The change of year could see some investors return to the market in 2023, so I think there are some ASX shares that could be attractive ideas to pursue.
Interest rates aren’t going to keep up forever, at some point they will stop going up and could lower a little once inflation normalises. A pause on interest rates could be helpful for valuations.
I don’t think that share prices will go back to where they were at the start of the year, not for a while anyway. But, from where they are now, I reckon there are some ASX shares that could do well in 2023.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This is one of my favourite exchange-traded funds (ETFs). It has quite a long track record of delivering good performance. We can’t know what the future will be, but I think with how the MOAT ETF is set up can mean it will do well in the longer-term.
It’s designed to only consider investing in (US) shares if they are capable of maintaining (or growing) their competitive advantages and making good profits for many years to come, perhaps as long as two decades. Business advantages can come in many forms, such as branding power or patents.
However, another key part of the MOAT ETF’s investment strategy is to only invest in those businesses when they are at a cheaper price compared to Morningstar’s estimate of fair value.
On 18 November 2022, its five largest positions were: Biogen, Gilead Sciences, Etsy, MercadoLibre and Boeing.
Xero Limited (ASX: XRO)
The way that investors have sent the Xero share price down 54% this year has been very harsh on the accounting software business in my opinion.
It’s true that the ASX share doesn’t currently make much profit for how large it is. In the FY23 half-year result it only generated NZ$15.5 million of free cashflow.
But, it’s important to keep in mind that Xero is investing heavily for growth, so it’s understandable that its profit margins are currently low. That’s because it’s choosing to re-invest, not because its business model isn’t profitable. If it stopped investing, it would suddenly look much more profitable. But growing is (usually) better for long-term value creation for shareholders.
Its gross profit margin is 87%, which is very high for the ASX. This allows the business to re-invest most of the revenue it receives into more growth.
I think a combination of increased subscription fees and more subscribers can help the Xero continue to scale strongly. It’s expecting profit margins to improve in the coming years.
