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1st February 2023

Which stocks should investors watch out for in 2023?

Maxim Manturov, Head of Investment Research at Freedom Finance Europe, sheds light on what he believes are the most exciting stocks investors should monitor over the coming year

When looking for which stocks would be most enticing as we begin a new year, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, has prioritised stability. Well established companies that hold a large market share in their respective sectors are the companies that will ensure steady growth throughout the year.

Each of these companies boasts consistent and reliable revenue streams such as advertisement or annual product releases, they are market leaders in their industries, and some are even looking to diversify into emerging businesses. This should be an indicator of significant growth in the future as consumers will have pre-existing brand loyalty which gives these companies the upper hand when new business emerges. So, what stocks should investors watch out for this year?

Apple

Apple (AAPL) might be the best example of a well-established company with a consistent revenue stream of annual releases. The iPhone dominates the western mobile market and there is no evidence that this will change in the near future. Apple’s product line-up beyond mobile devices includes desktops, laptops and computers as well as wearable devices with new product developments underway. With a stronger iPhone upgrade cycle predicted for this year, the business outlook for Apple is robust and they possess the financial flexibility to deliver aggressive growth going forward.

Apple beat financial Q4 expectations thanks to strong iPhone sales and services earning £1.04 per stock on revenue of £73.29 billion. Wall Street analysts had forecast that Apple would earn £1.03 per stock on revenue of £72.22 billion, for the same period of the year, Apple earned £1 per stock on sales of £67.81 billion.

Apple’s CFO Luca Maestri said in a statement that the company’s results demonstrated Apple’s ability to “perform effectively despite a challenging and volatile macroeconomic backdrop”. The average target price is £144 with an upside of 28%.

Amazon

Amazon stock remains an attractive investment as it continues to benefit from high growth rates and strong demand for digital trends in the coming years. Amazon has only moved upward in recent years and is one of the fastest-growing companies given its size.

Amazon is the leading online retailer and one of the most profitable e-commerce aggregators with net sales of £313 billion and approximately £470 billion in estimated physical/digital gross online merchandise volume (GMV) in 2021. Amazon is a company with too many positive catalysts to ignore, and recent weakness provides an opportunity to enter an attractive asset. The average target price is at £115 with around a 59% upside.

Google – Alphabet Inc

Alphabet Inc is the holding company in which Google is a subsidiary. Google generates 99% of Alphabet’s revenue, of which more than 85% comes from online advertising. Google’s other revenue comes from the sale of apps and content on Google Play and YouTube, as well as cloud fees and other licensing revenue. Sales of hardware, such as Chromebooks, Pixel smartphones and smart home products, including Nest and Google Home, also contribute to other revenue.

Alphabet is a high-quality business with a solid competitive advantage. Google should inspire confidence with its many growth catalysts and a financial profile that remains strong. Alphabet has been a growth driver for more than a decade. It has established itself as a leader in digital advertising. In addition, its small businesses are also gaining momentum. Thus, the path to sustainable long-term growth seems clear. This should make it particularly attractive to new investors, who can benefit from this rare weakness in the stock.

Looking at Alphabet’s recent investments, it’s clear that hardware will play an important role in its future growth. The company has already made significant strides in smartphones, smart home devices and other niche segments. Google is already gaining momentum in several hardware niches, and the company has about a 20% market share in the smart speaker business. The average target price is at £105 with around a 42% upside.

Microsoft Corporation

Microsoft Corporation (MSFT) is one of the world’s largest technology companies that develops, licences and supports software, services, devices and solutions worldwide. Its products range from the Windows operating system and Teams conferencing platform to the Xbox game console and Outlook email, while its cloud offerings include Azure infrastructure services, Office 365 productivity software and Dynamics enterprise software. Microsoft also owns LinkedIn, Skype and GitHub.

Microsoft continues to hold a leadership position in business technology. Strong financial results and a positive management outlook suggest that underlying demand for software remains robust. Microsoft is well-positioned to take advantage of the growth in corporate IT spending with a complete and integrated suite of products aimed at improving enterprise efficiency, cloud transformation, collaboration and business intelligence. It also has a large and loyal customer base, large cash reserves and a robust balance sheet.

For the fiscal year ending June 2023, Wall Street expects sales growth of 13.6%. The company earned £1.81 per stock on revenue of £42.2 billion, up 12% year-on-year. Management also noted a record £81.33 million in deals and more than £813 million in deals the company signed during the year, indicating that Microsoft Azure continues to grow aggressively. The smart cloud, which is home to Azure, generated £16.9 billion in revenue, a 20% increase from the previous year. Microsoft highlighted Azure in particular, as revenue was up 40% year-on-year or 46% in constant currency terms. The average target price is £244 with around a 19% upside.

NVIDIA Corporation

NVIDIA (NVDA) designs and manufactures visual computing hardware, including graphics chips used in personal computers and device driver software. The company markets graphics chips and processors under such brands as GeForce, Quadro, Tesla, and Tegra with each being marketed to a wide range of consumers including gamers and visual animators with a need for powerful rendering devices.

They are used in consumer electronics products, such as tablets, smartphones, and game consoles. NVIDIA also sells graphics technology to companies in health care, automotive, graphic design, special effects, artificial intelligence, virtual reality, cloud computing and robotics for a range of applications. NVDA’s commitment to improving the performance of its existing hardware and software offerings continues to strengthen its long-term growth prospects and market leadership, contributing to future market share gains in a market they already lead.

The value adds to innovation and its growth prospects, along with the continued development and scalability of new technologies such as autonomous driving, robotics, cloud computing and Omniverse, create attractive investment opportunities for long-term investors at current levels. The average target price is £154 with around an 11% upside.