The Best of the Best in 2023: The Best Stocks, Sectors, and Time to Buy Just About Anything

As an inveterate shopper, I’m always on the hunt for the best deals—whether it’s for clothing, appliances, autos, and especially stocks!

In this article, I’m going to tell you everything I’ve found out about getting the best deals on just about anything you may want to buy.

But since we’ve endured a pretty rough year in the stock markets, with the Dow down 8.5%, the S&P 500 off by 16.7%, and the Nasdaq declining by 27.6% (as I write this), I think most investors are ready to look forward to 2023.

Sure, inflation is still high (but seems to be mitigating), interest rates continue to rise—with most economists expecting at least a couple more rate increases from the Federal Reserve, and some folks still calling for a recession (the jury is still out on that one!), there’s enough good news (growing earnings and healthy employment) that I believe there will be plenty of opportunities next year to buy some great stocks—for the long term.

If you’ve followed me for a while, you’ll know that I’m not a market timer. Instead, I’m a believer in finding undervalued stocks to buy and hold for at least a year or two. However, I also don’t ignore market cycles or some of the Wall Street adages that can help investors steer their portfolios through some uncertain times.

Over the years, these adages and advice have been used to explain market gyrations, and Wall Street has done such a good job of convincing investors that they work more often than not, that investors frequently buy them, hook, line, and sinker.

Now, don’t get me wrong—some are absolutely great advice—such as “Cut your losses short,” “Don’t fight the Fed,” and “Take windfall profits when you have them.”

Many times, they work just fine. But the market—like history—never repeats itself exactly, so I just want to make you aware of some of the catchphrases you’ll be hearing about over the next few months, so you can decide for yourself whether it’s time to buy, sell, or hold!

And for this article, I want to review some specific seasonal adages, including:

• The Santa Claus rally
• The January Barometer
• Sell in May, and Go Away

Let’s look at the Santa Claus Rally first. It proclaims that stock prices rise more than usual over the last five trading days of December and the first two days of January. This year, it will start on December 23 and last through the second trading day of the new year.

The creator of The Stock Trader’s Almanac, Yale Hirsch, did a study of the S&P 500’s performance from 1950 to 1971 during this seven-day period and discovered that the index rose an average of 1.5%. Since then, the index has been up an average of 1.3%. And in 34 of the last 45 years, it has been positive 75% of the time.

It also worked last year, with a 1.4% rise in the S&P 500 during those seven trading days. However, as we know, that rally didn’t continue through the rest of 2022.

Market soothsayers say that the reasons behind the Santa Claus Rally are varied, including:

• Seasonal cheer makes people happier and inclined to buy everything, including stocks.
• Institutions are often absent from trading, as the holiday season beckons vacation travelers, so retail trades tend to rise.
• End-of-the-year bonuses provide dollars for buying stocks.
• Tax considerations may prompt investors to sell their losers and buy opportunities for the coming year (some tax-loss harvesting, as I wrote about in last month’s feature).

Of course, trading often leads to more trading, and if investors are expecting a Santa Claus Rally, more folks get into the market, pushing stock prices up. And the rally sometimes occurs even in a bear market and recession, such as the recession of 2008, when stocks rose 7.5% during this period.

As I write this, the markets have had a tough couple of weeks, and I don’t hear many market gurus calling for a Santa Claus Rally. But it could happen. The following graph depicts market performance for the past 20 years in December, so you can see it’s pretty choppy. Nevertheless, it’s prescient to recall Yale Hirsch’s summation of the rally: “If Santa Claus should fail to call, bears may come to Broad and Wall.”

Another popular adage is the January Barometer—“As goes January, so goes the year.” Yale Hirsch created the term, “January Barometer” in 1972. His research dated the origin of that phenomenon to 1934, after the Twentieth Amendment moved the date that new Congresses convene to the first week of January and Presidential inaugurations to January 20.

Jeffrey Hirsch, current editor of The Stock Trader’s Almanac (and Yale’s son), reports that the January Barometer has been accurate 84.5% of the time since 1950. It’s had only nine major errors—in the secular bear markets of 1966, 1968, 1982, 2001, 2003, 2009, 2010, 2014, and 2016.

Sell in May and go away is one of the most well-known adages. And it’s mostly true. It is believed to have come about since most of Wall Street takes a good portion of the summer off, so trading tends to be lighter, and volatility usually drops.

According to Jeffrey Hirsch, editor of the Stock Trader’s Almanac, the S&P 500 only rose 0.1%, on average, in May going back to 1950.

And Sam Stovall, Chief Investment Strategist for CFRA, says, “Since 1946, the S&P 500 posted an average gain of just 1.4% from May through October, By comparison, the S&P 500 gained an average of 6.6% from November through April since 1946.”

In contrast, the average gains from October through April are about 7% since 1990.

To summarize: sometimes, these adages are true, and sometimes they aren’t. So, the real moral of this story is easy. The market has cycles. And sometimes, they repeat themselves fairly well, compared to historical periods. Oftentimes they don’t. And investors who blindly follow the crowd almost always get hurt, either by jumping into unworthy companies at their highest points (buying high) or staying on the sidelines when they shouldn’t.

The Best Months to Buy and Sell Stocks

But having said that, I also like to look at market averages over time. It’s pretty interesting when you delve into the research and look at the raw data, such as the research compiled by Barry D. Moore CFTe of the Liberated Stock Trader. Moore went back 40 years, reviewing which months provided the best opportunities for stock buyers.

Here’s a snapshot of his total research from 1980-2020.

The Best Months to Buy Stocks from 1980-2020

Moore reports that over the last 40 years, the best months to buy stock have been April +1.97%, October (+1.13%), November (+1.55%) & December (+1.22%). And August is the best month to sell stocks.

Now, let’s condense the time period to just the past 20 years.

The Best Months to Buy Stock from 2000-2020

So, from 2000 to 2020, the best month to buy stocks is still April, as the S&P 500 increased 2.4% in 15 of the last 20 years. But don’t discount October and November, in which stocks have gained 1.17% and 1.08%, respectively, rising 75% of the time. And again, August is the best time to sell stocks, especially toward the end of the month, according to Moore.

Of course, your returns depend on what you are purchasing. If you generally invest in the broad market indexes via an ETF, your returns would be similar to the above tables. However, if you are buying individual stocks, your returns will vary greatly.

And if you’re thinking, “what is the best day of the week to buy stocks?” most expert traders agree on Monday, due to the pent-up demand over the weekend.

So, with all this data, what’s an investor to do? The key is to forget about Wall Street. Think of it as the chief lemming leading all the rest of the lemmings over the cliff. Instead, our focus must be to realize that each market cycle is different from the one before. Our task is to carefully analyze the domestic and global markets and economies as a whole. Next, to break them down into what is working now and what is not, in terms of sectors. And finally, to find the very best potential investments in each of those “working” sectors.

If you jump into the market based on a seasonal adage, or monthly data, you are putting your portfolio at risk. Most investors inevitably buy and sell at the wrong time, often missing the markets’ best days. So, don’t waste your time jumping in and out of the market, based on dubious market timing claims. Instead, I recommend that you look beneath the surface, to discover what each market cycle can bring to the table—in terms of building your portfolio—instead of jumping off the cliff with the rest of the lemmings, and possibly missing some fabulous opportunities.

And that’s just what we are going to do next!

The Best Sectors for 2023

Here’s a look at how the top S&P 500 sectors have performed over the past few years.

U.S. Sector

Source: Seekingalpha.com

As you can see, most sectors—except energy and utilities—were down for 2022.

So, what should we expect for 2023—a period of rising rates and a possible recession on the horizon?

Again, we can look back historically and say that a recession generally creates opportunities in essentials—things we cannot live without. They include utilities, healthcare, consumer staples, and maybe even technology. After all, most people are glued to their iPhones, bad economy or not!

And if interest rate increases mitigate in 2023, that should also be good for technology and other growth stocks. Additionally, technological improvements and innovations such as heartier graphic processing units (GPU’s)—important to gamers, and 5G cell phone coming online will certainly boost technology sales.

In healthcare, pundits believe more investments will be flowing into that sector.

Utilities are considered “safe harbors” in recessions, as investors like their steady dividends.

FactSet has recently forecast that in 2023, earnings growth for the companies in the S&P 500 index will be 5.7%, but analysts expect 8 of the 11 sectors to show positive increases in earnings per share, as shown in the graph below.

Sure, there’s plenty of uncertainty, but I believe you need to stay fully invested for your long-term portfolio. So, using this research, I trolled through hundreds of companies in the top three sectors to come up with a recommendation in each sector that I think is attractive for the 2023 markets.

Let’s take a look at them.

Home Depot (HD) is a Consumer Discretionary stock. This Atlanta-based home improvement retailer has more than 2,300 stores around the U.S.

Home Depot began trading in 1981, at a split-adjusted price of $0.03 per share. Don’t we all wish that we had bought a hundred shares back then, when we first strolled the aisles and were amazed at the inventory? Who knew one house could have so many parts? If we had followed our instincts, we may not need anything else in our 401ks!

As you can see in the above graph, the shares had a heyday during the pandemic as folks stayed at home and, looking around their homes, found lots of honey-do projects to keep them busy.

The shares have retreated in 2022—along with most of the market—but have recently shown some improvement. In this week’s retail sales report, the Commerce Department said that retail sales dropped 0.6% in November, more than the 0.1% prediction. That followed a robust October, when sales rose 1.3%. Hardest hit were consumer discretionary retail stocks, like Macy’s (M) and Target (TGT). But Home Depot also took a hit, after a brief rise following its third-quarter earnings report.

The company posted earnings of $4.24 per share, up 8.2%, and beating the estimate of $4.11. Its sales rose 5.6% to $38,872 million from $36,820 million in the year-ago quarter and also beat the consensus estimate of $37,970 million. Looking forward, the company expects its same-store-sales comps to advance by 3% in 2023.

The company pays a dividend yield of 2.28% and is ranked as a “Buy,” both technically and fundamentally due to its earnings growth and reasonable P/E valuation, a bit over 19.

Financial stock Mid Penn Bancorp, Inc. (MPB) is a regional bank that has been in operation since 1868. It is headquartered in Harrisburg, Pennsylvania, and has branches across that state.

I’ve always loved regional banks, as they offer a couple of ways to make gains:

1. Through steady dividends (Mid Penn’s dividend yield is 2.6%)

2. They often are bought out by larger banks, offering investors a nice premium on their shares. Bankingstrategist.com reports that there are just 4,588 community banks left in the U.S. The industry has been consolidating at an annual rate of 3.5%, with a reduction of 164 banks in 2022.

However, Mid Penn has maintained its independence for more than 150 years, so I’m not counting on a buyout here. The bank’s shares are currently 48% owned by insiders, which is a pretty high percentage.

But here’s why I like the shares: Earnings, earnings, earnings! In its latest quarter, the bank’s EPS was $0.97, up from $0.86 a year ago, and walloping analysts’ estimates of $0.81 per share. The bank has beat earnings estimates for the last four quarters.

Mid Penn continues to steadily expand its branches, and consistently produce earnings.

The shares of Mid Penn are ranked in the top 5% of more than 4,000 stocks by Zacks, based “trends in earnings estimate revisions and EPS surprises—the key factors that impact a stock’s near-term price movements.” The shares also carry a “Buy” rating from both technical and fundamental analysts.

Encore Wire Corporation (WIRE). This McKinney, Texas business Encore Wire Corporation fits into the Industrial sector. The company manufactures and sells aluminum and copper electrical building wires and cables for interior electrical wiring for use in homes, apartments, and manufactured housing, as well as commercial and industrial buildings.

It’s a small-cap company with market capitalization of about $2.5 billion. Encore pays a dividend yield of 0.06%.

You can see from the above chart that Encore was another excellent pandemic stock, bringing investors gains of more than 250% over the past three years. Certainly, it’s been choppy since, as economic activity and market volatility worried small-cap investors. However, the shares have held up far better than most small-cap growth stocks, which have suffered a 25% decline in the past year.

Back in 1989, the company began in a 68,000-square-foot industrial warehouse. Today, it has over three million square feet spread across 450 acres.

I like it for its earnings track record. In the past four quarters, Encore has surpassed analysts’ earnings estimates, with an average surprise of 173.4%, due primarily to the company’s growth in high-margin products. Over the past nine months, its sales grew to $2.32 billion, 22% higher than in the same period in 2021, while net income was $563.8 million, 41% higher than a year ago. Encore’s gross margin jumped 400 basis points, due primarily to greater volumes shipped and increasing spread in aluminum costs vs. profits.

And the company is cash-rich, with no debt!

Certainly, any recession will result in slower growth, but with a P/E of just 3.92, the valuation looks very interesting to me!

As always, please do your due diligence before deciding to add any of these shares to your portfolio, just to make sure they coincide with your long-term investing strategy and risk profile.

Next, I’m going to give you the low-down on how to do some smart shopping in the New Year.

Budgeting for Big Expenditures in 2023—Read This First!

I remember my dad telling me when I first started to drive that the best time to buy a new car was in September—right before next year’s models were introduced. And I always heard that January was the best month to buy home appliances—for the same reason.

As we are about to embark on a new year, I thought I would do a little research to find out if those long-held “facts” were really true. And you know what? They aren’t!

It turns out that there are volumes of research based on consumer spending habits, discounts, and rebates, and none of my pre-conceived notions were correct!

In truth, October through December are the best months to buy a car, and consumers will find the best deals on appliances in September, specifically around Labor Day. Who knew?

Honestly, I was surprised in just about every category I researched. So, I dug deeper and found that for almost anything you might want to buy, there is a “best time” to do so. I’m sharing the results of my studies with you in the hopes that the information will help you set your budget for any large purchases you may have in mind in 2023. And maybe you’ll find that you’ll accrue enough savings to fund your 2023 IRA!

Let’s start with a simple chart that shows the best months for an assortment of products.

I have to say that I wasn’t surprised that Diet and Nutrition, Skin Care, and Tech Accessories were good deals in December. After all, as the year winds down, we all begin thinking about getting in shape and taking better care of ourselves in the new year (make those resolutions!), and also about replacing older tech products for ourselves or as gifts. But Travel Accessories in October (I could understand May!) or TVs and Home Theater equipment in April? It seems like the fall would be a better period for those purchases, since we all would be spending more time indoors during the coming winter months. And that’s not counting the all-important Super Bowl in February (when visions of 100” TV’s swim in most males’ heads!). Oh, well—you can’t argue with “facts.”

Interestingly—and not too surprisingly, since holiday buying starts earlier every year—Savings.com found that November was the month when deals were boosted in many categories, specifically:

• Apparel and Accessories
• Computers and Software
• Electronics
• Home and Garden
• Sports and Recreation
• Travel
• Wireless, Broadband, and Cable

And according to U.S. News & World Report, the dog days of August are the best times to purchase furniture, swimwear, footwear, school supplies, and diamond engagement rings.

In addition to advice about the best monthly deals, I also heard there were days of the week that were better for purchasing certain items. I remember being told not to buy a car that was made on Monday (too many hangovers/absences) or Friday (anxious to get out for the weekend!).

That, too, is apparently untrue. First of all, an automobile is not usually assembled in total in one day; instead, the process takes about 18-35 hours (about three to four shifts).

Also, if you can infer that certain days of the week may produce lower quality products, there are actually studies of manufacturing accidents by day that show that the most occur Tuesday through Thursday, as shown below.

Source: Journal of Hazardous Materials

However, there are deals to be had on certain days of the week, as shown in the following graphic.

It’s interesting to note that the best deals on airline tickets are on Friday. However, the Airlines Reporting Corporation (ARC) also says that departure fares are the cheapest if booked on Thursdays and Friday. Furthermore, travel becomes easier since Friday is also the best day to make hotel reservations, too, according to the ARC.

What You Need to Know About Buying Appliances

As I mentioned earlier, the experts say to get the best deals on appliances, buy them in September and October, when the new models roll out. But they go even further, reporting that the very best prices can be had in September/October for washers, dryers, and dishwashers; May for refrigerators; and January for ranges/ovens. And of course, every holiday presents opportunities for deals.

But don’t forget, you can do even better if you buy last year’s models when the new ones emerge. The last time I bought a cooktop and oven, I got really lucky. It was the end of the model year; both were the display models, and when I whined about how many times customers had opened and closed the oven door, I ended up paying about half of the original price!

Another way to save on appliances is to buy several at once—bundle deals—which can save you hundreds of dollars.

The Pandemic Changed the Car Buying Process

I really hate buying a new car, although I love to test drive them! It’s just such an archaic process. I used a car broker once, when I was living in California, and honestly, it was the easiest experience I’ve ever had.

But with computers and smart phones today, you can build your own car package, shop a variety of dealerships across the U.S., and even negotiate the financing—all without leaving your home! You don’t need to spend 4-7 hours in a dealership, talking to a succession of high-pressure salesmen. And I am all for that!

Additionally, while October through December offer the best deals, USNews.com offers these extra tips on the best times to buy an auto:

• Before you need one (no pressure to get something quickly)
• The end of the month (when sales quotas must be met)
• Mondays (because the weekends are busy, and non-dealership lenders aren’t usually available on Saturday and Sunday)
• Three-day weekends (holiday sales)
• The month of May (pre-Memorial Day sales, rebates, and incentives)
• New Year’s Eve and year-end sales events (special sales events)
• Black Friday (it’s the end of the fall sell-off season, and nearing the end-of-year sales quotas)
• When there are incentives, rebates, or financing deals
• End of the model year
• When a car has been redesigned or discontinued

There you have it! The best times to buy just about anything. Of course, we all know that consumer habits, markets, and economic cycles can change on a whim. But if you are planning on investing or making some large purchases in 2023, I hope this guide will be helpful.

My sincere best wishes for a wonderful holiday season and a healthy, prosperous, and happy new year!