Most investors will be happy to turn the page on 2022 and get a fresh start in 2023, and I count myself among that group. I don't know how the economy will fare in 2023, or what geopolitical events may surface, so I don't know if the market will remain in "risk off" mode or return to more of a "risk on" appetite, and I don't try to make any directional call on the market itself.
Instead, I try to look for stocks that I think will do well over a multi-year time frame, and that will hold up well even if 2023 is another challenging year. I have my sights set on profitable companies with stocks that trade at attractive valuations. I'm also looking for stocks that pay a dividend, buy back shares, or ideally both. I'm also looking for businesses that have solid long-term growth prospects.
With that in mind, here are my top three stocks worth buying for the long term in 2023.
Image source: Getty Images.
1. Ermenegildo Zegna
This year renewed my appreciation for businesses that have true long-term staying power and a real moat, as many previously high-flying stocks sputtered out once interest rates rose.
Ermenegildo Zegna N.V. (ZGN -1.20%) certainly fits this bill -- the Italian luxury house has been around for 112 years, and it has earned a reputation for quality and craftsmanship in that time. True luxury brands have some of the best moats out there -- and it takes a long time for a new company to achieve such recognition.
The luxury market is also more resilient than one might expect. Luxury brands cater to consumers at the upper tiers of the economic spectrum, and these customers tend to have more disposable income that isn't as affected by inflation or a slowing economy.
But investing in luxury goods stocks isn't just about playing defense. This a good space to be in over the long term -- Statista calls luxury goods a $312 billion market and predicts that it will grow at a 5.4% compound annual growth rate (CAGR) over the next five years. Euromonitor forecasts that the personal premium goods market will grow 6% to 8% over the next three years as it grows into a $370 billion industry.
Zegna is growing at an impressive rate, with 27.5% year-over-year revenue growth last quarter. It's on fire in the Middle East and Africa (86.4% revenue growth), the U.K. (61.6%), North America (33.2%), and Latin America (33.2%). China is a key market for the company, and while sales there were only up 3%, Zegna should be a major beneficiary when China's economy fully reopens, hopefully sometime in 2023.
Zegna trades at a reasonable forward valuation of about 22 times earnings, and it recently initiated an annual dividend payment.
2. Restaurant Brands International
My next top pick for 2023 is Restaurant Brands International (QSR 0.08%). The parent company of Burger King, Tim Hortons, Popeyes Louisiana Kitchen, and Firehouse Subs has outperformed the market in 2022, with a gain of 7% year to date.
This is a defensive, resilient business -- even if customers are tightening their belts, fast food restaurants like Burger King are a fairly economical option. Furthermore, Restaurant Brands is an asset-light franchisor that receives royalty payments from its franchisees based on revenue, which helps to give it some protection from inflation.
While this is a defensive stock, there is plenty of room for long-term growth, especially internationally. Tim Hortons now has over 1,500 locations outside of its native Canada, and recently entered the Indian market. During the past quarter it opened its 50th location in Mexico. Burger King continues to enjoy strong international performance with double-digit comparable sales growth in markets like France, Spain, and the U.K. Meanwhile, Popeyes is getting ready to enter lucrative new markets like South Korea and Indonesia.
Even after this year's outperformance, shares of Restaurant Brands look palatable at about 21 times earnings and with a dividend that yields 3.3%.
One final kicker that makes Restaurant Brands stock even more appealing is the presence of former Domino's Pizza CEO Patrick Doyle as the chairman of the board. Doyle has skin in the game, having purchased $30 million worth of shares, and he is aligned with investors, forgoing a salary and instead being awarded performance stock units based on the stock price rising over the next five years, which I view as tremendously bullish for the stock.
3. Taiwan Semiconductor
Semiconductor stocks have been hammered this year as a glut of supply has weighed on the space. I don't know if this trend will resolve itself in 2023, but I do know that I like Taiwan Semiconductor Manufacturing (TSM -3.45%), the world's largest contract manufacturer of semiconductors, anyway because over the long term, this is still a space that I want exposure to.
Rival Intel forecasts that global spending on semiconductors will grow from $600 billion today to $1 trillion annually by 2030, so over the long term, there is still tremendous growth potential for this market.
Taiwan Semiconductor makes the world's smallest and most advanced chips, giving it a tremendous moat. Not many companies can simply set up shop and start competing with it. The company's top customers are a who's who of top semiconductor companies, including Apple, Nvidia, and Advanced Micro Devices. Taiwan Semiconductor's chips serve a wide variety of lucrative end markets including high-performance computing, smartphones, automotive, artificial intelligence, and more.
Thanks to short-term issues, shares of Taiwan Semiconductor are down 38% in 2022 and now trade at just 13.5 times earnings, which is well below the average multiple for the S&P 500. This seems like an attractive valuation for a company with Taiwan Semiconductor's moat and secular growth prospects. Taiwan Semiconductor is also a dividend payer and the shares currently yield 2.4%.
Need one more reason to consider investing? Warren Buffett recently initiated a large investment in Taiwan Semiconductor.
I'm looking forward to a fresh start in 2023, and while I don't know how the market will perform, I believe that these three stocks will be good investments for 2023 and well beyond based on their palatable valuations, returns to shareholders, and long-term growth prospects.
