The stock market went into a mini-rally starting in October -- as the 13.5% rise in the S&P 500 since Oct. 1 indicates -- and there is now optimism that the rally could continue for the rest of this month and into the new year. Some even wonder if a bull market will return in 2023.
Signs of slowing inflation and indications that the Federal Reserve will lower the pace of rate hikes should give the stock market a nice shot in the arm in 2023. Such indicators has some investors wondering if now is the time to buy stocks of some beaten-down companies that saw share prices fall dramatically in 2022 despite reporting impressive growth.
Airbnb (ABNB +2.71%), Taiwan Semiconductor Manufacturing (TSM +1.97%), and The Trade Desk (TTD 1.36%) are three top stocks that could go on bull runs in 2023. All these companies grew impressively over the past year, and a turnaround in investor sentiment next year could set them up for nice rallies. Let's look at the reasons why these three stocks could be some of the best performers in 2023.
1. Airbnb
Short-term home and apartment rentals company Airbnb recorded impressive growth this year, with its revenue and net income rising at a healthy pace. Despite that, the stock saw a severe sell-off and is down 43% so far in 2022.
NASDAQ: ABNB
Key Data Points
Airbnb stock's decline means the stock trades at a relatively attractive valuation. Its price-to-sales ratio of 8 represents a nice discount to last year's multiple of nearly 20. Airbnb is also trading at 32 times forward earnings, compared to last year's multiple of 128. Given the company's robust growth and its ability to sustain its momentum in 2023, now would be a good time to buy Airbnb stock since it is trading at a cheaper valuation.
After all, tourism spending is expected to increase in 2023. The Economist Intelligence Unit estimates that global tourism arrivals are on track to jump 30% next year, which should boost Airbnb's addressable market opportunity and help increase its top and bottom lines.
It is worth noting that Airbnb witnessed a 25% year-over-year increase in nights and experiences booked in the third quarter to nearly 100 million, which led to a 29% increase in revenue over the prior-year period to $2.9 billion. An increase in tourism activities should ideally lead customers to book more nights and experiences using the Airbnb platform.
Analysts expect Airbnb to finish 2022 with $8.3 billion in revenue, and the company is estimated to record robust double-digit growth over the next couple of years as well.
ABNB Revenue Estimates for Current Fiscal Year data by YCharts
With Airbnb being a key player in the vacation rental space with a solid market share, it wouldn't be surprising to see the company meet or even exceed analysts' expectations. What's more, the company is expected to record annual earnings growth of 20% over the next five years. All this makes Airbnb a top stock to buy for 2023.
2. Taiwan Semiconductor Manufacturing
With shares down nearly 34% in 2022, Taiwan Semiconductor Manufacturing, popularly known as TSMC, looks ripe for the picking right now as it is trading at just 15 times trailing earnings, which is a discount to the S&P 500's earnings multiple of 19.
NYSE: TSM
Key Data Points
Buying the stock at this valuation looks like a no-brainer. That's because the foundry giant seems all set to deliver another year of impressive growth in 2023 following a solid showing this year. TSMC is forecast to finish 2022 with a 33% increase in revenue to $75 billion. As TSMC manufactures chips for companies operating in multiple markets such as smartphones, data centers, automotive, and the Internet of Things (IoT), among others, it is nicely positioned to make the most of the growth in chip spending.
The demand for automotive chips, for instance, should remain healthy in 2023 as automakers are busy catching up with huge order backlogs caused by the global semiconductor shortage. IDC estimates that the auto industry could generate nearly $40 billion in chip revenue this year, and the figure is expected to increase at an annual rate of 10% through 2025.
Similarly, the demand for high-performance computing (HPC) data centers is anticipated to rise at an annual pace of nearly 17% through 2026, according to Mordor Intelligence, thereby creating the need for more chips. In all, the global semiconductor market is expected to generate $700 billion in revenue next year, up from $676 billion in 2022.
With TSMC controlling 56% of the semiconductor foundry market, it is well-placed to make the most of the incremental revenue opportunity on offer. Even better, with TSMC's earnings expected to grow at an annual pace of over 21% for the next five years, this semiconductor stock could deliver solid long-term upside beyond 2023. That's why investors may want to lap up TSMC stock while it is still cheap.
3. The Trade Desk
The Trade Desk is another fast-growing company that saw its stock sold off brutally on the market this year, losing 46% of its value. But this decline made the stock relatively cheap. Shares of the company, which provides a cloud-based advertisement-buying platform, are now trading at 16 times sales. While that's still rich, investors should note that The Trade Desk stock was trading at nearly 41 times sales last year. Also, the company's forward earnings multiple of 57 is way lower than last year's multiple of 101.
NASDAQ: TTD
Key Data Points
The Trade Desk stock may not be in value territory yet despite its steep decline, but investors on the hunt for growth stocks may want to take a closer look at the company following the sell-off. That's because The Trade Desk is growing rapidly and seems capable of sustaining its impressive momentum.
In the third quarter, the company's revenue increased 31% year over year to $395 million. Its adjusted earnings increased an impressive 44% year over year to $0.26 per share. The company sees a sharp sequential spike in revenue in the fourth quarter to $490 million, and analysts expect it to finish 2022 with a 32% jump in revenue to $1.58 billion.
The Trade Desk should be able to sustain its momentum in 2023 and beyond, as the chart below shows.
TTD Revenue Estimates for Current Fiscal Year data by YCharts
This isn't surprising, as The Trade Desk is scratching the surface of an $816 billion total addressable market. More importantly, the company's self-serve demand-side platform (DSP) for purchasing ads gives users the ability to drive advertisement campaigns across different channels based on data, leading to a more precise target audience for ads. As a result, The Trade Desk Customers are witnessing a sharp spike in advertising revenue, as CEO Jeff Green pointed out on the November earnings conference call.
So the demand for The Trade Desk's platform should head north next year and in the long run as well given the massive opportunity it is targeting. This explains why its earnings are expected to increase at an annual rate of 24% for the next five years as per consensus estimates. Investors have a nice window to buy this growth stock now before it takes off and flies higher in 2023.
