I like to own lots of stocks. While I might be over diversified, my strategy of taking relatively small positions in many companies has enabled me to invest in some big winners that probably would have never made it into a concentrated portfolio. It also allows me to steadily grow a position as my conviction increases.
As we enter 2023, I have the highest conviction that Blackstone (BX 3.43%), Brookfield Asset Management (BAM 0.88%), Prologis, (PLD 3.37%), NextEra Energy (NEE 1.23%), and Palo Alto Networks (PANW -0.19%) can deliver market-beating returns in the coming years. Because of that, I plan to add to all five of these positions early in the new year.
A massive war chest to go shopping
Blackstone’s stock got pulverized in 2022, tumbling about 40%. The biggest factor weighing on the leading alternative-asset manager was concerns that it might struggle to grow in the current environment.
However, the company enters 2023 in an excellent position. It has $182 billion of investor capital to deploy on new investment opportunities.
With stock prices down and credit costs rising, Blackstone should have plenty of attractive investment opportunities. That should enable it to continue growing fee-related earnings and performance revenue in the future, allowing it to keep paying an attractive dividend (Blackstone currently yields 6.5%) that should keep rising.
Growth and income at a value price
Brookfield Asset Management is another alternative-asset manager poised for growth. Its parent, Brookfield Corporation (BN 3.65%), completed a unique stock split late last year to split off a portion of its asset management business, and distributed it to shareholders to unlock the value of this business.
Brookfield Asset Management expects to grow its fee-related earnings by 15% to 20% per year for the next few years as it deploys investor funds raised in recent years. That should enable the company to grow its dividend — which yields more than 4% — at a similar rate. That attractive dividend-income and earnings-growth combination should allow investors to earn strong total returns in the coming years.
Massive built-in growth
Prologis’ stock price also plunged last year, falling nearly 30%. That sell-off came amid concerns that demand for warehouse space was cooling off.
However, the company isn’t seeing any evidence of a slowdown. Further, it still hasn’t captured the full benefit of the recent surge in rental rates due to the long-term nature of its leases. Because of that, Prologis estimates that its same-store net operating income will grow at an 8% to 10% annual rate for the next several years without any further rent growth.
On top of that, the company recently closed its accretive acquisition of Duke Realty and has several billion dollars of development projects under construction. These catalysts should enable the company to continue growing its earnings and dividend at above-average rates for the next several years.
Powerful growth ahead
The U.S. needs to invest $4 trillion to decarbonize its economy over the next three decades. That represents a staggering commercial opportunity. NextEra Energy is one of the companies leading the charge to capitalize on this situation.
The company currently expects to invest between $85 billion and $95 billion to decarbonize and modernize its Florida utility, develop more renewable energy capacity, and expand the country’s natural gas and electricity infrastructure. These investments should support 10% annual earnings-per-share growth at the high end of NextEra’s outlook through at least 2025.
That should give the company the power to grow its 2%-yielding dividend by around 10% annually through 2024. The combination of earnings and dividend growth should enable NextEra to generate strong total returns.
Capitalizing on the need for increased cybersecurity
Cybersecurity is another megatrend that should drive strong returns for investors in the coming years. Cyber threats are growing more complex and costly, leading more companies to enhance their security. As a leader in cybersecurity, Palo Alto Networks should continue benefiting from this trend.
The company expects to grow its revenue by 25% to 26% this year, driven in part by 40% to 43% growth in its Next-Gen Security solutions platform. Meanwhile, it sees margins expanding, which should drive strong earnings growth and robust free cash flow.
The ability to generate excess cash is a competitive advantage in this market. It should enable Palo Alto Networks to continue investing in innovation and acquisitions to grab more market share.
Positioned to thrive in 2023 and beyond
Of all the stocks I own, I have the most conviction that Blackstone, Brookfield Asset Management, Prologis, NextEra Energy, and Palo Alto Networks can deliver market-beating returns in the coming years. Because of that, I plan to add to my position in each one early this year. While their share prices might continue to be volatile in the near term, I firmly believe I’ll be glad to have added to these high-conviction stocks in the future.
Matthew DiLallo has positions in Blackstone, Brookfield Asset Management, Brookfield Corporation, NextEra Energy, Palo Alto Networks, and Prologis. The Motley Fool has positions in and recommends Blackstone, Brookfield Asset Management, Brookfield Corporation, NextEra Energy, Palo Alto Networks, and Prologis. The Motley Fool recommends Brookfield. The Motley Fool has a disclosure policy.
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