2023 Value Stock Picks: Quality Merchandise On Sale & Marked Down MegaCap Darlings

While the new year had been off to a terrific start, stocks have retreated in price of late with renewed concerns about the health of the U.S. economy giving investors pause.

In addition to disappointing readings on the health of the services and manufacturing sectors, retail sales in December were dismal. True, the labor picture has remained robust, though numerous layoffs have been announced in recent weeks, but most economists are of the mind that a recession is in the cards this year.

Sounds ominous…but as the saying goes, the stock market (and economists) has predicted nine of the last five recessions. More importantly, perhaps, the 15 prior instances of actual negative real economic growth illustrate that long-term-oriented investors (on average) should stay invested (in Value, preferably) no matter what.

I think inexpensively priced stocks will continue to reward those who stick with them through thick and thin, and I offer two themes my team and I think investors should consider when allocating their capital in 2023.

Quality Merchandise on Sale

Given the price of the average stock has been in a Bear Market, most have endured significant selling pressure, often with little regard for the long-term business prospects or the caliber of the company. No doubt, there are headwinds facing much of Corporate America, but we think there are opportunities today to pick up ownership of higher-quality, well-known companies at attractive price tags.

Networking equipment titan Cisco Systems

CSCO
, asset management giant BlackRock

BLK
and diversified healthcare concern Abbott Labs (ABT) stand out as leaders in our qualitative review process. Yes, the quality label is somewhat subjective, but each of these reasonably priced names has a long-term credit rating from Standard and Poor’s of “AA-” or better and a share price down more than 20% in 2022.

Marked Down MegaCap Darlings

Though Meta Platforms (META) is the only one of the four trading at a fire-sale price tag, the social media powerhouse, along with search-engine leader Alphabet (GOOG), consumer electronics king Apple

AAPL
and software power Microsoft

MSFT
all saw their stocks battered in 2022 (after posting enormous gains in 2020 and 2021).

Certainly, the economic slowdown, along with the massive scale of their businesses has weighed on investor psyches, but we think all four companies very much offer growth at a reasonable price, along with substantial free-cash-flow generation that allows for significant investments in new ventures, enhancements to existing products and services, and generous capital return programs.

The Prudent SpeculatorSpecial Report: Where to Invest in 2023 – The Prudent Speculator

Stay tuned for additional themes and stocks in the weeks ahead and happy investing!