Now that we’re in October, the nights are drawing in. I’m always well aware that the final quarter flies by. With this in mind, I’m already starting to think about what stocks could do well in 2023. Here are five FTSE 100 shares that I’ve got on my watchlist, to buy before the end of this year.
I still want income gems
I think it’s a fairly commonly held belief that the UK economy is going to struggle in 2023. Yet this doesn’t mean that I should just ignore stocks and stick solely to cash. For one, inflation is likely to remain high, meaning that my purchasing power is being eroded. I feel that dividend shares will continue to be really important to enable me to offset some of the inflation impact.
Of course, the dividend yield from stocks isn’t a perfect hedge against inflation in 2023. There’s no guarantee the dividends paid next year will be the same as 2022. I also have a risk that my capital falls in value due to a negative share price movement.
However, I still think it’s one of the best investment options out there. On that basis, I like Aviva and BT Group as two stocks within the index. Both have a dividend yield above 6%, comfortably above the FTSE 100 average.
Robust demand despite a downturn
Even with less disposable income, history shows that some goods remain in demand during tough times. This includes alcohol and tobacco. So, for 2023, I think that Diageo and British American Tobacco should both be on my watchlist.
Diageo owns some iconic brands including Johnnie Walker, Guinness and Baileys. It has a broad scope of operations in the UK but also around the world. British American Tobacco also has a good market share in the UK but maintains a global presence.
I feel both companies could see robust demand next year from the UK market. Yet I also like the stocks as I’m not putting all my focus on the UK. For example, if Asia outperforms next year, then I should still be able to see an uplift from these shares.
Including a FTSE 100 banking share
Finally, it’s hard for me to not have some banking stocks on my watchlist. Rising interest rates aren’t great for my future mortgage, but they’re good for the main UK banks. I expect the Bank of England to continue raising interest rates well into next year. So, the benefit to the banking sector should keep going for 2023.
In short, a bank makes money primarily from the margin difference between the rate it borrows at versus the rate it lends at. This is the net interest margin. The higher the base rate, the larger this margin becomes. Lifting the base rate this year has already provided at uplift for such shares.
From this area, my favoured pick for next year is Barclays. I acknowledge the risk of a recession causing higher loan defaults and lowering customer transactions. But I feel this should be offset by the interest rate difference.
All of the above ideas are on my watchlist, with the aim of purchasing before the end of the quarter.
