Given how hard it has been to pick winning stocks this year, due to the outsized gains enjoyed by a narrow collection of stocks in the US in particular, we are delighted with the performance of our 2023 Tips of The Year.

Against a FTSE All-Share index which has basically gone nowhere, eking out just a 0.5% positive return at this stage, our basket of 10 stocks has returned an average of 23.3% on an equally-weighted basis so far this year.

A BROAD SPREAD OF WINNERS

Just as pleasing, the performance isn’t all down to one or two stocks – eight of our chosen shares have generated double-digit returns and of the other two only one is in negative territory.

We deliberately avoided too much concentration on any one sector, so our selection included consumer stocks, a pharmaceutical major, a China-focused financial, a semiconductor equipment-maker and a gold miner, giving us a good mix of ‘growth’ and ‘value’.

Similarly we didn’t just stick to UK names but included European and US stocks with a global revenue base, which has undoubtedly helped since the UK market has been decidedly lacklustre.

The selection also included a range of market caps, and while our average return is perfectly respectable calculated on an equally-weighted basis, if we had adopted a market-cap weighted approach like our chosen benchmark, the FTSE All-Share index, our return would have been even stronger given the weighting and performance of one of our star stocks, Apple (AAPL:NASDAQ), which started the year valued at over $2 trillion and is now worth close to $3 trillion.

Finally, while we aren’t paid to be fund managers, we also didn’t want to simply leave our stocks untended so we booked gains early on three of our positions – rightly it turns out, since all three have given back a fair chunk of their outperformance since we said to take profits.

THIS YEAR’S TOP PERFORMERS

Top of the tree so far this year, and defying ‘law of big numbers’ which says when a company gets too large it can no longer grow, is consumer electronics behemoth Apple with a gain of 46.6%.

Our investment case was based on the firm’s ability to continue growing its sales not just of products but services such as Apple TV and its App Store, helped by its strong balance sheet, while at the same time expanding its margins by raising selling prices.

We were comforted by the fact the shares had derated from 48 times earnings in 2020 to a more reasonable 21 times by the start of 2023 and it was the biggest single holding for Berkshire Hathaway (BRK.A:NYSE), managed by legendary investor Warren Buffett.

Pleasingly, first-half earnings were solid, and expectations are high for the third quarter following the release of the new MacBook Air and MacBook Pro, which is still the firm’s biggest sales driver despite the popularity of the iPhone.

Given how well the shares have already performed we will be keeping a close eye on Apple’s next quarterly update on 3 August and be alive to the implication of that earnings report.

Snapping at Apple’s heels is photo booth-to-laundromat operator ME Group International (MEGP), up 43.4% despite having already enjoyed an index-thumping 71% gain in 2022 thanks to pandemic-driven demand for its services.

We thought rather than being a flash-in-the-pan the company could continue to surprise this year in terms of sales and profits based on its strong customer relationships, which translate into reliable long-term contracts meaning good visibility of cash flow and earnings.

Moreover, the firm was set to invest in the next generation of photo booth machinery while continuing the roll-out of its smaller laundry and vending equipment operations, giving it a more balanced income stream.

At the beginning of June the firm raised its sales and profit guidance for the year ending in October due to better-than-expected first-half trading, leading analysts to raise their earnings estimates and spurring a strong rally in the shares.

BANKING OUR PROFITS

Our next three best-performing positions were closed out early due to the unexpectedly sharp rally at the beginning of the year which generated gains of between 20% and 40% in an unusually short time-frame.

After its shares had lost over 40% in 2022, putting them on a single-digit price to earnings multiple, we added athletic footwear retailer JD Sports Fashion (JD.) to our tips list for its proven ability to execute even in difficult times.

As it transpired, in early January the ‘King of Trainers’ reported bumper sales for the Christmas period and guided profit expectations towards the top end of market forecasts, sending its stock price soaring.

As we said at the time, a quick-fire 41% gain was more than we reasonably expected in 12 months let alone a few weeks given the pressures facing retailers, so we advised selling shares to the value of the original investment, leaving a reduced holding to capitalise on any further gains.

It was a similar story with our next-best performer, African miner Shanta Gold (SHG:AIM), which we picked for its promise of operational progress as well as its direct exposure to the yellow metal.

In the event both parts of our investment case came off, with gold prices rallying and the firm publishing a positive update on its reserves and resources.

With a 31.2% gain in less than three months we banked our profit in late March and moved on.

The third position we closed early was Walt Disney (DIS:NYSE) after the shares had run ahead of the fundamentals.

Having lost 45% of its value in 2022, the stock looked outstanding value especially with the return to the hot seat last November of former chief executive Bob Iger who was expected to reinvigorate the brand.

Earnings for the final quarter of 2022 significantly beat market expectations with subscriber numbers holding up despite a price hike in streaming services and the theme parks performing particularly well.

After a 26% gain in six weeks, we felt the shares had priced in a lot of positive news while the streaming business still faced challenges so we cashed in.

MORE UPSIDE TO COME

As last week’s second-quarter results demonstrated, Dutch semiconductor equipment maker ASML (ASML:AMS) is not only delivering what it promised at the start of 2023 but actually exceeding market expectations.

Sales, earnings and new orders were all above forecasts, and the firm raised its full year revenue growth target from 25% to 30% due to strong demand from Chinese customers who can only buy older equipment due to restrictions on technology exports to the country.

ASML is the undisputed global leader in lithography systems, machines which can cost up to $200 million apiece, supplying just about every major computer chip maker, and it is having to expand production as it cannot keep up with customer demand.

Grocery and sweet treats purveyor Premier Foods (PFD) has repaid our faith with a return of nearly 15% so far this year, underscored by an upbeat first-quarter trading update.

Group sales climbed 21% in the three months to the beginning of July led by a ‘very strong performance’ in grocery items, up 27%, with core brands like Batchelors, Bisto and Oxo taking further market share as consumers cook more at home to keep costs down.

Sweet treats, including Mr Kipling cakes and Cadbury-branded goods, saw sales rise 7% although most of the growth came from the group’s non-branded products thanks to contract gains in pies and tarts.

Significantly, the firm said it believed recent high input cost inflation was ‘past its peak’ meaning it had no need to raise prices again this year, yet with the first quarter’s strong sales momentum set to continue it saw full-year trading profit towards the top end of its expectations.

Food services and catering group Compass (CPG), up 11% so far this year, has raised its profit outlook and unveiled a new share buyback programme in May following a stronger-than-expected first half performance.

Underlying sales grew by almost 25% in the six months to March with the firm reporting ‘balanced growth across all regions’ and a ‘very strong’ performance in Europe.

The trend towards first-time outsourcing – where companies close their own in-house catering services and bring in outside providers like Compass – looks to be accelerating with 45% of new business coming from first-time customers.

‘Net new business continued to be excellent, and significantly higher than our historical rate,’ commented chief executive Dominic Blakemore.

On the back of its stronger-than-anticipated first half the group raised its full-year organic revenue growth target from 15% to 18% and forecast operating profit growth ‘towards 30%’ against a previous target of ‘above 20%’, while increasing its first-half dividend by 15% and announcing a new share £750 million buyback. We still like the shares.

CATCH-UP POTENTIAL

While we didn’t expect life insurer and asset manager Prudential (PRU) to shoot the lights out on the reopening of the Chinese economy, it’s fair to say we’re disappointed with its performance so far even though it’s in line with the FTSE 100 average.

First-quarter results, published last month, showed a strong bounce-back in sales with annual premium equivalent up 29% across the group and double-digit growth in 10 out of 13 Asian markets with Hong Kong premiums up almost threefold.

Analyst Philip Kett at Jefferies says ‘it is difficult to overstate the magnitude, or the materiality, of the sales reported by the largest life insurers in China and Hong Kong’.

‘With pandemic-related restrictions being removed and the border between Mainland China and Hong Kong now open, we believe that a unique opportunity to step-change sales growth has arrived,’ argues Kett.

For now, it seems the market is oblivious to Prudential’s charms, but we suspect once sentiment towards China improves there is a           good chance the shares will rerate, so we’re happy to wait.

Bringing up the rear is global pharmaceutical-maker GSK (GSK), which has delivered operationally this year with consecutive quarterly earnings ‘beats’ but still seems to be under a cloud as far as litigation over heartburn drug Zantac is concerned.

GSK, along with French firm Sanofi (SAN:EPA) and US firm Pfizer (PFE:NYSE) who helped co-develop the drug, has seen billions of pounds wiped off its market value over concerns it could face a barrage of claims and a huge legal bill after the US FDA (Food and Drug Administration) said Zantac appeared to produce unacceptably high levels of NDMA, a carcinogen, when exposed to heat.

In December, the three companies won a significant court case dismissing thousands of US claims, but they still face cases in California and until these are settled the shares could continue to drift.

Analysts are growing more positive on the stock, however, revising up their earnings expectations, and as Shares went to press GSK was about to report its third-quarter results so we retain a constructive stance in the hope of another positive surprise.

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