10 Best ASX Stocks to Buy Heading into 2023

Published on December 7, 2022 at 10:35 am by Insider Monkey Team in Hedge Funds, Lists, News

In this article, we will take a look at 10 best ASX stocks to buy heading into 2023. If you want to see more best ASX stocks to buy, go directly to 5 Best ASX Stocks to Buy Heading into 2023.

While it only has a population of 25.7 million, Australia has a developed economy and a nominal GDP of $1.543 trillion. In 2021, the country also had a GDP per capita of $59,934.13, ranking among the highest in the world in terms of wealth.

According to Fitch, Australia’s Economy economy grew for 30 straight years prior to the pandemic and is relatively resilient. For the near term, the ratings agency expects GDP for the country to expand 3.9% in 2022 and 1.5% in 2023 giving the high inflation, rising interest rates, and slowing global economy.

Inflation in the country is expected to peak around 8% this year before easing next year. To fight inflation, Australia’s central bank recently raised interest rates to a 10 year high of 3.1%. Despite the high inflation, Australia has a low unemployment rate of around 3.4%.

For the long term, Australia remains attractive in terms of its growth potential given its large area, relatively low population, and its proximity to major Asian economies. In terms of Asia, Australia’s government writes, “Two other factors underpin our resilience: location and diversity. Fast-growing Asia is set to deliver 44% of global GDP by 2026. Australian trade is already oriented towards Asia’s economies – especially in minerals, energy, services and agriculture. Also, our diverse and highly productive economy is resilient against economic shocks, including the ongoing pandemic.”

In terms of individual industry share of Australia’s outputs, the mining sector contributes 14.6%, the health and education sector contributes 13%, the finance sector contributes 7.6%, the construction sector contributes 7.3%, and the manufacturing sector contributes 5.8%.

In terms of export share by destination, 36% of Australian exports go to China, 12.2% go to Japan, 7.1% go to South Korea, 4.7% go to India, 4.6% go to the United States, and 3.6% go to the European Union.

Given the growth in the Indian economy, it’s likely that India will account for a larger part of Australia’s exports in the future as the nation will likely need a lot of iron ore to expand its infrastructure further.

ASX

ASX, which stands for the Australian Securities Exchange, is one of the largest stock exchanges in the Asian Pacific region given the size of the Australian economy. As one of the leading exchanges in the country, over 2,000 companies are listed on the ASX, including some of Australia’s biggest blue chip companies.

2022

In terms of the ASX’s leading companies, many have declined slightly this year given the rising interest rates. With the strong U.S. dollar, many Australian companies are also worth less in U.S. dollar terms.

While 1 Australian dollar used to equal 0.73 U.S. dollars in the beginning of the year, it now equals 0.67 U.S. dollars as of 12/6.

If the Australian dollar continues to decline versus the U.S. dollar or if Australian economic data fails to meet expectations, there could be more downside.

Given the uncertainties in the market, it could be a good idea for long term investors to own a well diversified portfolio of stocks across many different sectors.

Methodology

For the 10 Best ASX Stocks to Buy Heading into 2023, we picked 10 stocks listed on the ASX that have businesses with competitive advantages.

We then ranked them based on their market capitalization.

The companies mentioned could decline in the near term if economic data fails to meet estimates but have long term growth potential. The change in the U.S. dollar and Australian dollar exchange rate can also affect the values in each company in U.S. dollar terms.

For those of you interested check out, 22 Biggest Economies in the World in 2022.

10 Best ASX Stocks to Buy Heading into 2023

10. Auckland International Airport Limited (ASX:AIA.AX)

Market Capitalization as of 12/6 in Australian Dollars: 11.119 billion

Auckland International Airport Limited (ASX:AIA.AX) owns an airport in Auckland, New Zealand. Although the company has had two years of losses given the pandemic, the airport predicted it would make a profit in 2023 as demand rebounds. Chief Executive Carrie Hurihanganui said, “After two years of disruption, careful cost management … our recovery is now well underway. While we are hopeful of a strong recovery over the next 18 months, our outlook remains conservative.”

In September, Auckland Airport’s statistics showed that total passenger volumes were 71% of the pre-COVID equivalent in the financial year ended June 30, 2019 which was the full year where the airport wasn’t impacted by the pandemic. In October of this year, the total passenger volumes were 72% of the pre-COVID-equivalent. Although Auckland International Airport Limited (ASX:AIA.AX) stock will likely not do well if the pandemic worsens, the company could return closer to normal in terms of its finances if travel continues to normalize.

Auckland International Airport Limited (ASX:AIA.AX) ranks #10 on our list of 10 Best ASX Stocks to Buy Heading into 2023 given its market capitalization of A$11.119 billion as of December 6.

9. Sonic Healthcare Limited (ASX:SHL.AX)

Market Capitalization as of 12/6 in Australian Dollars: 15.167 billion

Sonic Healthcare Limited (ASX:SHL.AX) is one of the world’s largest medical diagnostics companies with approximately 41,500 employees globally. In terms of its services, the company is the largest private pathology operator in Australia, Germany, Switzerland and the UK. Sonic Healthcare Limited (ASX:SHL.AX) is also the largest operator of medical centers in Australia. For 2022, the company reported record revenues of A$9.3 billion and net profits of A$1.5 billion. Although shares of the company’s stock has done very well long term up until the end of 2021, Sonic Healthcare Limited (ASX:SHL.AX) stock has declined from around A$46 to A$30.78 given slowing growth. The company’s diluted normalized EPS for the June 2022 quarter was also slightly lower than it was for the June 2021 quarter.

Sonic Healthcare Limited (ASX:SHL.AX) has a market capitalization of A$15.167 billion.

8. Ramsay Health Care Limited (ASX:RHC.AX)

Market Capitalization as of 12/6 in Australian Dollars: 15.193 billion

Ramsay Health Care Limited (ASX:RHC.AX) is a global hospital group that owns and operates a comprehensive range of healthcare facilities across Australia, France, Indonesia, Malaysia and the United Kingdom. As of December 6, Ramsay Health Care Limited (ASX:RHC.AX) has a market capitalization of A$15.193 billion.

Although shares of Ramsay Health Care Limited (ASX:RHC.AX) did very well until 2015, the stock hasn’t rallied much since that year with the share price of the company trading around the same price as March 1, 2015. Nevertheless, the company has an annual yield of around 1.46% and a fairly attractive free cash flow yield. If the company can increase free cash flow and earnings, there’s potential for growth in the long term. Given the rise in interest rates has been a headwind for many American real estate stocks, Ramsay Health Care Limited (ASX:RHC.AX) could face the same headwind as well and the stock might continue to underperform in the near term.

7. Coles Group Limited (ASX:COL.AX)

Market Capitalization as of 12/6 in Australian Dollars: 22.619 billion

Coles Group Limited (ASX:COL.AX) is an Australian retailer of groceries and goods with a market capitalization of A$22.619 billion as of December 6. Given its market share, Coles Group Limited (ASX:COL.AX) has meaningful normalized earnings power.

For the 2022 financial year, Coles Group Limited (ASX:COL.AX) sales rose 2% year over year and its earnings before interest and tax remained at levels comparable with the previous year despite headwinds such as COVID-19 lock downs in the first half and floods in the January. According to Reuters, the company trades at a forward P/E ratio of 21.11 which is a fair price for a business with Coles Group Limited (ASX:COL.AX)’s quality.

6. Goodman Group (ASX:GMG.AX)

Market Capitalization as of 12/6 in Australian Dollars: 34.826 billion

Goodman Group (ASX:GMG.AX) ranks #6 on our list of 10 Best ASX Stocks to Buy Heading into 2023 given its market capitalization of A$34.826 billion.

Goodman Group (ASX:GMG.AX) is an industrial property company in Australia whose stock has done well from the Great Recession until late last year given the growth in Australia’s economy. Given the interest rate increases in the United States this year, however, a lot of capital has shifted from real estate to Treasuries. As a result, many real estate stocks including Goodman Group (ASX:GMG.AX) face headwinds and could underperform in the near term. In the long term, however, the company has potential given the growth in Australia’s economy.

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