2022 has been a terrible year for equity markets. Virtually every sector has been hit, some more than others. But a narrow group of stocks has performed extremely well. Going into 2023, these three stocks are right at the top of my buy list.
Top pick 1: Glencore
Since the pandemic lows of March 2020, the Glencore (LSE: GLEN) share price has risen a staggering 400%, making it the FTSE 100 best performer over that timeframe. Indeed, the share price recently hit a new all-time high.
Despite a meteoric rise, its shares still trade at a forward price-to-earnings (P/E) ratio of six. Recession fears and slowing consumption is worrying the market. Analysts have pencilled in significant price falls across a range of base metals such as copper and zinc.
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However, analysts are not always right. Even if prices drop in the short term, I am still expecting demand for Glencore’s products to remain elevated throughout the decade.
Industrialisation, urbanisation, deglobalisation and decarbonisation are mega trends that will fuel demand for non-fossil fuel commodities well into the future.
Top pick 2: BP
I am a long-term bull when it comes to energy stocks. Therefore, when I see a pull-back in the price of oil like we have witnessed lately, then that is a buy signal.
If the global economic outlook for 2023 is weak, then how can I possibly be a proponent of Big Oil? One reason is that oil is a lot more inelastic than most people think, even during a recession. The second reason is that the supply side remains extremely tight.
There is very little to choose between BP (LSE: BP.) and its peer Shell. I own both and am looking to add to my positions in the New Year. But if I had to choose, I would go for the former.
At $40 a barrel, BP’s break-even cost is lower than Shell’s. It is also significantly further down the road in its journey to become an integrated energy company.
When oil reached $120 a barrel earlier in the year, analysts were bulls. Now very few are willing to make a case. As a contrarian investor, I am not afraid to take a position in oil at this time.
Top pick 3: Fresnillo
One sector that I am confident will do well in 2023 is precious metals. I am not, however, interested in investing in pure exploration-based companies, as they are too risky. I am instead looking for established players in the space with high-quality assets.
Fresnillo (LSE: FRES) provides me with exposure to both silver and gold. Its share price has recently started to turn upwards, after a long period of consolidation. This reflects a surge in the price of silver as of late.
Despite soaring inflation, both gold and silver have performed poorly in 2022. But I am not perturbed.
I see a huge opportunity in silver next year. History has demonstrated that it is a metal that can act very explosively during stagflationary periods. The 1970s demonstrated this point well.
As well as being viewed as a safe haven and hedge against inflation, silver has industrial application too. As the transition to net zero accelerates, I expect demand for silver to rise steadily in the years ahead.
