5 Best Sectors To Invest In Heading Into 2023

In this article, we discuss the 5 best sectors to invest in heading into 2023. If you want to see more of the top sectors to consider, check out 11 Best Sectors To Invest In Heading Into 2023. 

5. Medical Specialties 

Medical Specialties is one of the best sectors to invest in heading into next year. The COVID-19 pandemic accelerated healthcare transformation by at least a decade, and the industry will continue to evolve in the future, creating unique investment opportunities. One of the top stocks in the medical specialties industry favored by elite investors is AbbVie Inc. (NYSE:ABBV), a company that discovers, develops, and manufactures pharmaceuticals worldwide. 

On October 28, AbbVie Inc. (NYSE:ABBV) declared a $1.48 per share quarterly dividend, a 5% increase from its prior dividend of $1.41. The dividend is payable on February 15, 2023 to shareholders of record on January 3. The dividend yield on December 5 came in at 3.61%. 

Credit Suisse analyst Trung Huynh on November 17 initiated coverage of AbbVie Inc. (NYSE:ABBV) with an Outperform rating and a $170 price target, calling it one of his two top ideas on a relative basis among the U.S. large-cap biopharma peer group. 

According to Insider Monkey’s data, 80 hedge funds were long AbbVie Inc. (NYSE:ABBV) at the end of the third quarter of 2022, compared to 71 funds in the earlier quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital held a significant stake in the company, comprising 3.2 million shares worth $431.60 million. 

Here is what Baron Funds specifically said about AbbVie Inc. (NYSE:ABBV) in its Q3 2022 investor letter:

“AbbVie Inc. (NYSE:ABBV) is a drug developer best known for Humira, an immunosuppressant that is the best selling drug of all time. Given outsized key product risk (patent cliff and generic launches beginning in 2023), AbbVie has broadened its pipeline, highlighted by its Allergan acquisition. Shares fell on results that missed consensus and indications that legacy franchises were outperforming newer product launches, calling into question AbbVie’s long-term strategy. With promising assets in the pipeline and its robust cash flow profile, we believe AbbVie will grow well into the future.”

4. EDP Services

Electronic data processing (EDP) services is one of the best sectors to invest in heading into next year. Electronic data processing refers to the gathering of data using electronic devices, and it is another term for automatic information processing. One of the most prominent EDP stocks that elite hedge funds are buying is ServiceNow, Inc. (NYSE:NOW), which is a California-based company that offers enterprise cloud computing solutions that define, structure, consolidate, and automate services for enterprises worldwide. 

On November 17, Morgan Stanley analyst Keith Weiss said he is convinced that ServiceNow, Inc. (NYSE:NOW)’s workflow automation platform “hits a sweet spot” with organizations seeking to optimize their business processes and that the company has “strong positioning” to cater to a $175 billion market opportunity. This view, paired with what he calls its “best in class unit economics,” reiterates his confidence in ServiceNow, Inc. (NYSE:NOW) being able to see resilient 30%-plus free cash flow growth in FY23/FY24, added the analyst, who also named ServiceNow as his “Top Pick”, replacing Salesforce, Inc. (NYSE:CRM). He maintained an Overweight rating and a $520 price target on ServiceNow, Inc. (NYSE:NOW) shares.

According to Insider Monkey’s Q3 data, 103 hedge funds were bullish on ServiceNow, Inc. (NYSE:NOW), compared to 99 funds in the preceding quarter. Chase Coleman’s Tiger Global Management is the biggest stakeholder of the company, with 1.7 million shares worth nearly $640 million. 

Lakehouse Capital made the following comment about ServiceNow, Inc. (NYSE:NOW) in its Q3 2022 investor letter:

“Despite a challenging environment, US-based software company ServiceNow, Inc. (NYSE:NOW) performed well and reported revenues of $1.8 billion for the quarter, up 29% year-over-year in constant currency terms. The company’s operational metrics continue to be resilient, with remaining performance obligations growing 25% year-on-year in constant currency terms, total customers with over $1 million in annual contract value (ACV) growing 22%, and renewal rates holding firm at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal, which had its best quarter ever including a $20 million-plus net new ACV win. The company now boasts 1,530 customers generating in excess of $1 million in ACV, which is pleasing to see as it implies multiple solutions are involved and that the company’s platform model is increasingly resonating with customers. We continue to believe that ServiceNow is one the highest quality software businesses around as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.”

3. Biotechnology: Pharmaceutical Preparation 

The global pharmaceutical market is worth approximately $1.25 trillion. The pharmaceutical manufacturing market is forecasted to grow at a CAGR of around 15.9% from 2022 to 2030 and expected to be worth around $1,599.9 Billion by 2030. Among the hedge funds tracked by Insider Monkey, Pfizer Inc. (NYSE:PFE) is one of the most prominent biotechnology stocks to invest in.  

On December 9, Pfizer Inc. (NYSE:PFE) declared a $0.41 per share quarterly dividend, a 2.5% increase from its prior dividend of $0.40. The dividend is distributable on March 3, 2023 to shareholders of record on January 27, 2023. The dividend yield on December 12 came in at 3.09%. 

Credit Suisse analyst Trung Huynh on November 17 initiated coverage of Pfizer Inc. (NYSE:PFE) with an Outperform rating and a $55 price target. Pfizer Inc. (NYSE:PFE) has been “impacted adversely” following its COVID vaccine success, but the analyst said his Outperform thesis is not hinged on a single asset, but a combination of pipeline improvements that support growth. 

According to Insider Monkey’s data, 77 hedge funds were bullish on Pfizer Inc. (NYSE:PFE) at the end of September 2022, compared to 70 funds in the earlier quarter. Cliff Asness’ AQR Capital Management is the largest stakeholder of the company, with 10.6 million shares worth $467.5 million. 

Diamond Hill Capital made the following comment about Pfizer Inc. (NYSE:PFE) in its Q3 2022 investor letter:

“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer Inc. (NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”

2. Semiconductors

Deloitte expects the global semiconductor industry to grow 10% in 2022 to over $600 billion for the first time ever, despite the shortages in the industry resulting in revenue misses of more than $500 billion this year worldwide. NVIDIA Corporation (NASDAQ:NVDA) is one of the top semiconductor stocks favored by elite hedge funds. 

On December 8, Tigress Financial analyst Ivan Feinseth reiterated a Buy recommendation on NVIDIA Corporation (NASDAQ:NVDA) but lowered the price target on the shares to $250 from $310, citing a re-rating of valuation. His revised target represents a potential return of more than 55% from present levels, noted the analyst, who sees NVIDIA Corporation (NASDAQ:NVDA)’s “industry-leading” position in Artificial Intelligence and several new products and partnerships allowing it to overcome short-term headwinds and position it for a new business upcycle.

According to Insider Monkey’s Q3 data, NVIDIA Corporation (NASDAQ:NVDA) was part of 89 hedge fund portfolios, compared to 84 in the prior quarter. Ken Fisher’s Fisher Asset Management is a prominent stakeholder of the company, with more than 12 million shares worth $1.5 billion.  

Vulcan Value Partners made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2022 investor letter:

“We also sold NVIDIA Corporation (NASDAQ:NVDA) during the quarter to allocate capital to new purchases and to add to existing positions in the portfolio. NVIDIA is facing multiple headwinds. Data center revenue growth is slowing, gaming revenue growth is declining, and the United States has issued new export controls to China that impact NVDIA’s products. We believe NVDIA’s competitive advantages are intact, and it remains on our MVP list. In the right circumstances we would be delighted to own it in the future.”

1. Computer Software: Prepackaged Software

Prepackaged software is one of the best sectors to watch in 2023. Intuit Inc. (NASDAQ:INTU) is a California-based company that provides financial management and compliance products and services for consumers, small businesses, and accounting professionals in the United States, Canada, and internationally. The company operates through four segments – Small Business & Self-Employed, Consumer, Credit Karma, and ProConnect. It is one of the best prepackaged software stocks to invest in. 

On November 29, Intuit Inc. (NASDAQ:INTU) declared a $0.78 per share quarterly dividend, in line with previous. The dividend is distributable on January 18, 2023. The company also reported fiscal Q1 2023 earnings and revenue that came in above Wall Street expectations. 

Argus analyst Jim Kelleher on December 1 kept a Buy rating and a $580 price target on Intuit Inc. (NASDAQ:INTU) after its Q1 results. Earnings and revenue outperformed consensus given strength in the Small Business & Self Employed Group, and despite further weakening at Credit Karma, management reaffirmed its forecast for mid-teens EPS growth in FY23, the analyst told investors. The stock has fallen sharply, but Intuit Inc. (NASDAQ:INTU)’s fundamentals remain solid, which point towards the underlying value in the stock, the analyst contended.

According to Insider Monkey’s third quarter database, 86 hedge funds were long Intuit Inc. (NASDAQ:INTU), compared to 75 funds in the preceding quarter. Henry Ellenbogen’s Durable Capital Partners is a leading position holder in the company, with 1.70 million shares worth $660 million. 

Here is what RiverPark Large Growth Fund has to say about Intuit Inc. (NASDAQ:INTU) in its Q3 2022 investor letter:

“We took advantage of its 2022 price decline to add a small position in Intuit. INTU is a leading SaaS software solutions provider to small businesses, consumers, and professional accountants, best known for its QuickBooks accounting and TurboTax tax preparation platforms. INTU recently strengthened its personal finance offerings with the acquisitions of Mint and Credit Karma, and its small business offering with the acquisition of email marketing platform Mailchimp. The company is benefitting from the secular shift to digitization for both businesses and consumers. Given its vast amount of valuable personal finance and tax customer data from its 100 million + customer installed base, the company can apply artificial intelligence to the data to generate actionable intelligence for customers, as well as a large cross-selling opportunity across its products.

Given INTU’s less than 5% penetration of its $300 billion market, we believe the company can grow its top-line mid-teens, while improving its high-margin business model of greater than 80% gross margins and greater than 35% EBITDA margin, leading to high-teens EPS growth for the foreseeable future. At about 2% of revenue, the company also requires limited capital expenditures, producing significant and growing FCF, which INTU has used for acquisitions, a small dividend, debt repayment and stock buybacks.”

You can also take a look at 10 Best Transportation Stocks To Buy and 11 Best ADR Stocks To Buy.