2022 was a year of soaring consumer prices and falling stock prices. I’m sure most investors will be happy to put it behind them, perhaps after some tax-loss harvesting. The silver lining of this year’s bear market, of course, is that stocks went on sale. Yet, given economic uncertainty and the potential for more volatility, it’s important for traders looking for the best bargain stocks to focus on companies that are resilient and will be able to withstand what may lie ahead.
Below, you’ll find companies that are tied to fundamentally relevant industries and are undervalued, either against traditional metrics or based on GuruFocus’ proprietary calculation. As well, these companies boast strong balance sheets.
Here are the best bargain stocks to buy for 2023.
Best Bargain Stocks: Adobe (ADBE)
Software firm Adobe (NASDAQ:ADBE) is down 40% on a year-to-date basis after getting swept up in the broader tech wreck. The stock may be finding its footing, though, gaining 25% since it hit a 52-week low in late September.
The technology giant, perhaps best known for its Photoshop program, should benefit from the gig economy. The gig economy is expected to grow at a compound annual rate of 16.18%, hitting $873 billion in 2027. The trend toward gig work could accelerate next year as more companies require in-office work. This could drive those seeking more flexibility into the gig economy.
Adobe is a highly profitable enterprise. Its return on equity stands at a blisteringly high 33.7%, reflecting its ability to convert equity financing into bottom-line growth.
Global animal health company Zoetis (NYSE:ZTS) is down 36.5% so far in 2022. However, since hitting a 52-week low on Nov. 3, shares are up 25%.
Zoetis has around 300 product lines sold in more than 100 countries. These include medicine and vaccines for livestock — cattle, swine, poultry and sheep — as well domestic pets. In addition to the growing demand for food, which requires healthy livestock, Zoetis will benefit from the growing pet care market.
In the U.S. alone, people spent $123.6 billion on their pets in 2021. Grand View Research puts the global pet care market size at $150.67 billion last year and expects a compound annual growth rate of 5.1% through 2030.
Zoetis’ return on equity stands at 44.7%, beating out over 96% of the competition. As well, it features double-digit revenue growth, with a three-year revenue growth rate of 10.9%. That’s higher than roughly two-thirds of its peers.
Best Bargain Stocks: Imperial Oil (IMO)
Due to Russia’s invasion of Ukraine and the resulting global energy crisis, shares of Canadian petroleum company Imperial Oil (NYSEAMERICAN:IMO) are up more than 36% this year. However, shares are down 16.5% from their 52-week high, presenting an attractive entry point for bargain hunters.
According to GuruFocus’ proprietary calculation, IMO is “modestly undervalued.” It also appears undervalued based on more traditional metrics. For instance, its price-to-sales ratio of 0.8 is below the industry median of 1.06. And the company’s price-to-free-cash-flow ratio is 5.61, lower than nearly 62% of its peers.
Imperial Oil also commands a solid balance sheet. Its debt-to-equity ratio of 0.19 is well below the industry median of 0.44. As well, its Altman Z-Score of 3.9 reflects a low bankruptcy risk.
Mosaic (NYSE:MOS) bills itself as the “world’s leading integrated producer of concentrated phosphate and potash — two of the three most important nutrients in agriculture.” As a fertilizer producer, Mosaic benefits from the growing demand for food, as well as the disruption of the global food supply due to Russia’s war in Ukraine.
Shares are up nearly 20% on a year-to-date basis. Yet, they sit more than 40% below their 52-week high, made in April, when fertilizer prices spiked to record levels. Fertilizer prices fell in the latter half of the year as high prices weakened demand. This led to a supply glut and production cuts, but Mosaic’s management sees this as temporary.
“After a year of reduced applications, we believe farmers are incentivized to maximize yields, which should drive significant recovery in fertilizer demand in 2023,” said Mosaic’s President and CEO Joc O’Rourke.
GuruFocus considers MOS “modestly undervalued.” Turning to more traditional metrics, shares trade at 4.6 times earnings and 4.9 times forward earnings. That is better than 91% and 71% of the competition, respectively. As well, Mosaic’s price-to-book ratio is 1.39 times, below the industry median of 1.93.
Best Bargain Stocks: CF Industries (CF)
Mosaic isn’t the only fertilizer stock on today’s list of the best bargain stocks. CF Industries (NYSE:CF) is a “leading global manufacturer of hydrogen and nitrogen products for clean energy, fertilizer, emissions abatement, and other industrial applications,” according to the company’s website.
Shares are up 38% so far this year, driven higher by the same forces that drove up MOS. Yet, with the stock pulling back 18% from its 52-week high, it’s offering investors another chance to get in.
The geopolitical crisis in Eastern Europe does not appear to be ending anytime soon. Thus, global food supplies will continue to be disrupted, creating the need for higher crop yields and, thus, demand for CF Industries’ products. As it stands, the company enjoys excellent profit margins and an astounding 83.2% ROE.
Finally, CF trades at 6.4 times trailing earnings, below the sector median of 14. And the company’s price-to-earnings-growth ratio sits at 0.21, better than 88% of the competition.
CoreCard (NYSE:CCRD) “delivers a powerful and integrated solution for any type of card issuing program including complex credit,” according to its website. Shares are down 28% year to date. However, a 14% pop over the past three months could signal the tide is turning.
Despite significant macroeconomic pressures, American consumers continue to spend. As an example, sales for the all-important Black Friday weekend exceeded expectations. Additionally, credit card usage is on the rise. According to the New York Fed, Americans’ collective credit card balance rose 15% in November on a year-over-year basis, the biggest annual jump in more than two decades. This means greater demand for CoreCard’s services, as does the broader trend toward digital payments and away from cash.
CCRD carries a strong ROE of 32.4%. Finally, shares are trading at 15.6 times trailing earnings, better than 70% of the competition.
Best Bargain Stocks: Thor Industries (THO)
I’m going to be straight up with you: Recreational vehicle manufacturer Thor Industries (NYSE:THO) is the riskiest idea on this list of the best bargain stocks to buy. However, it also possesses significant upside potential. Shares are down 20% YTD. However, if they can retake their previous high around $129, investors could see a gain of more than 55%.
To be sure, this stock will likely require a good deal of patience. The company delivered mixed quarterly results earlier this month. Adjusted earnings of $2.53 per share were better than analysts were expecting, although revenue fell short of estimates, down 21.5% year over year. Furthermore, management’s guidance for fiscal 2023 represents a “sharp contraction” from FY 2022 figures, per Zacks Equity Research.
Thor Industries is clearly feeling the effect of consumers reining in discretionary purchases. Spending doesn’t get much more discretionary than an RV. However, Thor does cater to the high end of the market, and spending among the wealthy tends to be more resilient than among people with lower income levels.
With an ROE above 30%, THO offers an intriguing bet for the new year.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.