Proactive Investors - Our third annual festive stock picking competition throws up a record 17 choice investment morsels for the coming year.
Whose stock or investment trust or fund will rise the most in 2023? (Or fall the least as the competition almost was last year.)
To go back, the past year was recently wrapped up with an ETF short-selling Cathie Wood in the top position, followed by a UK mid-cap that was taken over and a well-respected investment trust in third place.
The year before, the choice of an AIM toddler beat off a big uranium miner and wily old Warren Buffet.
Both times the best-performing investment choice at the final hurdle has been one that raced to an early lead and carried most of the gains through to the winning line – so let’s see how the 2023 share tips fare.
Here are your runners and riders – lined up alphabetically by surname in the traps, with more detail if you keep scrolling all the way:
- A FTSE 100 oil major - Chris Beauchamp, IG
- UK equities-focused investment trust - Ian Cooper, Brewin Dolphin
- US big tech stock - William Farrington, journalist at Proactive
- Equity: China equity investment trust - Danni Hewson, AJ Bell
- Equity: UK mid-cap telecoms share - Peter Higgins aka @Conkers3
- Aussie gold miner - Peter Hodgkins, private investor
- Media sector small cap - Andrew Hore, The AIM Journal
- Mid-cap insurer - John Kingham, UK Dividend Stocks
- Luxury fashion share - Dan Lane, Freetrade
- UK smaller companies fund - Darius McDermott, FundCalibre
- US airline stock - Sam North, eToro
- Global bond ETF - Victoria Scholar, ii
- UK income fund - Peter Sleep, 7IM
- London-listed Coal miner - Vince Stanzione, trader and trainer
- Japan equity fund - Dan ‘Wilderness’, The Financial Wilderness blog
- US media giant - Neil Wilson, Markets.com
- Mid-cap tapping into the retirement market – me, another journalist at Proactive
(As far as the competition goes, the prices are taken as closing prices from 23 December 2022.)
Chris Beauchamp, chief market analyst at IG
Chris bagged fourth place in the past two years, with a positive share price performance both times. He didn’t get my Arsene Wenger reference – so I will need to do more research into something more in keeping with his historical or choral interests next year.
As for his stock pick for 2023, he gets us off to a start with a big name.
“The FTSE’s oil majors have played no small part in the index’s relative outperformance this year, but if the globe skirts a recession then we may well see oil demand recover,” Chris says.
“Investors continue to buy the dip in this steady performer, as it continues to claw back the 2020 losses. Even in a recessionary environment, Shell’s very size could make it a handy refuge for investors.”
(Tip price: 2,352p)
Mercantile Investment Trust PLC
Ian Cooper, senior investment manager and divisional director at Brewin Dolphin
Ian, one of three newcomers this year, has plumped for a mid and small-cap UK closed-ended vehicle.
You can tell he’s a seasoned wealth manager, as he explains this investment trust is “suitable for those looking to diversify their UK or broader large cap exposure and wanting quality-growth style exposure”.
The fund management team at JP Morgan is of course large and well resourced, Ian and his own team like that it creates a “robust and repeatable approach to identifying companies with an attractive mix of quality, growth and value characteristics”.
Mercantile’s focus on capital growth means that “income is more of an outcome,” he says, though the trust still offers a dividend yield of 3.8% and one of the lowest annual management charges versus peers at 0.45%, though with gearing costs (which have reduced in the last year) makes for an ongoing charges figure of 1.37%.
A diversified approach with around 70-90 holdings and the closed-ended structure means Mercantile has been “relatively nimble in terms of stock picking and activity”, Ian says, with the trust outperforming the broader UK market in the last five calendar years.
“While it benefits from the growth style being in favour, it has outperformed the broader market in value-led recovery years such as 2017, though has lagged YTD. The trust benefits from an active discount policy with the board tending to support a discount near double digit levels. Gearing levels range between 10% net cash to 20% geared and currently sits at 6%, reduced from higher levels earlier this year.”
(Tip price: 193p)
NVIDIA Inc (NASDAQ:NVDA)
William Farrington, journalist at Proactive
My Australian colleague is our resident cryptocurrency expert and the fact he hasn’t nailed his colours to any of those digital masts is telling – though his tip is connected to the Web3 world. Over to Billy.
“Nvidia may has had its woes in recent times, dragged into the general rout in high-flying FAANG tech stocks that has been a reckoning for an equity class once seen as a sure bet, as a decade of runaway growth finally hit a wall,” he says.
“But with Nvidia’s stock, like most of its big-tech brethren, having crashed nearly 50% in 2022 – not helped by chaos in the semiconductor supply chain and the crypto mining sector. But Nvidia has something special lying in wait – the Omniverse. The Omniverse is Nvidia’s metaverse bet, but dead-eyed, legless avatars this is not.
“Rather, Nvidia is cooking up a truly cutting-edge technology stack encouraging interoperability, innovation and simulation that could genuinely become a global framework for the industrial metaverse. I see true potential here, and combined with Nvidia’s compressed share price, makes it my stock pick for 2023.”
(Tip price: US$153.40)
Fidelity China Special Situations PLC (LON:FCSS)
Danni Hewson, financial analyst at AJ Bell
Danni finished in 10th place out of 15th this year with a pick that was predicated on US-focused construction companies doing well from President Biden’s infrastructure bill.
For 2023, she’s maybe snubbing her nose at Diamond Joe, with the US ramping up its cold-tech-war against China in recent months. But that’s my take, so I’ll let Danni explain her thinking.
“Over the last twelve months China has been THE place NOT to invest in as it’s zero covid policy gnawed great big holes in its economy. Whilst there is still a great deal of uncertainty one thing seems pretty clear, officials won’t want 2023 to follow in the footsteps of 2022 and it’s likely there will be a whole raft of reopening incentives announced to help the beleaguered Chinese population bounce back from a torrid period of unrest and unpredictability,” she says.
“But for many investors China is still a confusing prospect which is why Fidelity’s China Special Situations fund might provide an intriguing gateway.
“With a portfolio which includes exposure to the Hang Seng, Tencent (HK:0700) and Alibaba (NYSE:BABA) there’s some cushion from lingering geo-political uncertainty and any further regulatory shifts from the Chinese government.”
Shares in the investment trust jumped almost 24% in November but is still significantly down on where it was at the start 2022, which she says could present a pretty good jumping on point.
“With US central bankers hoping to take their foot off the rate rise pedal a softening dollar could be a further boon and with economies like the US, UK and the Eurozone all heading backwards a shift East seems like it could be a smart bet.”
(Tip price: 238p)
Spirent Communications PLC (LON:SPT)
Peter Higgins, podcaster at TwinPetes Investing
One of our private investors, Pete (better known on Twitter as Conkers3) finished second last year after his UK mid-cap tech company was taken over – something it looks like he might be aiming for again with his new pick.
His choice for 2023 is based on the growing number of 5G connections, which is expected to climb from 500mln in 2021 to a staggering 4.8bn by 2027.
“All those connections require testing, must be of the highest quality and assured regarding their structural safety. A specialist in testing new technology is Spirent, a profitable FTSE 250-listed, dividend paying company.”
Spirent works with well-known global behemoths including Apple (NASDAQ:AAPL), Vodafone (LON:VOD), Nokia (HE:NOKIA) AT&T, BT Group (LON:BT), Siemens and some military forces, as well testing cloud technology for tech titans such as Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL), and providing cybersecurity testing for large businesses such as the virtual and augmented reality kit for Facebook (NASDAQ:META)'s parent company, Meta.
“More than half of Spirent’ sales are generated in the US, making it is a beneficiary of the strong US dollar. This UK tech gem could also be a takeover target,” says Pete.
(Tip price: 265p)
Golden Rim Resources
Peter Hodgkins, private investor known as @claudiohfox
Welcoming another of our newcomers this year, it’s also our third Peter, an ex-headteacher (https://uk.linkedin.com/in/claudio-h-hfox-358b9714a) and a Leicester City fan (hence the fox in his twitter handle) who is known among his Twitter followers for his exceptionally detailed research into mining shares, especially lithium and gold, including always meeting or speaking to company management before investing.
“I was able to get in very early on some small caps that are now about to go into production which will be life changing for me and my family,” he says
Using an evaluation system he developed himself based on school inspections, he has researched the lithium sector in great detail and has tracked over 100 companies over time, meeting many CEOs, chief geologist and chairmen/chairwomen in person – “I consider this very important if I’m investing five or six figure sums into a company. And it’s a transferable skill from education and asking challenging questions was my day job.”
His pick for the 2023 competition is an Aussie-listed miner, “a new one for me. I was actually tracking the CEO Tim Strong (before he was appointed) who has experience as a geologist in West Africa advising gold projects.
Strong is strategically guiding its mineral exploration in the Siguiri Basin in Guinea, West Africa, “a prolific yet underexplored gold region”.
Targeting an early-ounces strategy of open pit mines with mineralisation at surface to a depth of 100 metres, Peter said the “low capex and opex should draw attention” to its flagship Kada oxide gold project.
With a maiden inferred mineral resource of 25.5Mt at 1.1g/t gold for 930,000 ounces, he points out that 72% of Kada’s mineral resource estimate is seen in shallow, higher-grade oxide-transitional material suitable for low cost open pit mining.
“Along strike and geologically similar to AngloGold Ashanti (ASX:AGG)’s 10mln-plus oz gold Siguiri mine complex. Next steps include resource growth/upgrade and a scoping study following the A$8.3mln placement in December 2022 to fund exploration and drilling at Kada in 2023.”
(Tip price: A$0.03)
Digitalbox PLC (AIM:DBOX)
Andrew Hore, editor of the AIM Journal
Our 2021 winner, who did not enjoy such a rocket-powered ride in the past year, has plumped for the digital media company that owns satirical website the Daily Mash and student publication The Tab, as well as Entertainment Daily.
“Management has shown that it can take these digital brands and improve advertising income,” says Andrew.
With the recent acquisition of another provider of satire and humour, thepoke.co.uk https://www.thepoke.co.uk/, for an undisclosed sum. The Poke’s editors make use of humorous content from social media, and it has more than three million monthly sessions, generating revenues of £170,000 in 2020-21.
Digitalbox is forecast to make pre-tax profit of £1.2mln this year rising to a pre-tax profit forecast of £1.5mlm in 2023, an estimate that predates the Poke acquisition.
“At 8.75p, the shares are trading on 11 times 2022 earnings,” he adds. “There may be concerns about the general advertising market, but Digitalbox has proved to be resilient and it is highly cash generative. Cash could equate to one-third of its market capitalisation by the end of 2023.”
(Tip price: 8.75p)
Direct Line Insurance Group PLC
John Kingham, investment writer and blogger at UKdividendstocks.com
Our dividend hunter was firmly mid-table for 2022, with his pick’s shares having a “bumpy” time even though the business has performed well, leaving him “happy to hold” at year end.
Over to John: “Over the last two years my Christmas picks were Admiral and Legal & General, so this year I'll continue the insurer theme with Direct Line, my largest holding [talk about skin in the game – he said the same thing last year with L&G!]
“Direct Line has the two UK leading car insurance brands (Direct Line and Churchill), massive scale, good diversity across car and home insurance and it's done an enormous amount of self-improvement since it was spun out of RBS (LON:NWG) after the financial crisis.
“I think the current share price is very attractive and the 11% dividend yield instils fear and excitement in equal measure.”
(Tip price: 219p)
Burberry Group PLC (LON:BRBY)
Dan Lane, analyst at Freetrade
This year was Dan’s first in the competition and he’s already had “a little sigh” in the past few days as the competition was wrapped up with his pick down 28%, only to announce a massive deal with Amazon a couple of days later and seeing its shares shoot higher and would have lifted him several place above his fourth-from bottom finish.
“I’m always on the lookout for quality attributes at a reasonable price. I’m normally forced to pay up for them but with Burberry I think there’s a chance to snap up some real growth for a decent valuation of around 17x earnings,” he says about his 2023 pick.
“As always, we need to match the bigger picture to the stock opportunities and 2023 gives Burberry the chance to do just that. High inflation doesn’t hit high-end goods as badly as we might think. Burberry’s margins are up on last year and it hopefully won’t stop there,” says Dan, noting that the company is targeting higher revenues and margins, with some strong tailwinds to get it there next year.
With China opening back up – a “huge market for a firm” that he notes is currently the top outerwear brand among luxury consumers in the country, while Asia-Pacific as a whole makes up over half of its retail sales mix and as zero-Covid fades – “that trend should boom”.
“More broadly though, there’s a fresh leadership team and the brand reset is done. The past five years have been about establishing a position as ‘true luxury’, as opposed to mass market, and being known for new lines like leather and shoes.
“If BRBY can deliver on punchy aims to double sales of leather goods, shoes and women’s wear, as well as doubling online sales volumes, 17x earnings will look like a steal.”
(Tip price: 2,025p)
TM CRUX UK Smaller Companies
Darius McDermott, managing director of FundCalibre
Our fund expert was upper mid-table in both the past two years and with recessions on the skyline and political tension remaining heightened he said choosing a tip for next year is “very tricky”.
After picking a China fund for the past year he was tempted to go the same way again, “given how hated China equity is – and how cheap it now is”.
But instead, he says he is picking another asset that has had a very tough year, UK small caps.
“The IA UK smaller companies sector is down 23.9% YTD, so a lot cheaper than a year ago. With the tricky economic environment, I want valuation support for my pick.
“I am selecting a brand new fund from an experienced fund manager Richard Penny [formerly of L&G]. The fund is the TM CRUX UK Smaller Companies fund. Recently launched, this fund can be flexible as it looks for those undervalued opportunities that this year's tough markets have thrown up.
“If there is a long and deep recession then my contrarian pick may be a little early, but we do have decent starting valuations and if the outlook turns out to be not that bad, then the fund could make a lot of money.”
(Tip price: 107.2p (ACC))
Delta Air Lines (NYSE:DAL)
Sam North, analyst and podcast host at eToro
Sam, one of our newcomers this year, has looked to the skies across the Atlantic with his pick.
“Many industries and sectors had a rough 2022 and airlines were part of this. However, after three years of losses for the global airline industry it is expected that 2023 will be a profitable year," he says.
“Yes, there are still issues but nothing worse than what this space has already gone through. Plus, starting from a low base can be seen as an advantage.
“I like Delta Air Lines (NYSE:DAL) to roam higher next year. With travel disruptions to ease, China to open up properly and central banks becoming less hawkish, it could be time for take-off.”
(Tip price: US$32.59)
iShares Core Global Aggregate Bond UCITS ETF
Victoria Scholar, head of investment, Interactive Investor
Victoria finished towards the rear of the pack in the past year’s competition with what she said at the time was perhaps a “boring” choice of a multi-trillion dollar tech colossus – but even the biggest companies found things tough this past year.
As she points out, 2022 was “an unfortunate year” in which equities and bonds, typically uncorrelated during times of market turmoil, both made losses as interest rates rose and geopolitical headwinds blew.
“In 2023, investors are poising for further economic weakness with the threat of recessions and rising unemployment levels. As a result, 2023 is about positioning defensively for a downturn and making the most of the opportunities in beaten-up assets that are considerably cheaper than they were a year ago,” Victoria says.
“The sense is starting to emerge that central banks, such as the Federal Reserve, have done most of the heavy lifting when it comes to monetary policy with the potential for less aggressive interest rate hikes ahead - and even rate cuts towards the end of next year.
“2023 should start to see inflation peak and hopefully ease off as aggregate demand, supply chain bottlenecks and geopolitical constraints soften. Beaten-up investment grade bonds could make sense as part of a diversified portfolio as central banks turn less hawkish, with looser monetary policy a tailwind for fixed income.
She says this global bond ETF has strong geographical diversification including the US, China, the UK and other major economies, and is “packed bonds that will keep paying their coupons even under tough economic conditions”.
(Tip price: US$4.33)
Man GLG Income
Peter Sleep, senior investment manager at 7IM
“Predictions are hard, especially about the future,” says one of our many Peters, in this case a Peter that has finished in third place in this contest in each of the past two years.
He goes on: “A part of my relative success in the last two years was that I saw evidence of a lockdown bubble in markets. I therefore took a contrary view and picked two conservatively run ideas that I thought would be suitable for smaller investors.
“At present, the UK is down and out and unloved by UK investors. In particular, sterling is weak and if it strengthens next year it will be hard for sterling based investors to show good returns on foreign investments.
“I also think that a lot of UK stocks look cheap, despite the recent rally. I therefore recommend the Man GLG UK Income fund, managed by Henry Dixon. The fund at the moment is overweight oil stocks, home builders and financials, all of which are unloved but could do well next year. The cost of the fund is about 0.9%.”
(Tip price: 329.3p (C))
Thungela Resources Limited
Vince Stanzione, financial trader, trainer and author of The Millionaire Dropout
Vince, who was fifth this past year and second the year before, has set his sights on a company whose name always make me think of famous Angelas – sometimes Rippon and other times Lansbury.
Vince cuts through to the important investment stuff, as he says he has personally held this South African thermal coal mining stock since late 2021, the year it was spun out of Anglo American (LON:AAL) “in an aim to appear greener”.
Vince goes on: “Many large funds rushed to sell the newly spun-off shares, and I was fortunate to take the other side. Since then, the stock has been on a tear, paying massive dividends and up over 750%. You may think it’s too late to buy Thungela and whilst another 750% maybe hard to achieve the company still remains on a very cheap valuation with a forward P/E of 2 and will continue to pay a minimum of 30% of its free cash flow in dividends. Even if the stock does nothing in the 12 months, you could be looking at a 25% return just from the dividend. I do also think the share price can still move higher.
“Thermal coal still remains a major source of global energy over 35% is electricity is generated from coal and that is not going to change for at least another two decades so the reports of coals death are greatly exaggerated. Of course there are risks, South Africa has problems with rail transportation with an ageing network, strikes and thefts of cables causing issues and delays and restricting exports and whilst concerning this does not stop them operating profitability.”
(Tip price: 1,454p)
Fidelity Japan Fund W-Accumulation
Dan ‘Wilderness’, operator of The Financial Wilderness blog
“I’m gulping picking a Japanese choice – despite fantastic fundamentals luring in many a stock-picker it’s a country that’s consistently underperformed.
“So why now? The cheap yen creates a lot of buying power despite Japan’s macroeconomic difficulties, creating some export advantages and potential for value-increasing takeovers.”
(Tip price: 4,267p)
The Walt Disney Company (NYSE:DIS)
Neil Wilson, chief market analyst for Markets.com
Our champion from 2022 keeps his focus on the US for the coming year, picking a stock that has not evaded the 2022 sell-off and has just brought back its 71-year-old former boss after less than three years.
“Iger will sort it out,” is the only short message Neil could tap out from his sickbed on his tip for 2023.
Let me fill in a few gaps on Neil’s behalf: Bob Iger made a surprise return to take the Disney helm last month, replacing his own handpicked successor, Bob Chapek, with an agreement to serve as CEO for two years, with the shares having halved over the past two years. Disney owns the Star Wars, Marvel etc and a big focus under Chapek has been growing the Discovery+ streaming service that Iger launched before he left in 2020, which recently knocked Netflix (NASDAQ:NFLX) off its streaming perch but will lose its crown in early 2023 as HBO Max merges with Discovery+.
Disney has reported large losses amid its expansion and Iger said a prime focus is on making the streaming business profitable and rejigging the organizational structure, with no plans for major acquisitions. Iger told staff he would not have returned if he did not believe Disney’s future was bright.
(Tip price: US$86.67)
Just Group PLC
Oliver Haill, me, your correspondent at Proactive
As every year I almost forget that I take part in the contest too, so have to scratch my head for some of the good ideas I’ve seen over the past few months. And this year I seem to have become incredibly boring in my own age.
I was very tempted to go with the lab-grown meat company but then I thought I should be more sensible after my maverick choice last year, so I thought about companies that should do well into the looming recession, maybe a pawnbroker like H&T, a restructuring and recovery firm such as Begbies Traynor (LON:BEG) or cheap-clothes retailer Primark’s owner AB Foods (LON:ABF).
They say “buy/write about what you know”, instead I’m going with “buy what loads of analysts have said”, looking to tap into a massive shift taking place in the market for bulk annuities. Just Group is a company that has access to this annuity market and an added value point that its turnaround under chief exec David Richardson since 2019 has been largely overlooked, especially its diminished sensitivity to the UK property market. With a Solvency II ratio forecast to be around 195% at year-end and property sensitivities almost halved since Richardson took over, the shares could be at just the sort of turning point that could, at the very minimum, take me to at least mid-table in this competition.
(Tip price: 78.3p)