exposures in China the company should benefit from the envisaged pent-up demand on the back of re-opening.  

Moreover, Mercedes-Benz is looking to execute a premium luxury OEM strategy, growing the proportion of higher-priced vehicles within the car business in order to structurally improve the profitability of the company in the medium term. The growing proportion of higher-end priced vehicles should lead to lower earnings volatility as well as structurally higher margins over the cycle for the firm. The higher-priced strategy proved over the past years crucial for the company also in mitigating the impact of chip shortages. We believe Mercedes-Benz offers one of the most compelling investments within its space.  Start trading here.

Volkswagen

Following the reversal of China’s zero-covid policy, and given that c.40% of volumes are sold in Asia, including China, the company should benefit from the envisaged pent-up demand on the back of re-opening.  

VW’s investment rationale is aligned with its ability to reduce the cost base, execute a speedy introduction of BEVs across regions, continue to improve its earnings momentum in China, which remains an important market and continue to nurture its luxury car brand business market thanks to its premium brands Audi, Lamborghini, Bentley, Porsche and Bugatti. Start trading here.

Bank of America   

On the back of less-than-expected recessionary fears, non-performing loans should be contained, while the higher interest rates should benefit the Bank in terms of higher net interest margins. Thus as long as the higher expected net interest margin is greater than the cost of risk, the Bank should continue to benefit accordingly. 

We view the Bank as having strong fundamentals, it benefits from its strong retail franchise, and it has greater sensitivity to long- and short-term rates, which is positive given the current higher interest rates. Start trading here.

Sony 

We believe that Sony will also benefit from the Chinese economy’s re-opening. The Japanese yen strengthening following the BOJ renouncing its ultra-loose monetary policy should also give a potential boost aided by currency appreciation. In the entertainment space, Sony Group has preeminent global platforms or IP in all areas of games, movies, music, and animation, which over the years has seen remarkable growth.  Image sector profit margins could increase, supported by the trend towards larger smartphone cameras.  

We are of the view that Sony has high cash generation capacity, on the back of faster-than-expected penetration for PS5, sharper-than-expected increase in image sensor profitability, Hit first-party content in games and movies and additional profit contribution from new businesses such as IoT and 3D sensors. Start trading here.

Microsoft 

Microsoft enjoys a broad portfolio of strategic products and sits at the intersection of digital transformations and cloud adoption- the most critical and indispensable IT mega-vendor.  

We view the main positives for Microsoft being the global movement toward multi-cloud architectures, benefiting Azure; Microsoft’s linkage to large Digital Transformation initiatives, and favourable positioning for Hybrid Cloud architectures via Azure Stack.  

Moreover, we think that expectations of faster organic revenue growth should be experienced in the coming years on expectations that tech as a percentage of global GDP moves from 5% to 10% driven by digitization, while it holds an edge and a relatively stronger position within the enterprise, ahead of its competitors with its cloud platform. 

Within its space, Microsoft has over the years proved to be one of the most resilient earnings stories in the technology industry. Over the years the company has also managed well its capital allocation as evidenced by its successful track record of acquisitions, dividends and share purchases. Thus overall, given the rout experienced mainly in tech stocks over 2022 on the back of their sensitivity to higher interests, we believe that at the current levels, Microsoft offers a compelling long-term story.  Start trading here.