Finding the best shares to buy in 2023 can be a little tricky. With the ongoing economic instability on most investors’ minds, even some of the most popular stocks seem to be going in circles.
Experienced veterans will know this is fairly normal stock market behaviour. After all, in the short term, prices are driven by mood and momentum, which can create a lot of volatility. But in the long run, valuations are ultimately determined by the quality and success of the underlying businesses.
Despite how things seem on the surface, the British economy is slowly moving in the right direction. CPI inflation in August came in at 6.7% versus 11.1% in October 2022. And the Bank of England has finally hit the pause button on interest rates after hiking them 14 times in a row.
While the dust hasn’t settled, a question that’s starting to pop up is which companies are set to thrive in the aftermath of this economic storm? So let’s take a look at the potential opportunities available in 2023.
Battered but not bruised
In my experience, some of the best shares to buy during stock market turmoil are often the ones everyone else has been selling. Most investors, including professionals, are hellbent on avoiding losing money. That may sound sensible at first, but this fear of loss leads to some pretty dumb decision-making, especially during times of volatility.
In some cases, a rapid sell-off of shares could be well justified. For example, an overleveraged firm struggling to keep up with interest payments is likely a sinking ship. Similarly, if a company’s technology has just been made obsolete by a competitor, a sudden nosedive in valuation makes sense.
However, suppose investors start to panic about short-term supply chain challenges, or another temporary disruption to operations? In that case, it may be worth taking a closer look.
One sector that seems to fall into this category in 2023 is real estate. There’s no denying that property prices are tumbling in the face of higher mortgage rates. However, the cyclicality of this market isn’t exactly a secret. And looking at the commercial real estate sector, plenty of REITs have been sold off despite occupancy, rental cash flow, and dividends all rising in some instances.
Keeping risk in check
Real estate is obviously not the only industry that holds opportunities. There are plenty of other sectors like industrials, e-commerce, and even technology that have potential bargains today.
However, just because a stock looks cheap, that doesn’t mean chunky returns are guaranteed.
Value investing can demand tremendous patience. And it can take months or even years before a stock starts to reflect its intrinsic value. That’s a lot of time for an investor to doubt their analysis. But even if they’re initially correct, another threat might emerge in the meantime, which could invalidate their original investment thesis.
By deploying tactics like diversification and pound-cost-averaging, such risks can be mitigated. And when inflation finally falls back to its ideal range of 2-3%, high-quality, undervalued shares are likely to be some of the best performers.
