You can put nearly everything in life into one of three categories: Some things you don't need, others are nice to have, and certain things are absolute must-haves. These three categories definitely apply to stocks, as well.
There are more than a few stocks that you shouldn't buy. Some stocks would be pretty good additions to your portfolio, but you can find others that are just as attractive.
Are there really any must-have stocks, though? In my view, the answer is a resounding "yes." Here are my picks for three must-have stocks to buy in 2023.
1. Alphabet
Two of the most important things to consider when buying a stock are its underlying business strength and its valuation. Alphabet (GOOG -1.10%) (GOOGL -1.23%) scores in a huge way in both areas.
The company's Google Search dominates the search-engine market. Android is the most-used mobile operating system. YouTube ranks as the biggest video search app. Google Cloud continues to grow by leaps and bounds. These and other products and services make Alphabet a money machine.
There's no compelling reason to believe that Alphabet won't remain on top. Sure, the advertising business is struggling a bit right now. However, that should only be temporary. What about TikTok's challenge to YouTube and the speculation that OpenAI's ChatGPT could be a "Google killer"? I think both threats are overrated.
Alphabet's underlying business remains strong. It could get even stronger as Waymo's self-driving car technology gains momentum. Meanwhile, the stock is cheaper than it's ever been, based on projected future cash flow. You might not ever get another opportunity to buy one of the world's greatest companies at such a low price.
2. Vertex Pharmaceuticals
You might be surprised that a biotech stock is on my list of must-have stocks to buy in 2023. But Vertex Pharmaceuticals (VRTX 0.20%) is no ordinary biotech stock.
For one thing, it doesn't have nearly as much risk as most biotech stocks do because the company enjoys a monopoly in treating the underlying cause of cystic fibrosis (CF). Vertex's CF therapies generate billions of dollars in sales and profits each year. And the closest potential rival is still years away from even having a chance at launching a product.
Vertex also has exceptional growth prospects. Its CF franchise can continue to gain market share through reimbursement deals and label expansions to include younger age groups. The company appears to be in great shape to win regulatory approvals for exa-cel in treating sickle cell disease and beta-thalassemia later this year. The big biotech's pipeline features three other late-stage programs with blockbuster sales potential, as well.
These promising candidates give Vertex an attractive valuation. The stock's price-to-earnings-to-growth (PEG) ratio is a super-low 0.38.
Meanwhile, the nature of Vertex's business makes it practically recession-proof. The risk-reward proposition for this biotech stock makes it a no-brainer buy.
3. MercadoLibre
My Motley Fool colleagues Connor Allen and Zane Fracek recently referred to MercadoLibre (MELI -1.01%) as a "forever stock with tons of upside potential." I think that description is spot on.
There's an easy case to be made for MercadoLibre's upside potential. The company is the clear leader in Latin American e-commerce and digital payments. Both markets have significant growth opportunities.
For example, analysts at Morgan Stanley project that the Latin American e-commerce market could soar more than 60% by 2026. The region is viewed as the hottest fintech market in the world.
MercadoLibre's stock performance doesn't align with its growth prospects. Shares of the e-commerce and fintech company have plunged nearly 40% over the last 12 months. However, its business continues to grow briskly.
It's possible that macroeconomic problems could hold MercadoLibre back in 2023. But the stock should be a huge winner for investors over the long run.
