It’s the start of 2023, and we all have one big question: Which stocks will finish this year on top? Some of last year’s winners could continue to perform well if there was a clear reason behind the momentum. But if we’re looking for big potential for gains, we may actually turn to some of last year’s market losers.
Of course, all of last year’s underperformers won’t automatically rebound. The top candidates for a rebound are those that either were unjustly dragged down by the bear market — or those that offer a catalyst for gains this year. Let’s check out three 2022 losers that each slid in the double digits — but have what it takes to score a win in 2023.
Costco (NASDAQ: COST) has done a great job of managing two of the biggest problems facing retailers in recent times: supply chain challenges and higher inflation. The company limited the impact of these headwinds by leasing ships and containers. That way, Costco managed the timing and cost of its deliveries.
These efforts, along with its general business model, helped the warehouse club continue growing through tough times. In the fiscal year ended Aug. 28, Costco increased net sales by 16% to more than $222 billion. Profit also climbed. And in the first quarter of the current fiscal year, Costco’s earnings continued to rise.
I mentioned Costco’s business model as being key — and this is the case no matter what the economy is doing. But people may particularly favor Costco during difficult times. The retailer sells groceries and other items in bulk at dirt cheap prices. That keeps customers coming back.
They also come back because they’ve paid a membership fee to shop at Costco. And this is where Costco truly makes a profit. In the first quarter, membership income totaled $1 billion. Here’s the best news yet. Costco’s membership renewal rate consistently tops 90%.
Costco shares slipped roughly 20% last year — that leaves the shares trading for 34 times forward earnings estimates. This looks reasonable considering Costco’s strength even in a difficult environment. Costco recently said headwinds are easing. So there’s reason to be optimistic about earnings — and the potential for share performance this year.
2. Walt Disney
Investors didn’t see much magic in Walt Disney (NYSE: DIS) stock last year. They were disappointed by increasing costs at the company — in many cases linked to Disney’s investment in its streaming services. As a result, Disney shares sank 43%.
But the magic may be about to return to this top entertainment stock. In November, the company brought back longtime chief executive officer Bob Iger to rein in costs and get the company back on track.
Prior to Iger’s return, the company already had decided to make a move to boost streaming revenue — and eventually reach profitability for the services. Disney lifted prices and introduced an ad-supported subscription tier. This is a step in the right direction.
Iger is set to remain in his leadership role for two years and name a successor. This is a short period of time — so we should expect Iger to move quickly. And if his strategy works, Disney stock could take off as early as this year.
This is one reason to scoop up the shares right now. Another is the price. They’re trading at 25 times forward earnings estimates — down from 40 last year. Finally, Disney’s parks, experiences, and products business — usually the biggest generator of revenue — is going strong. That segment reported a 73% increase in revenue last year. And demand at the parks has remained high.
All of these points make Disney a great long-term investment. And Iger’s return may offer the stock catalysts for gains in the near term too.
Investors didn’t like seeing increasing inventory at Nike (NYSE: NKE) last year — or the impact of headwinds like higher inflation and unfavorable foreign exchange rates. The stock fell nearly 30%.
But things are looking brighter for this maker of athletic gear. In the most recent earnings call, management said the worst of the inventory problem has passed. Total inventory units have dropped by low double digits from the previous quarter. And Nike says actions it’s taken — including markdowns — are putting Nike on track for growth.
Coming out of this difficult period, any progress could result in gains for Nike shares. It’s important to take a long-term view, too. Nike remains a top name across the world. This brand strength has helped the company’s revenue continue to grow — even during the ongoing difficult context.
In the most recent quarter, total revenue, Nike direct sales, and Nike brand digital sales each increased in the double digits. And fans continue to buy Nike products — especially the most innovative ones — at full price.
Nike’s secret to success is its connection with fans. It reaches them through a variety of apps and offers them bonuses — like access to new products first. This helps fans feel like an important part of the Nike story.
All of this means Nike is another great long-term buy that’s ready for a rebound. If Nike continues to report progress on inventory — and earnings continue to rise — the company and its investors may score a win as soon as this year.
10 stocks we like better than Costco Wholesale
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Costco Wholesale wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of January 9, 2023
Adria Cimino has positions in Nike. The Motley Fool has positions in and recommends Costco Wholesale, Nike, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney, long January 2025 $47.50 calls on Nike, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.