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After a stock market sell-off in 2022, the start of this new year is an excellent time to boost your portfolio by picking up some growth stocks for a bargain. Macroeconomic headwinds over the last 12 months brought steep declines in the tech industry, which also happens to be a market known for its wealth of growth stocks.
As a result, Apple (AAPL 0.45%) and Alphabet (GOOG 0.49%) (GOOGL 0.45%) shares are down over 25% year over year. Nevertheless, these companies are home to some of the world’s most potent brands, likely to continue dominating for the long term.
With that said, here’s why Apple and Alphabet are two growth stocks to buy without hesitation in 2023.
As the company that gave the world the iPhone, popularized tablets, and boosted Bluetooth headphones into mainstream use, Apple’s stock is easy to recommend. The company is a formidable presence in any market it enters, garnering attention from investors like Warren Buffett, whose holdings company Berkshire Hathaway has given Apple 36.9% of its portfolio.
Apple’s stock tumbled 25% year over year, with December being a particularly ugly month as its shares fell 12.4% in the 30 days leading up to the new year. Investors dragged Apple shares down after news broke that a Chinese factory that manufactures roughly 70% of all iPhones was suffering production issues related to COVID-19 restrictions. Apple’s stock has begun to recover since production returned to 90% capacity, and the company has made plans to leave China entirely in the coming years.
Regardless, there’s plenty to rally over in terms of the company’s future. Countless reports have revealed Apple will likely enter the virtual/augmented reality (VR/AR) markets later this year with a custom-designed headset. The company will join an industry currently dominated by Meta and Sony with their respective VR headsets on the market. However, Apple’s headset is expected to be unique with added AR features. Along with its nearly unparalleled brand loyalty and user-friendly connectivity between its products, Apple has excellent tools to counter the competition.
Moreover, according to Grand View Research, the AR market was worth $25.33 billion in 2021 and will see a compound annual growth rate of 40.9% until 2030. Apple’s history of successfully entering new markets and quickly rising to dominance could make a step into AR and VR incredibly lucrative for its future.
Despite a sell-off, Apple shares have risen 196% in the last five years, while revenue has increased 48% from $265.60 billion in 2018 to $394.33 in 2022. By almost any metric, it doesn’t get much better than this growth stock, making it a must-buy in 2023.
Advertising spending began declining in June 2022 as rises in inflation and interest rates led businesses to slash budgets. The steepest decline during the year occurred in July, when ad spending fell 12.7% year over year. However, that figure had improved to a 3.2% decline by October. With nearly 80% of its revenue coming from ads through platforms such as Google, YouTube, and Android, Alphabet shares have fallen 36% since last January alongside market declines.
Despite a challenging year, Alphabet’s stock has retained 60% growth since 2018, with revenue rising 88% from $136.82 billion in 2018 and $257.64 billion in 2021. Meanwhile, operating income rose 186% in the same period, from $27.52 billion to $78.71 billion. The Google company has experienced immense growth over the long term, which is promising for its future.
Recent economic headwinds are temporary, with the digital advertising market still having plenty of room to grow in the coming years once they subside. According to research from Omdia, the digital ad market was worth $190 billion in 2022 and will almost double to $362 billion by 2027.
Alphabet has held a leading market share in the industry since at least 2016, even with rising competition from Meta and Amazon. As of 2022, its share came to 28%, positioning the company to profit from the market’s growth.
Moreover, in Alphabet’s latest quarter, its Google Cloud segment reported a 37.6% increase in revenue of $6.8 billion, growing more than any other cloud computing service in the quarter. The company’s participation in the booming industry diversifies its revenue and will likely provide significant gains for the long haul as the market continues to expand.
Despite a difficult year, Alphabet reported $62.5 billion in free cash flow as of Sept. 30. The company’s stellar growth since 2018 and ability to overcome last year’s hardships suggest it has a promising future, making it a must-buy growth stock in 2023.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Berkshire Hathaway, and Meta Platforms. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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