3 of the best shares I’d buy now for a stock market rally in 2023

I’ve been focusing on shares like these three that have strong underlying trading ready for a stock market rally in the New Year.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businesswoman calculating finances in an office

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I think there may be a sustainable stock market rally coming next year. And if I had spare cash to invest I’d consider buying stocks such as these three now.

Strong trading

On 8 December, Mears (LSE: MER) released an upbeat trading update.

The company provides housing services, such as maintenance, management and care facilities. And there’s been “strong” trading since the summer prompting the directors to upgrade their expectations for revenues and profits.

The contract pipeline looks robust and the company has been seeing some success with recent bids. Indeed, City analysts have pencilled in an almost doubling of earnings for 2022 compared to the prior year.

Meanwhile, with the share price in the ballpark of 200p, the market capitalisation is around £214m making the business a small-cap enterprise. And that adds some risks for investors. 

It’s also possible for Mears to have less bidding success ahead. However, I like the forecast dividend yield running just above 5% and the stock tempts me now.

Upgraded expectations

Meanwhile, Vesuvius (LSE: VSVS) issued a trading statement on 15 November. The company specialises in molten metal flow engineering and technology. And it said the steel and foundry end-markets are continuing to weaken in the short term.

But the directors upgraded their expectations for the full year. And they said the trading strength arose because of market share gains, dynamic price management, cost reduction actions and a more gradual unwind of inventory.” 

For 2023, they said visibility is low and “the precise timing of a return to growth is very difficult to predict.” However, my takeaway is that the company expects growth ahead. 

Meanwhile, with the share price around the 400p level, it’s down from its 2019 highs above 600p. And the stock has climbed back close to where it was a year ago putting the market capitalisation near £1bn. 

City analysts forecast a dividend yield above 5%. Although earnings look set to decrease by around 14% for 2023. And it’s possible for a downturn in the company’s markets to increase in severity.

There are risks. But I’d be inclined to consider Vesuvius now to hold for the eventual recovery in its business and growth in the years ahead.

Impressive results

I’m also keen on sustainable packaging solutions provider DS Smith (LSE: SMDS). On 8 December, the company posted an impressive set of half-year results featuring strong growth in revenue and earnings.

Chief executive Miles Roberts said the outcome arose because of gains in market share driven by a constant focus” on the evolving needs of customers. 

Roberts expects the full-year performance to April 2023 to be ahead of previous expectations. And that’s despite the “challenging” macro-economic outlook. 

City analysts have pencilled in a rise in earnings of just under 70% for the year followed by a flat outcome the year after. Meanwhile, with the share price near the 320p level, the forward-looking dividend yield is over 5%.

It’s possible for the business to experience a poorer result next year if economies weaken. And there’s a fair bit of competition in the sector. But I think the dividend from DS Smith is attractive. And the stock temps me now. So, I’d be inclined to embrace the risks and hold with an eye on the longer term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »