It's been a tough year for the market, with the S&P 500 down more than 20% in 2022. Still, there are always pockets of strength, all these stocks are in positive territory on the year, and it's not time to take gains just yet. Oil equipment and services company Baker Hughes (BKR -1.00%), insecticide and herbicide manufacturer FMC (FMC -0.43%), and automation company Emerson Electric (EMR -0.14%) have plenty of upside potential in 2023.
Baker Hughes, an energy stock to buy now
Despite the stock's 21% rise in 2022, there's a feeling that it could have done better -- peers Schlumberger and Halliburton both rose over 70%. The underperformance was due to a confluence of factors, including component shortages, raw material inflation, and a significant charge due to the suspension of its activities in Russia.
In addition, the restructuring of the company in 2022 is de facto an admission that Baker Hughes hasn't executed as well as it could. The restructuring involves incorporating oilfield services and equipment into one business segment, while the turbomachinery and process solutions, and digital solutions businesses will also be combined. The aim is to cut annual costs by $150 million and reduce the executive management team by 25%.
It's a lot easier to enact restructuring when end markets are buoyant, and with the price of oil still around $80 a barrel, conditions remain conducive for oil majors to spend. Meanwhile, investment in liquefied natural gas (LNG) is rising as Europe seeks to move away from reliance on gas supply from Russia.
All told, if Baker Hughes can execute well, it has plenty of potential to do well in 2023.
A bull market is coming for agriculture stock FMC
Energy stocks were one of the high-profile success stories of 2022, but agriculture investors can point to plenty of stocks with positive returns too. One is an insecticide (which protects crops by killing insects) and herbicide (weedkillers) company. Moreover, in an economy experiencing inflation (FMC has faced significantly rising costs, not least from energy), it's essential to pass on those costs.
FMC's main end markets are relatively diverse, including soybeans, fruit and vegetables, and to a lesser extent, rice, sugar, corn, and cereals. Those markets did very well in 2022, and FMC has managed to offset some of the cost inflation with price increases. Moreover, management believes its cost headwinds peaked in the third quarter, and it sees cost headwinds turning into tailwinds in the second half of 2023.
As such, Wall Street has FMC increasing earnings by 13% to $8.34, putting the stock on a forward price-to-earnings ratio of slightly less than 15 in 2023. Moreover, with the ongoing war in Ukraine (and the damage to Russia's and Ukraine's export capability) putting pressure on global food prices, FMC's end markets could remain strong for the next few years.
Pivoting to automation will supercharge Emerson Electric's stock price
Ever since Emerson Electric launched a bid to take over its peer Rockwell Automation in 2017, it's been clear that automation was the future for the company. Unfortunately, the bid failed, so management decided to make a move itself. Since then, Emerson has bought industrial software businesses (an industry intrinsically connected with automation), then contributed them and $6 billion in cash for a 55% stake in industrial software company Aspen Technology.
Meanwhile, CEO Lal Karsanbhai has notified investors he intends to reduce the company's exposure to upstream oil and gas to further focus it on automation. Finally, the company recently announced a deal to sell 55% of its climate technologies (products and services for the heating, ventilation, and air conditioning companies) to private equity firms managed by Blackstone.
These moves position Emerson in the automation market. Given the valuation discount between it and Rockwell Automation, and the attractiveness of the automation and industrial software markets, there's good reason to believe Emerson can outperform in 2023.
