2022 was a terrible year for stocks. The S&P 500 has lost 20%, the Dow Jones Industrial Average is down nearly 10% and the tech-heavy Nasdaq Composite plummeted more than 30%. Blame it on raging inflation, a hawkish Federal Reserve, the War in Ukraine or a looming global recession.

Given that the days of just buying the S&P 500 or some other broad index fund to garner double digit returns appear to be in the rearview mirror, experts believe it is now a so-called “stock pickers market.”

With that, Forbes tapped Morningstar to identify top-performing fund managers who have either beat their benchmarks this year or on a longer-term basis over three-year, five-year or ten-year periods. Here are their best stock ideas for the coming year.

*Stock prices and fund returns are as of 12/23/2022

Charles Lemonides

ValueWorks Ltd. Partners Long-Biased: Long-term strategy that finds disparities between a company’s underlying assets and security price.

2022 return: 39.4%, 5-year average annual return: 23.9%

Chord Energy (CHRD)

Market Capitalization: $5.5 billion

12-Month Revenues: $3.2 billion

Lemonides likes Chord Energy, which he calls ideal for a bumpy period in markets as it is a “defensive play with huge cash generation” that is selling at an “exceedingly attractive valuation.” The company owns nearly one million net acres of drilling rights, formed in July after the successful merger of Oasis and Whiting Petroleum. Both had previously spent billions of dollars building resources in the Permian Basin—so during the pandemic, many fund managers like Lemonides bought up the distressed debt in the two companies for cents on the dollar. While Chord Energy currently has a $5.6 billion market cap, both Oasis and Whiting each had valuations far above that at their last peak five years ago, he points out. “Back then oil prices were roughly $80 per barrel, and today they’re basically around that,” Lemonides says, noting the two recently merged enterprises are “producing far more oil today than they were back then.” He also likes the fact that Chord Energy is “very shareholder friendly,” returning the great bulk of its more than $1 billion in free cash flow during the last year and a half to shareholders in the form of stock buybacks or dividends: “That’s cash money in shareholders’ pockets.”

Air Lease (AL)

Market Capitalization: $4.1 billion

12-Month Revenues: $2.3 billion

Lemonides is also a fan of Air Lease, which purchases commercial aircraft and leases them to airline customers worldwide. “The industry has gone through as tumultuous an experience as one can imagine with the pandemic, but Air Lease has basically been financially healthy through the other side of that,” he says. “While some airlines have struggled, the industry seems to be on the mend in a powerful way globally.” Though the company has some debt, with travel rebounding and many planes at capacity, Air Lease is poised to benefit from its pricing flexibility and huge fleet of aircraft. “You’re paying for equity at a $4 billion market cap, but they own roughly $30 billion worth of aircraft that are probably continuing to appreciate in value annually,” even during inflationary environments, Lemonides describes. “Airplanes always went up in value during my experience in the 80’s and 90’s,” he says. At current valuation levels—with shares down 17% in 2022, “it just doesn’t make a lot of sense not to buy.”

James Davolos

Kinetics Small-Cap Opportunities Fund:

Concentrated portfolio of small- to mid-sized growth companies.

2022 return: 34.7%, 5-year average annual return: 21.9%

CACI International (CACI)

Market Capitalization: $7.1 billion

12-Month Revenues: $6.3 billion

A long-time holding which the fund has owned for more than 10 years, Davolos highlights “defense technology” company CACI International, which he thinks covers “all the right niches that are relevant for national security.” Unlike Lockheed Martin or Northrop Grumman, which manufacture missiles and planes, CACI specializes in battlefield communications, encryption and cybersecurity. “Given the modern form of warfare, these areas have much higher secular growth than capital goods-focused defense companies,” Davolos says. “But the market still treats it like a traditional defense contractor, with its fortunes heavily intertwined with defense budgets and the hawkishness of the current administration.” Despite a slowing economy with interest rates staying high, most of CACI’s revenue comes from somewhere within the Department of Defense ecosystem, he describes, adding that government contracts are much less sensitive to inflation or an economic slowdown. Even after rising 9% in 2022, shares of the company “remain cheap on an absolute basis”—especially when compared with more traditional defense contractors with heavy capital expenditures.

Permian Basin Royalty Trust (PBT)

Market Capitalization: $1.1 billion

12-Month Revenues: $42 million

Shares of Permian Basin Royalty Trust, which have risen 116% this year, could be poised for further upside in 2023, according to Davolos. The trust itself is a passive royalty on the Waddell Ranch, the lease on which was bought by a private company Blackbeard Operating just over two years ago. The small-cap operator has made some exciting strides improving old wells by injecting fluid or carbon dioxide—and though relatively cheap per well, those costs have obscured the dividend, leading to a retail selloff in the stock. Once Blackbeard’s capital expenditures taper off, however, “the stock could easily be distributing a dividend of $3 to $4 per share next year,” Davolos predicts. “You’re not just betting on capital expenditures rolling over and higher energy prices—Blakckbeard is also ramping up production in these wells significantly,” which will also pay off, he describes. The fund initiated a position in mid-2020, using the collapse in energy prices brought on by the pandemic as an opportunity to buy up shares on the cheap. “If you underwrite an assumption of higher oil and gas prices next year, which we think is going to happen, the dividend will rerate materially—especially as these new wells come online,” Davolos adds.

Kimball Brooker

First Eagle Global Fund: Wide-ranging portfolio of mid- to large-sized growth and value companies, with hedges for volatility.

2022 return: -8%, 10-year average annual return: 6.2%

HCA Healthcare (HCA)

Market Capitalization: $67.8 billion

12-Month Revenues : $59.8 billion

Brooker likes HCA Healthcare—the largest hospital company in the United States, with more than 180 sites of care–because it has “developed a market share big enough so they can use scale to create the best facilities around.” A for-profit operator that is one of the nation’s leading providers of healthcare services, shares of HCA are down nearly 7% in 2022. The fund has owned the stock since early 2018, when shares tanked after an earnings warning related to margin compression. HCA’s top line was hard-hit during the pandemic, both by hospital patients delaying visits or elective surgeries as well as by wage inflation for in-demand nurses, though both of those concerns have been gradually resolving, Brooker describes. While the stock has struggled as a result, he says that HCA will be able to eventually pass price increases on to consumers, not to mention continue to generate “robust cash flows” as hospital visits continue to tick up. What’s more, unlike most hospitals–which are not-for-profit–the company is able to reinvest significant cash to upgrade facilities and thereby attract better doctors and improve patient outcomes, Brooker adds.

Comcast (CMCSA)

Market Capitalization: $153 billion

12-Month Revenues: $121 billion

A longtime and currently top-10 holding of the fund, Comcast may appear to have a mountain of debt—roughly $90 billion at the end of September. “In reality, the company has used these years of low rates to take advantage of reasonably cheap financing,” with a weighted average maturity in 2037 and weighted average coupon of around 3.5%, Brooker describes. “These aren’t particularly scary credit metrics.” He still likes Comcast, shares of which have fallen 32% this year, because of its under-the-radar dividend, which has consistently grown over the past decade and now yields just over 3%. He describes the company as a “durable, sensibly run business” with solid free cash flow, mainly focused on broadband cable but also with elements of diversification with content streaming and theme parks. “Comcast has a high-quality problem—market share is so high that subscriber growth is harder to get, but at the same time pricing can be used as a potential lever, so it really is a double-edged sword.” One potential catalyst to watch for in the next few years: Comcast’s roughly 33% stake in Hulu, which has an upcoming put option allowing the company to sell to Disney. “At a minimum total valuation of around $27 billion for Hulu, that could result in roughly $9 billion for Comcast,” Brooker points out.

Thomas Huber

T. Rowe Price Dividend Growth Fund: Blend of large-cap companies with a focus on dividend growers.

2022 return: -11.2%, 10-year average annual return: 12.6%

Becton Dickinson (BDX

BDX
)

Market Capitalization: $71.5 billion

12-Month Revenues: $19.4 billion

Huber likes BD, which he calls a “good defensive growth company” that has reasonable earnings visibility. The fund has owned the stock for a number of years, but it has struggled with disappointing margins and an FDA recall on its Alaris infusion pump last year. Still, “the worst is behind it,” says Huber, who points out that the company has “gotten its act together” with good new product flow, a healthy cost management program, some small M&A deals and steadily improving margins. The relaunch of BD’s Alaris pump is still a wild card and probably won’t happen until at least 2024, but that has helped boost sentiment, he describes. “There is good money to be made in companies as they improve and come out of a troubled period, whether it is self-inflicted or market driven,” Huber says. What’s more, while BD’s dividend yield of around 1.5% is by no means huge, it is raising it steadily over time, which is “a sign of a healthy, consistently growing business,” he adds. “All of that is important in a world where rates are rising and growth is slowing.”

Philip Morris International (PM)

Market Capitalization: $156 billion

12-Month Revenues: $31.7 billion

A holding of the fund since 2008, Philip Morris International is a “stock where you’re paid to wait” thanks to a 5% dividend yield, according to Huber. He thinks the tobacco company is “nicely set up as we go into next year;” While Philip Morris took a hit from the strong U.S. dollar earlier in 2022, the currency has since weakened, which could be a big headwind abating, Huber says. He is a big fan of the main product, the iQOS, a device, which uses heat rather than burn technology to consume tobacco. In addition to being a healthier alternative to regular cigarettes, the reduced risk product (RRP) category has higher margins than the core traditional tobacco business. “Philip Morris has invested heavily—roughly $9 billion in this category—and is now well ahead of the competition,” Huber says, adding that the company boasts “an enormous first-mover advantage.” It recently acquired Swedish Match, a smaller, multinational tobacco company that crucially gives Philip Morris a distribution line for iQOS in the United States. While former parent Altria doesn’t want to cannibalize its own tobacco business domestically, Philip Morris paid several billion to break the existing agreement between the two companies, now paving the way for a launch in U.S. markets that could be as soon as 2023 or 2024, Huber describes. “That obviously has positive implications for the company and the stock.”

Christopher Marangi

The Gabelli Value 25 Fund: Portfolio of companies selling below private market value, with 25 core equity positions.

2022 return: -17.3%, 10-year average annual return: 5.3%

Liberty Media Series C Liberty Braves Common Stock (BATRK)

Market Capitalization: $1.7 billion

12-Month Revenues: $637 million

Marangi highlights this tracker stock, up 12% this year, which owns the Atlanta Braves baseball team as well as the real estate development rights around its ballpark. “By buying the stock at market today, you’re buying equity in the Braves at a roughly $1.5 billion valuation,” he describes, adding, “the New York Mets sold for $2.4 billion during Covid—and the Braves generate much more revenue.” Though there is roughly $400 million in debt on the franchise, Marangi thinks that if sold, the Braves could garner a valuation nearing $3 billion. Sports franchises tend to trade as a multiple of revenue, but there has been “no slowdown in the public’s appetite for live entertainment post-pandemic,” he points out. One catalyst to watch: Parent company Liberty Media, which also owns Formula One, announced in November that it would spin off the Braves into a separate asset. “Once that happens, it’s likely the team could get sold to a private buyer,” Marangi theorizes. “Sports franchises in general have been excellent stores of value, whether in an inflationary or deflationary environment.”

Dish Network (DISH)

Market Capitalization: $7.3 billion

12-Month Revenues: $17.1 billion

Despite a nearly 58% decline in Dish Network shares in 2022, Marangi has high hopes for the satellite TV and wireless services provider next year, having owned the stock for decades. “Communication services has been the worst-performing sector in the S&P 500 for a lot of reasons—both secular and cyclical,” he describes. “Still, there is a tremendous amount of asset value in the stock today.” He calls the company’s traditional satellite video business a “melting ice cube,” as it has taken a hit from cord-cutting, though it still generates large amounts of free cash flow. Marangi is particularly excited about the company’s wireless-network business: Dish has been spending tens of billions to acquire spectrum licenses across the country as it builds out a 5G network. “The market is only pricing in a fraction of the value of those licenses,” he argues, with large upside potential for earnings to recover as the company eventually monetizes its investment. “This brand-new network won’t be held back by 4G subscribers who have to transition to 5G,” Marangi says, adding, “Dish can also be aggressive with pricing” as it competes with incumbent providers. Another area to watch for is a potential merger with DirecTV, which could “extend the life and cash flow” of both companies’ traditional video business, he predicts.

Eric Schoenstein

Jensen Quality Growth Fund: Portfolio of 30 large-cap growth companies.

2022 return: -17.4%, 10-year average annual return: 13.1%

TJX (TJX)

Market Capitalization: $90 billion

12-Month Revenues: $49.3 billion

A 10-year holding, off-price department store corporation TJX operates brands like T.J. Maxx, Marshalls and HomeGoods, with nearly 4,700 stores across nine countries and three continents. Schoenstein sees potential for the stock next year, calling it “relatively resilient, with defensive characteristics and a strong correlation to consumer spending” that can help its business withstand a slowing economy in 2023. “As people have less money to spend, consumers will be more thoughtful about how they spend—and TJX plays a valuable role from that perspective,” he describes. A big selling point of TJX is its great deals, and thanks to prices that are low relative to peers, that helps drive customer loyalty, according to Schoenstein. Amid an environment where consumers are facing higher rents, mortgages and home-ownership costs, TJX stands to benefit from the subsequent “trade-down effect” and “bargain theory” as consumers cut back spending. The stock has outperformed the market in 2022—not to mention many other retailers–rising nearly 3%.

UnitedHealth Group (UNH)

Market Capitalization: $491.3 billion

12-Month Revenues: $313.1 billion

Another of Schoenstein’s top picks is Minnesota-based UnitedHealth Group, the largest managed-healthcare and insurance company in the country, serving roughly 149 million people. In a slowing economic environment, not only is UnitedHealth a defensive play—with shares rising roughly 3.5% this year, but also “a growth company at the same time,” he describes, calling it “a long-term opportunity, albeit one that has generated some nice returns for us in an otherwise challenging year.” Now a top five holding in the fund, Schoenstein admires the company’s resilient business model and ability to generate substantial cash flow—with stable earnings growth to limit volatility in the stock, he argues. “That is something that will be much more relevant in 2023, compared to the past where momentum was the play of the day.” UnitedHealth has managed through bumpy periods before, he points out, not to mention the company has grown, giving it the ability to scale up or down depending on the economic backdrop. While the stock is susceptible to news of potential government regulation in the healthcare sector, “that particular threat seems to have died down somewhat,” with further upside ahead as more people get access to insurance and Medicaid programs around the country, according to Schoenstein.

Kenneth Kuhrt

Ariel Fund: Flagship value fund, primarily focused on small- to mid-sized companies.

2022 return: -19.9%, 10-year average annual return: 10.1%

Royal Caribbean Cruises (RCL)

Market Capitalization: $12.5 billion

12-Month Revenues: $7.2 billion

The Ariel Fund has owned shares of Royal Caribbean Cruises, the number two player in the cruise line industry, for roughly 15 years. Like the other major cruise operators, Royal Caribbean struggled as pandemic lockdowns effectively crippled the industry with fleets under extended no-sail orders. Still, the company is “frequently misunderstood in terms of the stability of the business model,” argues Kuhrt, adding, “not many companies can be shut down for a year and a half then survive and prosper on the other side of that.” Markets continue to take a very short-term outlook on the cruise industry in general, with investors growing fearful of headlines relating to everything from energy prices to geopolitics, he describes. “We’re surprised the market isn’t giving Royal Caribbean more credit for their recent earnings guidance and business ramp up.” Despite a 37% drop in the stock this year, Kuhrt points to “significant upside” ahead, especially as management aims for double-digit earnings power by 2025. He also emphasizes that on a comparable basis, cruise pricing is now above pre-pandemic levels, while occupancy rates have also rebounded significantly. “A big part of the story is customer retention,” he says. “The cruise line industry is connected to and understands its customer base better than we’ve ever seen before.”

Zebra Technologies (ZBRA)

Market Capitalization: $12.6 billion

12-Month Revenues: $5.7 billion

This market leader in enterprise asset intelligence, which focuses on bar-code scanning and inventory tracking technology, trades at a “significant discount to its underlying intrinsic value,” Kuhrt says. Zebra Technologies’ large customers include Amazon, Target and many others spanning a range of sectors including retail, manufacturing, healthcare and transportation. While the stock was at $600 per share just one year ago, it has suffered a big dislocation–now down to $250and has undergone multiple compression because of its ties to the technology sector. Still, investors are underestimating the fundamental earnings power of the business, Kuhrt describes: “Decades ago, the business model revolved around just scanning a barcode; Now, the complexity of logistics and tracking assets is ever increasing.” He is particularly optimistic about some of Zebra’s newer technologies, such as radio-frequency identification (RFID), which uses electromagnetic fields to track and identify different objects in transit. In the nearly 10 years that the fund has owned Zebra’s stock, the company has “continued to adapt and grow” and will continue to do so, despite Wall Street’s concerns about an economic slowdown, Kuhrt argues.

Amy Zhang

Alger Mid-Cap Focus Fund: Focused portfolio of around 50 mid-size companies.

2022 return: -36%, Average annual return since inception (2019): 9.1%

Waste Connections (WCN)

Market Capitalization: $34.3 billion

12-Month Revenues: $7 billion

Zhang likes this Woodlands, Texas-based waste collection, disposal and recycling company, which she calls a “defensive business that would be resilient in a slowing economic environment.” Waste Connections, shares of which are down just 1% in 2022, serves millions of customers across the United States and Canada—with a focus on exclusive and secondary markets that helps guarantee “durable revenue growth.” Zhang notes that in a business less focused on volume growth and more concerned with pricing, Waste Connections has a strong track record of industry-leading margins and cash flow. Waste management is a stable, defensive business that typically does well during recessions, Zhang points out. Thanks to the company’s pricing power and “superior market selection strategy,” she thinks Waste Connections will be “even more resilient than its peers” going into next year. Zhang expects margins to improve in 2023 as inflation headwinds dissipate, while also emphasizing that the company could “continue to be an M&A flywheel” if it keeps making smart acquisitions to shore up market share.

Insulet (PODD)

Market Capitalization: $20.7 billion

12-Month Revenues: $1.2 billion

Zhang is also excited about “long-term compounder” Insulet, a medical device company focused on treating diabetes patients through its body-worn Omnipod insulin pump. One of the fund’s top 10 positions, shares have risen nearly 10% this year, outperforming peers in the medtech sector. Beyond the classic Omnipod and Omnipod Dash
DASH
insulin management systems, Insulet’s sales have gotten a massive boost this year thanks to the company’s newest device, the Omnipod 5 automated delivery system, which received FDA clearance in early 2022 with a full U.S. launch in late summer. Zhang calls it a “revolutionary new product,” as it is the first tubeless, automated insulin delivery system on the market. “With many diabetes patients still using tube-based pumps or administering injections, Omnipod has a clear advantage to both alternatives,” she says, adding, “it’s been gaining significant market share and has huge potential market penetration.” Insulet’s “high revenue visibility and predictability,” especially with further adoption of the Omnipod 5 next year, makes this a “recession-resilient stock” that is “particularly appealing in an economic slowdown.”

Nancy Zevenbergen

Zevenbergen Growth Fund: Mostly large-cap consumer and tech companies.

2022 return: -52%, 5-year average annual return: 7%

DoubleVerify (DV)

Market Capitalization: $3.6 billion

12-Month Revenues: $424 million

Zevenbergen likes DoubleVerify, a small-cap software company focused on providing verification and safety for digital brand advertising. DoubleVerify’s technology helps brands and publishers with viewability, by detecting fraud and by protecting brand safety. Zevenbergen’s fund has owned the stock since its IPO in April 2021, but despite being profitable with top-line growth, shares have declined over 30% this year and are now trading below their initial share offering price of $27. “DoubleVerify has seen a major market correction this year, but within that there is a major opportunity,” says Zevenbergen. Though overall ad spending could go down during an economic slowdown, markets are also “incredibly concerned about brand safety with advertising,” she adds. “This kind of ad spend should preclude the fear of a recession.” Zevernbergen also sees further opportunities as new entrants beyond social media platforms, such as Netflix, enter digital advertising. “Risk of fraud or poor content placement makes DoubleVerify’s insurance very important… advertisers are going to want to have brand safety.”

Bill.com Holding (BILL)

Market Capitalization: $11 billion

12-Month Revenues: $753.5 million

Another of Zevenbergen’s stock picks for 2023 is $11 billion (market cap) cloud-based software fintech Bill.com, which assists small businesses on accounts payable and receivable. Bill.com helps smooth out back-office payments and could benefit as they move money in a rising-rate environment. After a 54% drop in share price this year due to macroeconomic headwinds, the founder-led company could present an “incredible opportunity” at an attractive valuation thanks to its high-growth and profitability, Zevenbergen describes, adding, “all the negatives have been priced into the stock.” The company is well-positioned, compared with its peers: “Being able to digitize or substitute software for labor—a tight resource these days—will be a spend that you want to make,” she says. “Competition from fintech startups is also likely to erode slightly because money isn’t free anymore.” While Bill.com’s payment volume has fallen slightly due to a more challenging economic environment, that has been offset by pricing power and new-customer momentum.

Kirsty Gibson

Baillie Gifford U.S. Equity Growth Fund: Concentrated portfolio of growth companies.

2022 return: -53.5%, 5-year average annual return: 7.2%

Duolingo (DUOL)

Market Capitalization: $2.9 billion

12-Month Revenues: $338.7 million

One of the fund’s more recent additions—from the company’s July 2021 IPO—is education tech company Duolingo, known for its app that teaches languages. Shares of the company have fallen roughly 30% this year, and while Duolingo has fallen victim to the collective selloff in growth stocks, “not all growth companies are alike,” Gibson describes. The edtech company has shown promising trends—reporting five consecutive quarters of accelerating user growth, with revenue in the latest quarter rising roughly 50% year over year.. The app, which boasts roughly 15 million daily users, offers entirely free language courses in the form of missions that are unlocked in sequence–with different lessons that are dynamic and adaptively constructed to each individual learner. “One of the hardest parts of learning a new language is staying motivated to keep studying–particularly if you’re not living in that country,” she adds. “Duolingo has taken a gamification approach to overcome this.” Since the app is free to use, the company has been able to grow organically with relatively low marketing outlays, allowing more cash for product development. Gibson predicts that it will be difficult for potential competitors to come in and disrupt Duolingo’s “great product,” not to mention that the company has room for growth in the form of new products and paid subscriptions that allow users to bypass ads.

Shopify (SHOP)

Market Capitalization: $43.6 billion

12-Month Revenues: $5.2 billion

The fifth-largest holding in Baillie Gifford’s U.S. Equity Growth fund is Canadian e-commerce giant Shopify, shares of which have tanked more than 70% in 2022. “The company is looking to be the central nervous system that powers millions of businesses around the world,” Gibson describes. While Shopify’s stock was “very much a pandemic darling,” it has since seen a significant price decline as companies that are taking losses for future growth have been pulled down by market sentiment, she adds, describing the business as “discretionarily unprofitable” in that it is choosing to invest in new areas for the long run at the expense of short-term margins. Gibson also likes what she describes as exciting changes such as the company moving into enterprise markets and launching Shopify Audiences, a premium tool that helps businesses find new customers through focused digital advertising on different platforms like Facebook or Google. “We believe we will continue to see Shopify’s ability to adapt and be resilient in this current environment,” she summarizes.

By Anisa