2023 has nearly come and gone. But before turning your calendar to the new year, it's worth considering top stocks that could be great buying opportunities.
The end of the year is the perfect time to reflect on your financial goals, see where your portfolio has been and where you want it to go, and align your risk tolerance with your investments.
NextEra Energy (NEE -0.13%), Brookfield Renewable (BEP 1.56%) (BEPC 0.73%) Garmin (GRMN 0.59%), Confluent (CFLT 2.57%), and Chevron (CVX -0.74%) are five completely different but worthy stocks that may help you reach your goals. Here's why each stock is worth buying in December.
Image source: Getty Images.
This top dividend growth stock is now cheap
Neha Chamaria (NextEra Energy): With the utility sector taking a hit in the wake of higher interest rates, shares of the largest electric utility in the U.S., NextEra Energy, have slumped to levels last seen in 2020. The steep fall has driven NextEra Energy's dividend yield north of 3%. The stock now trades substantially below five-year averages for nearly every important valuation metric, including price-to-earnings, price-to-cash flow, and price-to-book ratio. I believe it's a compelling opportunity to buy the stock, given NextEra Energy's foothold in the industry, growth plans, and strong financials.
At its recent earnings conference call, NextEra Energy expressed confidence in its ability to grow in the years to come, driven by its two electric utility and renewable energy businesses. Florida Power & Light is the U.S.'s largest utility and expects to invest $32 billion to $34 billion in infrastructure, including solar, between 2022 and 2025.
Meanwhile, NextEra Energy believes its clean energy arm, Energy Resources, is just getting started. Energy Resources is already the world's leading producer of energy from wind and solar, with nearly 34 gigawatts (GW) in operation and more than 21 GW in backlog.
Driven by its investments in utility and renewable energy, NextEra Energy is confident of growing its adjusted earnings per share (EPS) by 6% to 8% annually through 2026. It also expects to increase its dividend by 10% through next year, at least for now.
Some investors fear NextEra Energy will cut down its dividend growth pace after a similar recent move by its limited partnership, NextEra Energy Partners (NEP 1.30%). I still believe a double-digit dividend raise in 2024 is feasible. NextEra Energy's cash flows are growing steadily, and it doesn't expect any effect on its adjusted EPS in 2023 and 2024 if interest rates rise by another 50 basis points. The company's balance sheet is in good shape, and I think this alone could play a huge role in helping NextEra Energy navigate any storm.
Too great an opportunity to ignore
Keith Speights (Brookfield Renewable): It hasn't been a fantastic year for Brookfield Renewable. Shares of the renewable energy provider are in negative territory with 2023 winding down, even as the major market indexes have delivered solid gains. However, I think that Brookfield Renewable presents too great an opportunity for investors to ignore.
The company expects to generate average annual total returns of between 12% and 15% over the long term. At the low end of that range, an investment will roughly double every six years. I suspect that most investors would be quite happy with that kind of performance.
Of course, setting a target is different than actually achieving it. But I'm confident that Brookfield Renewable will be able to do what it says it will do. In my view, the company probably has the clearest path to delivering double-digit total returns, compared to any other on the market.
It's abundantly evident that the demand for renewable energy sources -- especially onshore wind and solar -- will continue to increase significantly. There's simply no way that countries and major corporations around the world will be able to reach their carbon reduction goals without a lot more renewable energy.
Brookfield Renewable is in a great position to help meet this rising demand. Its operational capacity currently totals around 31.5 gigawatts. The company's development pipeline is more than 4.5 times that capacity. CEO Connor Teskey noted in Brookfield Renewable's third-quarter earnings conference call that the company continues to see plenty of attractive acquisition opportunities.
I especially like Brookfield Renewable's distribution yield of over 5%. The company plans to increase its distribution by 5% to 9% per year. With this strong distribution and exceptional growth prospects, this stock looks like a no-brainer to buy in December.
Navigate toward higher returns
Demitri Kalogeropoulos (Garmin): There's a lot to love about Garmin stock right now. Sure, the tech hardware giant went through a rough sales period following the pandemic. Revenue declined 6% last year following a 19% surge in 2021. That marked the first time in seven years that Garmin hasn't steadily boosted its sales.
The tech company is thankfully returning to its more usual, and impressive, expansion pace right now. Sales were up 12% last quarter, and operating profit landed at a robust 21% of sales. Garmin's management team took the opportunity to raise their 2023 outlook, saying in early November that sales should rise by about 5% this year to $5.2 billion.
I like Garmin for its diverse portfolio that spans consumer-focused devices like smart watches and fitness trackers, but also higher-priced products like marine and aviation navigation platforms. The company has demonstrated a knack for innovating across these varied segments, and the payoff has been rising sales and market-beating profitability over the years.
It's true that the stock jumped in response to the good news that investors have seen in Garmin's results this year. But there's still room to enjoy solid returns by holding shares over the long term. At below 5 times annual sales, Garmin's price-to-sales valuation is still far less than the pandemic peak of close to 7 times sales. But the business looks very strong as it aims to conclude another year of sales growth and profit expansion in 2023. Toss in a modest dividend payment, and Garmin should help investors find their way to market-thumping returns.
Confluent: The unsung hero of secure data messaging
Anders Bylund (Confluent): When I talk about streaming services, the conversation usually centers on media streaming experts such as Netflix (NFLX 2.95%). These innovators turned the entertainment world upside down over the last decade or so, and digital streaming is the default method of video and music delivery for many people in 2023.
Confluent runs a streaming service too, but a very different one.The Confluent Kafka suite is a system that carries any kind of data from a publishing hub to any number of delivery endpoints. The actual stream can be anything, including plain text, digital video, or raw binary data. Businesses use it to manage everything from log files and real-time sensor readings to remote backups and ultra-secure data transfers.
This reliable connectivity plays a central role in the Internet of Things and Web3 revolutions, shepherding the right data to the right destination -- millions or even billions of times per second. For classical Unix nerds like myself, you can think of Kafka as a modernized version of MQ (formerly MQSeries).
This stock is a fairly fresh face, entering the public market as recently as 2021. However, the company has been around since 2014, when three original inventors of the open-source Apache Kafka system wanted to commercialize their powerful messaging solution. A decade later, Confluent provides enterprise-ready features in addition to the basic Apache Kafka solution, selling software subscriptions and technical support services.
The business is absolutely humming, as you'd expect from a cornerstone of several next-generation technology trends. Revenues rose 32% year over year in the recently reported third quarter of 2023. The quarter was profitable on an adjusted basis, exceeding Wall Street's consensus estimates across the board. That's business as usual, apart from the newfound profitability. Confluent has a firm history of beating expectations and delivering robust growth.
And don't forget about the media-streaming giants -- as it turns out, Netflix relies on Kafka to manage its content production spending, real-time viewing data, and financial forecasting. Yes, that's a diverse grab bag of data streams, highlighting just how flexible Kafka is. This little technology is going places.
Yet, that surprising Q3 report triggered another sharp sell-off. Confluent's stock price plunged 42% lower the next day due to modest guidance for the next reporting period. Fourth-quarter sales were aimed at a 21% year-over-year increase along with continued bottom-line profits. But the top-line reading was below the average analyst projection at the time, and that was enough to inspire that dreadful price cut.
Well, the lower share price is dreadful only if you own Confluent already and were planning to sell the stock someday soon. Otherwise, I see a fantastic buying opportunity here. The original founders still run the company, preserving Confluent's spirit of innovation and personal C-suite commitment to the company's success. This is a high-powered growth story addressing several important secular trends at once, with tremendous business growth to boot.
Take advantage of the sell-off in Chevron
Daniel Foelber (Chevron): Chevron more than doubled between the beginning of 2021 and the end of 2022. But this year hasn't been as kind to the energy giant. Chevron is down 20% year to date and is hovering around a 52-week low.
The sell-off makes sense to some degree considering the stock's epic run-up leading into this year and the fact that oil prices have cooled off. But there's reason to believe Chevron is undervalued now.
Big tech companies use their gobs of free cash flow to buy back stock and invest in growth, which allows them to take market share regardless of the market cycle. Chevron does the same thing, just with a degree of caution that's valued in the highly cyclical oil and gas industry.
For example, Chevron continued to pay and raise its dividend even during the brutal oil and gas downturn of 2020, while also making some small but brilliant acquisitions in hindsight when so much of the industry was barely getting by.
Today, Chevron has been able to flex its high profits and financial muscle to buy back a boatload of stock, and make its largest acquisition in over 20 years.
Chevron has geographic exposure and diversification throughout the oil and gas value chain. It also has an incredibly strong balance sheet that was successfully stress-tested in 2020. It has paid and raised its dividend for 36 consecutive years and is probably going to announce another dividend raise in January. For now, the forward yield is 4.2%.
Finally, Chevron stock is still cheap, sporting a price-to-earnings ratio of just 10.7.
Add it all up, and there's a lot to like about Chevron stock this December.
Anders Bylund has positions in Netflix. Daniel Foelber has no position in any of the stocks mentioned. Demitri Kalogeropoulos has positions in Netflix. Keith Speights has positions in Brookfield Renewable and Brookfield Renewable Partners. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield Renewable, Confluent, Garmin, Netflix, and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners and Chevron. The Motley Fool has a disclosure policy.
