As we get closer to 2023, investors should consider which stocks top their shopping lists. Nothing about the macro environment changes just by flipping the calendar; inflation is still a concern, and the Federal Reserve will likely continue raising rates. But large investment firms change their plans quarterly, and sentiment change could drive a market rally, especially in the beaten-down tech sector.
Three stocks I think are great buys in 2023 and beyond are Airbnb (ABNB 1.17%), Accenture (ACN -1.04%), and CrowdStrike Holdings (CRWD -0.68%).
1. Airbnb
Airbnb, the market leader in alternative lodging and guided experiences, hasn't had a great 2022, with the stock down 42% year to date. Despite the price movement, its business has been thriving. In the third quarter, revenue rose 29% year over year to $2.9 billion, with $1.2 billion in net income, a 42% margin.
Any company growing at that rate with margins that incredible is usually highly valued, but Airbnb isn't. At 19.5 times free cash flow (FCF), it isn't trading at an expensive premium. In fact, its FCF yield is 5.12% -- greater than the yield of a 10-year Treasury note. This is a sign of a reasonably valued stock, but if Airbnb continues to generate massive free cash flow, the stock will be even more of a bargain.
Airbnb has proved it can survive as consumers tighten their belts, but 2023 will be an even more significant challenge. Nonetheless, management believes it is positioned to thrive in 2023, and with the stock already trading at a reasonable level, 2023 could be an excellent year for Airbnb's shareholders.
2. Accenture
Companies often lack the necessary skills to create the technological solutions they desire. Whether it's the cloud, industry, or security solutions, Accenture has the expertise and personnel necessary to consult, create, and operate the technologies they create for clients.
Accenture's fourth quarter of the fiscal year 2022 (ending Aug. 31) was quite strong. Revenue was up 22.4% year over year to $15.4 billion in local currencies (Accenture is a global business, so converting back to U.S. currencies isn't representative), with particular strength in Europe (up 26% year over year) and growth markets (also up 26% year over year). Its fiscal year 2023 outlook wasn't overly impressive, with revenue growth expected to be between 8% and 11% in local currency.
Still, that's growth that many companies might not experience if 2023 isn't a booming economic year. But Accenture also rewards shareholders with dividends and buybacks. It returned $6.6 billion of its $8.8 billion FCF throughout fiscal year 2022. This capital return is amplified when the stock is down, as the buybacks repurchase more shares.
With the stock trading around its 10-year average price-to-free-cash-flow valuation of 21.3, investors don't need to worry about overpaying for this solid company.
3. CrowdStrike
Switching gears a bit, CrowdStrike is a much more growth-oriented company. Its cloud-based cybersecurity platform secures network endpoints (like a laptop or phone) and protects them from threats. It uses trillions of signals generated weekly to improve its artificial intelligence, strengthening the platform whenever someone tries to attack one of its clients.
The solution is wildly popular, with 19,686 customers as of July 31, growing 51% year over year. Among those are 258 of the Fortune 500, showing CrowdStrike still has a way to go before saturating the market.
CrowdStrike is growing rapidly, with its annual recurring revenue rising 59% year over year to $2.14 billion in its second quarter (ending July 31). It's also producing solid FCF, generating $136 million in the quarter. With $131.5 million in stock-based compensation in the quarter, it could pay all of its employees with cash and still be free-cash-flow positive. In a world where many companies overcompensate their employees with stock just to make it seem like they are close to breaking even, CrowdStrike bucks this trend.
The stock isn't cheap, trading at 57 times FCF. But you're also paying for a rapidly growing business, and one Wall Street is projecting will grow revenue by 37.2% during fiscal year 2024 (ending Jan.31, 2024). With a massive market opportunity projected to be $126 billion by 2025, CrowdStrike has barely touched its potential, and I think it's positioned to capture a significant chunk of it.
