A new year beckons, and with investors looking to reposition their portfolios for 2023, here are five stock ideas for consideration. General Electric (GE 8.28%) is a value situation with the potential to surprise on the upside. United Parcel Service (UPS 2.42%) stock has been sold off due to near-term concerns, but underlying improvements in its business enhance its long-term earnings generation potential. nVent Electric (NVT 1.90%) is a play on electrification in the economy. Hexcel's (HXL 1.68%) composites are the future of the aerospace industry. Finally, industrial software company PTC (PTC 1.06%) is a play on digitization in manufacturing.
1. General Electric stock in 2023
The industrial giant will start the year by spinning off its healthcare business, leaving a company composed of GE Power, GE Aerospace, and GE Renewable Energy. I think there's potential for all three remaining businesses to perform well this year. GE Aerospace has a backlog of more than $300 billion, and as supply chain issues ease through the year, it should ramp up aircraft engine production.
GE Renewable had a challenging 2022, but all the leading wind turbine manufacturers are restructuring, and order pricing is on a steady uptrend -- indicating the industry is in a bottoming process and moving toward profitability again. Finally, in the first nine months, GE Power orders are up 7% on an organic basis suggesting it has the potential to better the low-single-digit revenue growth rate that management has penciled in for 2022.
2. UPS has long-term growth prospects
There's no doubt that UPS will suffer in an economic slowdown (delivery volumes are tied to economic growth). Still, long-term investors will focus on the company's underlying improvements that are helping it track ahead of the 2023 targets laid out at its investor conference in 2021.
UPS's focus on the small and medium-sized business, healthcare, high-growth international, and business-to-business e-commerce markets is improving the quality of its revenue. Allied with a renewed focus on sweating its existing assets and a willingness to eschew less profitable deliveries rather than chasing volume, UPS is improving its profit margin.
As UPS improves its working relationships with the markets outlined above, it's likely to keep improving the quality of its earnings, putting it into a position to aggressively grow profits after any slowdown in 2023 is forgotten about.
3. nVent is an under-the-radar growth stock
The case for buying nVent is based on it being a picks-and-shovels way to play the trend toward electrification in the economy. If you have electric vehicles, you will need electric charging networks. If renewable energy is the future, then transmission and distribution networks need to be built. If buildings, homes, and infrastructure get "smart," they will need electrical connections. Industrial automation and digitization imply electrification.
nVent's electrical connection and protection solutions (enclosures, fastening solutions, and thermal management solutions for protection) help ensure regulatory compliance and are an essential part of electrical installations.
The long-term trend is positive, and nVent is one of few companies to raise its full-year earnings guidance on every earnings call in 2022. It speaks to the long-term growth potential of the company.
4. Hexcel, a high-growth stock in the aerospace sector
Hexcel's advanced composites offer a strength and weight advantage over traditional materials. That means they are likely to be a cost-effective option to replace materials, such as aluminum, for use in applications where reducing weight significantly improves long-term profitability. That's precisely the case in aircraft, where every gram saved in weight (without compromising other material qualities) means less fuel used.
As such, Hexcel is not only a play on Boeing and Airbus ramping up aircraft production and delivering on their huge backlogs, but it's also a play on the trend toward newer models using more advanced composites.
Everything points to a combination of medium-term profit growth (as aircraft production ramps up) and long-term growth as advanced composites get used more in every new generation of aircraft.
5. Industrial software is a hot megatrend to invest in
The use of digital technology and advanced analytics is revolutionizing how industrial companies develop physical products. PTC's software offerings include computer-aided design (CAD), product lifecycle management (PLM), Internet-of-Things (IoT), and augmented reality (AR) solutions.
IoT and AR are high-growth markets but still represent relatively small markets for PTC. PTC's CAD solutions have been outperforming the market, but its real strength lies in PLM, which leads the market.
PLM software can gather real-time information using digital technology (for example, twinning a physical asset digitally, such as a manufacturing line or plant) from the plant's operation, which can then be digitally modeled to improve performance. PTC will suffer if the industrial sector turns down sharply, but its long-term prospects remain excellent, and the digital revolution is real.
