If opening a new Stocks and Shares ISA in 2023, I’d start by buying FTSE 100 stocks. It’s tough knowing which ones to go for first, though.
It’s even harder in a recession. But that’s why I think it’s important to forget the economic outlook for the next couple of years, and look to the long-term future.
I think shares in depressed sectors could be among the best ISA buys in 2023.
Finance
Financial stocks can suffer in a recession. That includes banking, insurance, and investment management. I’d like to go for an investment manager. But my favourite two right now are probably abrdn and Jupiter Fund Management, both in the FTSE 250.
I could add them later, and I might start with insurance and financial services provider Legal & General.
The shares are down 13% in the past 12 months, and that helps push the expected dividend yield up to 7.3%. Legal & General has a good history of progressive dividends. And that’s the main reason I’d want it (or a similar company) in my Stocks and Shares ISA.
And I do like to buy dividend shares when their prices are weak and yields are high.
Houses
The housebuilding sector is possibly the most obviously threatened one right now. Interest rates are rising, mortgages are expensive, and house prices are dipping. But I think the market reaction to Taylor Wimpey shares, pushing them down 48% in 12 months, is excessive.
This sector goes often through cyclical slumps. And every time I’ve seen it happen, stocks have come out of it and headed on a new bull run that’s gone on for years.
There’s clearly no guarantee that will happen again. But it’s an industry with strong long-term demand, and significant barriers to entry. And when it’s down, I think that could be a good time to buy the best in the sector.
Oh, and the forecast 8.7% dividend yield helps.
Media
Advertising, PR and media agency WPP had been out of favour for some time before the economy hit the skids. It faced controversy over the departure of founder Sir Martin Sorrell, but that’s in the past now.
The WPP share price is still down, though, dropping 24% in 12 months. And it’s shed 38% in five years.
This time, the forecast dividend yield is only around 4%. But it should be reasonably well covered by earnings, and analysts see it rising in the next couple of years.
Risk
I haven’t really mentioned risk yet, and I see it as essentially the same with all three stocks. When a sector is down, it can be very easy to get in too soon for the recovery. I’ve done it plenty of times myself. And then we could face another year or two of falling value.
With the very uncertain economy, I see a real chance of it happening here. But with an investing horizon of a decade or more, I see these three as good long-term ISA buys.
