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Investors struggling with a volatile market in 2023 may want to heed RBC’s advice. REUTERS/Brendan McDermid This story is available exclusively to Insider subscribers. Become an Insider and start reading now. RBC’s collection of 30 favorite global stocks handily outperformed US stocks in the first quarter. The firm’s lead strategists are telling investors to get less cyclical in their positioning. They’re increasing their investments in healthcare and financials for the second quarter. There are some investors out there who think 2023 is going to be a very good year for stocks, and there are some who think it will be very bad. But if there’s a consensus view, it’s that this year will be a volatile one.
RBC falls squarely into that latter group, and it’s not hard to see why. Inflation remains high, the US economy is slowing, the debate over a recession remains a live one, interest rates are rising, earnings are declining, and markets were just jolted by a potential banking crisis.
“Globally, we share our US Equity Strategy team’s view that 2023 will be a year of very modest gains as part of a messy post-crisis normalization similar to 2002-2003 and 2010-2011,” wrote Global Head of Research Graeme Pearson; Head of US Research Mark Odendahl; Head of Canadian & APAC Research André‐Philippe Hardy; and Head of European Research Michael Hall in a recent note.
The foursome update a list of 30 favorite stocks for every quarter. For the current period, and with the state of markets in mind, they’re telling investors to be a little more defensive — and they’re actually positive on a few more banks than they were at the beginning of the first quarter.
“We switch into best ideas that we also view as offering more attractive positioning in the current environment,” they wrote. “We increase our Health Care weighting and decrease our Materials and Real Estate exposure, bringing our sector weightings more in line with the benchmark. We also increase our Financials exposure, now modestly Overweight vs. the benchmark.”
Their stock-picking track record has been good. In the first quarter, that list of 30 stocks delivered an 11.9% total return, compared to a 7.7% return for the MSCI World Index and 7% for the S&P 500. The group also notes that since the end of 2020, the top 30 stocks have returned 37.8%, while the MSCI index has returned 24.5%.
The following 30 stocks are ranked from lowest to highest based on how much RBC thinks they will deliver in returns over the next year. That’s based on their dividend payments (if any) as well as the upside to the firm’s 12-month price targets. All of those implied upside figures were calculated based on the stocks’ most recent closing prices.
29. Boston Scientific
Boston Scientific Markets Insider Ticker: BSX
Sector: Healthcare
Thesis: “BSX has a clear pathway to consistent double-digit EPS growth driven by top-tier organic revenue growth (guidance of 6–8% organic CAGR during 2022–24) and strong annual OM expansion (+50bps annually).” — Shagun Singh
Price target: $53
Implied all-in return: 5.8%
Source: RBC
28. Mastercard
Mastercard Markets Insider Ticker: MA
Sector: Financials
Thesis: “We believe MA is a core long-term holding and an “indexed” way to play payments and benefit from three global secular mega-trends including: (1) global consumption; (2) global digitization of payments; and (3) global innovation, which is creating new payment flows.” — Daniel Perlin
Price target: $392
Implied all-in return: 8.9%
Source: RBC
27. Inditex
Inditex Markewatch Ticker: ITX SM
Sector: Consumer discretionary
Thesis: “We favour Inditex’s longer-term FCF improvement story, with a strong track record for control over working capital and lower capital intensity. This should give investors confidence that Inditex can sustain a strong and growing dividend long term. ” — Richard Chamberlain
Price target: 32 EUR
Implied all-in return: 9.3%
Source: RBC
26. Palo Alto Networks
Palo Alto Networks Markets Insider Ticker: PANW
Sector: Information technology
Thesis: “We view Palo Alto as well positioned to benefit from an increasingly complex security and threat landscape and as an industry leader in security.” — Matthew Hedberg
Price target: $216
Implied all-in return: 12.5%
Source: RBC
25. Ferrari
Ferrari Marketwatch Ticker: RACE IM
Sector: Consumer discretionary
Thesis: “The launch of new vehicles like the Roma and the Purosangue should enable Ferrari to penetrate new demographics and the substantial Chinese luxury auto market. Ferrari is likely, in our view, to dramatically expand its production.” — Tom Narayan
Price target: 283 EUR
Implied all-in return: 14.1%
Source: RBC
24. Heico
Heico Markets Insider Ticker: HEI
Sector: Industrials
Thesis: “The company generates above-industry margins and its FCF conversion ranks consistently as some of the highest in the industry. Moreover, HEI has delivered ~20% top-line growth for several years, making it a long-time A&D favorite for growth investors.” — Ken Herbert
Price target: $190
Implied all-in return: 14.3%
Source: RBC
23. Siemens
Siemens Marketwatch Ticker: SIE GR
Sector: Industrials
Thesis: “Our analysis shows that “new” Siemens has not just outgrown “old” Siemens since 2006, but also the sector.” — Mark Fielding
Price target: 160 EUR
Implied all-in return: 15.8%
Source: RBC
22. Constellation Software
Constellation Software Marketwatch Ticker: CSU CN
Sector: Information technology
Thesis: “We believe that Constellation Software is likely to generate one of the highest returns for shareholders over the long term in our coverage universe. Our outlook reflects the compounding of Constellation’s high hurdle rates, along with the scalable nature of Constellation’s decentralized business model.” — Paul Treiber
Price target: 3,000 CAD
Implied all-in return: 16.3%
Source: RBC
21. Canadian Natural Resources
Canadian Natural Resources Markets Insider Ticker: CNQ CN
Sector: Energy
Thesis: “Canadian Natural Resources’ management committee structure and shareholder alignment are unique factors which distinguish the company globally. CNQ’s long-life, low- decline portfolio—anchored by moderate sustaining capital—affords the company superior free cash flow generative power.” — Greg Pardy
Price target: 89 CAD
Implied all-in return: 17.6%
Source: RBC
20. CSL
CSL Marketwatch Ticker: CSL AU
Sector: Healthcare
Thesis: “CSL is a well-run company with a market-leading position in plasma-derived therapies. The plasma-derived therapeutics industry is attractive to operate in given strong patient demand, the product is difficult to replicate, there are high barriers to entry and products do not face patent cliffs.” — Craig Wong-Pan
Price target: 352 AUD
Implied all-in return: 18.5%
Source: RBC
19. Anheuser-Busch InBev
AB InBev Marketwatch Ticker: ABI BB
Sector: Consumer staples
Thesis: “Adding to the long-term investment case is the change in focus of the global beer sector; both AB InBev and Heineken are talking more about investing in the category than before. Given beer has been losing share to spirits for some time while the brewers have been distracted by M&A and underinvesting and the spirits companies have done the reverse, this change in strategy is likely to be fruitful for the brewers.” — James Edwardes Jones
Price target: 72 EUR
Implied all-in return: 19.5%
Source: RBC
18. PG&E Corp
PG&E Markets Insider Ticker: PCG
Sector: Utilities
Thesis: “In the long term, we see significant upside potential if the company is able to execute on its plans and improve investor and rating agency confidence.” — Shelby Tucker
Price target: $20
Implied all-in return: 19.6%
Source: RBC
17. Canadian Pacific Railway
Canadian Pacific Railway Marketwatch Ticker: CP CN
Sector: Industrials
Thesis: “Our positive view on CP centers on a best-in-class railroad ahead of a transformative acquisition, which we believe will set the stage for significant growth and a material upward valuation re-rate.” — Walter Spracklin
Price target: 122 CAD
Implied all-in return: 19.8%
Source: RBC
16. Telus
Telus Marketwatch Ticker: T CN
Sector: Communication services
Thesis: “We view 2022 as a pivotal turning point for TELUS as the company transitions into a new post-FTTH build / 5G phase. The provision of 2023 guidance confirms that the company has emerged with a distinctively different financial and operating profile relative to most global telecom peers.” — Drew McReynolds
Price target: 33 CAD
Implied all-in return: 20.3%
Source: RBC
15. Veeva Systems
Veeva Systems Markets Insider Ticker: VEEV
Sector: Information technology
Thesis: “Veeva continues to show 20%+ organic subscription growth, while also seeing FCF margins approach 40% (which places Veeva in rare territory among SaaS companies), making Veeva a consistent “Rule of 40″ company.” — Rishi Jaluria
Price target: $225
Implied all-in return: 25%
Source: RBC
14. CrowdStrike
CrowdStrike Markets Insider Ticker: CRWD
Sector: Information technology
Thesis: “We view CrowdStrike as a prime land-and-expand model benefiting from SaaS delivery and ability to rapidly add more modules with no extra configuration or consulting needed. The long-term power of the install base should lead to strong net expansion rates as the company cross-sells additional seats (endpoints) and modules.” — Matthew Hedberg
Price target: $160
Implied all-in return: 25.2%
Source: RBC
13. Restaurant Brands International
Restaurant Brands Markets Insider Ticker: QSR
Sector: Consumer discretionary
Thesis: “We continue to view QSR as our top pick among the global franchised fast food group. We see potentially improving Burger King US trends, accelerating development and shifts in capital allocation (toward growth investments and reduction in leverage) driving stock performance.” — Christopher Carrill
Price target: $81
Implied all-in return: 25.4%
Source: RBC
12. Alimentation Couche-Tard
Alimentation Couche-Tard Marketwatch Ticker: ATD CN
Sector: Consumer staples
Thesis: “Industry performance in North America through COVID and during prior downturns reinforces defensive sector attributes. Despite high gas prices/opex increases, sustained elevated gas margins should enable ATD to offset gallon weakness related to dislocations.” — Irene Nattel
Price target: 85 CAD
Implied all-in return: 27.5%
Source: RBC
11. S&P Global
S&P Global Markets Insider Ticker: SPGI
Sector: Financials
Thesis: “We believe that the strategic INFO acquisition should accelerate the normalized revenue growth profile and deliver double-digit earnings growth driven by upside to revenue and cost synergies.” — Ashish Sabadra
Price target: $434
Implied all-in return: 28.3%
Source: RBC
10. London Stock Exchange Group
London Stock Exchange Group Marketwatch Ticker: LSEG LN
Sector: Financials
Thesis: “Following the completion of the Refinitiv deal, LSEG has transformed into an enlarged group with higher quality revenue streams and enhanced exposure to secular growth themes. We expect the diverse, mostly recurring, revenue streams of the enlarged group to convert to strong cash generation over all time horizons.” — Ben Bathurst
Price target: 10,200 GBp
Implied all-in return: 28.7%
Source: RBC
9. Alnylam Pharmceuticals
Alnylam Pharma Markets Insider Ticker: ALNY
Sector: Healthcare
Thesis: “We See Top-Line Likely To Inflect Soon – We think ALNY’s top line ($1b today) is poised to triple by 2026.” — Luca Issi
Price target: $275
Implied all-in return: 30.3%
Source: RBC
8. DuPont
DuPont Markets Insider Ticker: DD
Sector: Materials
Thesis: “Given we believe DuPont’s valuation multiples could increase 2–3x should DuPont successfully market itself as a multi-industrial company, valuation multiples could move higher.” — Arun Viswanathan
Price target: $92
Implied all-in return: 32.5%
Source: RBC
7. Lonza Group
Lonza Group Marketwatch Ticker: LONN SW
Sector: Healthcare
Thesis: “Lonza is the largest and one of the most profitable CDMOs globally, deriving over half of its revenues from biologics, which we expect to grow faster than the overall market, and 10% from cell and gene therapy, which could grow in the high-teens pa beyond 2023, in our view.” — Charles Weston
Price target: 760 CHF
Implied all-in return: 34.5%
Source: RBC
6. Ventas
Ventas Markets Insider Ticker: VTR
Sector: Real estate
Thesis: “Management has been active sourcing several different types of capital including the launch of an open-end fund in 2020 and the GIC joint venture. Access to these different sources of capital could drive earnings growth higher if it allows management to be more aggressive in pursuing investments.” — Michael Carroll
Price target: $56
Implied all-in return: 35.4%
Source: RBC
5. Diamondback Energy
Diamondback Energy Markets Insider Ticker: FANG
Sector: Energy
Thesis: “The company is one of a few that have amassed a combination of quality assets, strong economic growth, minerals ownership, and a water business, which collectively help to provide a competitive advantage.” — Scott Hanold
Price target: $182
Implied all-in return: 38.2%
Source: RBC
4. AIG
AIG Markets Insider Ticker: AIG
Sector: Financials
Thesis: “A favorable P&C pricing environment along with an improved macro backdrop should support margin improvement. Given all the heavy lifting done in past year, we expect AIG to be in a position to return to premium growth in the quarters ahead.” — Mark Dwelle
Price target: $75
Implied all-in return: 49.3%
Source: RBC
3. Element Fleet Management
Element Fleet Management Marketwatch Ticker: EFN CN
Sector: Financials
Thesis: “In our view, the fleet management industry has several attractive attributes, which we think, given that EFN is the largest player in North America, should provide outsized benefits to the company.” — Geoffrey Kwon
Price target: 27 CAD
Implied all-in return: 54.8%
Source: RBC
2. M&T Bank
M&T Bank Markets Insider Ticker: MTB
Sector: Financials
Thesis: “M&T’s acquisition of PBCT had modest tangible book value dilution but due to the expected long-term solid earnings accretion, it should drive long-term shareholder value.” — Gerard Cassidy
Price target: $183
Implied all-in return: 59.6%
Source: RBC
1. Wesco International
Wesco Markets Insider Ticker: WCC
Sector: Industrials
Thesis: “We admire the scrappy, no-frills attitude that runs throughout the organization, as well as the strong historical free cash flow and debt pay-down history.” — Deane Dray
Price target: $215
Implied all-in return: 61.5%
Source: RBC
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