What are the best Australian shares to buy in 2023?

The Australian economy entered 2023 on uncertain terms. CPI inflation in January 2023 was easing, but still historically elevated at 7.4%. Meanwhile, the cash rate in February was increased to 3.35% as the Reserve Bank of Australia continued its battle to bring inflation down.

As the country enters the new financial year — which starts on 1 July — the economic situation seems to be improving. While the Reserve Bank rattled the markets by hiking the cash rate by 25bps to 4.1% in June, it declined to increase it further in July.

And though the cash rate is still at its highest for over a decade, CPI inflation now stands at 5.4% and has been falling since December. Australian inflation may have finally peaked alongside much of the developed world, though increases in the cost of borrowing will continue to put pressure across the economy.

Key potential pressure points include overleveraged mortgage borrowers, the potential for bad bank loans, and the slowdown of the Chinese economy — which is by far Australia’s largest two-way trading partner.

But 2023 may be an excellent time to invest in Australian shares. The market tends to be forward-looking, and the expectation is that inflation will continue to fall while the cash rate is already either at its peak or very close.

Of course, inflation globally has proved far stickier than many analysts had expected, so investors may wish to be careful with their assumptions. Inflation, like a weed, has a habit of coming back if monetary policy is loosened before it’s completely under control.

But with sunnier times perhaps ahead, here’s five ASX stocks to consider for 2023. Note these are not recommendations, but simply some of the largest Australian companies across a diverse range of sectors.

Best Australian shares to watch

1. BHP

BHP is the largest mining company in the world based on market capitalisation, and also usually the largest company on the ASX 200, accounting for circa 10% of the country’s share market.

The corporation generates over half of its profits from selling iron ore, predominantly to China, but it also sells copper, nickel, potash, and coal. The company is a global operator with mines across Australia, the United States, Canada, Chile, Peru, Brazil, and Columbia; this variation across jurisdictions and minerals can be compelling for investors who value diversification.

Despite the threat of slowing Chinese economic activity, BHP is actively engaging in asset acquisition, including recently buying up copper junior Oz Minerals. 2022 revenue came in at $65 billion, a 14.4% increase over 2021.

2. Commonwealth Bank

Commonwealth is Australia’s largest bank — and together with National Australia Bank, Westpac, and ANZ — constitutes one of the ‘Big Four’ of the ASX 200. It generates most of its revenue from lending to homebuyers through mortgages, and also to businesses.

But the bank also offers multiple insurance products, including for homes and cars, and operates the largest online broker in Australia, CommSec. It also operates in New Zealand as Auckland Savings Bank.

In FY22, statutory NPAT was $9.7 billion while cash NPAT of $9.6 billion was 11% higher year-over-year. However, rising interest rates can be a double-edged sword — income increases up to a point, beyond which banks can start to struggle with overleveraged borrowers and impairment charges. Some investors hope that the cash rate will remain paused to give the bank the best of both worlds.

3. CSL

CSL is Australia’s largest biotech company and has been operating for over a century. With the combined capability of CSL Behring, CSL Plasma, CSL Seqirus and CSL Vifor, CSL’s offerings are more diverse than ever — making it a popular choice for differentiated ASX investors.

CSL boasts a dynamic portfolio of lifesaving medicines, including those that treat haemophilia and immune deficiencies. The company operates across three sectors; rare and serious diseases; influenza vaccines; and iron deficiency and nephrology. Again, the size of the company can be attractive given the expense of clinical trials for new treatments, as is the multi-focused business plan.

The company now provides lifesaving products to patients in more than 100 countries, and it employs 30,000 people. Annual revenue in FY22 came in at just under $10.6 billion, a small increase on 2021.

4. Wesfarmers

Wesfarmers is a hugely diversified retail operator which owns some of Australia’s most famous retail brands. Its undertakings cover sectors including home improvement and outdoor living, apparel and general merchandise, office supplies, health, beauty and wellbeing, chemicals, energy and fertilisers, and industrial and safety products.

As one of the country’s largest employers, Wesfarmers boasts a brand portfolio that includes Bunnings, Priceline Pharmacy, Kmart, Officeworks, and catch.com.au. Accordingly, it’s a popular share with retail investors as many are more comfortable investing in a company they already ‘know’ at the coal face.

In FY22, Wesfarmers saw revenue grow by 8.5% year-over-year to $36.8 billion, while net profit after tax dipped slightly — a common inflationary response as prices of items sold rose while sales volume came under pressure.

5. Telstra

Telstra is the largest ASX telecommunications company by market share and engages in building telecommunications networks and markets-related products and services. In Australia, it provides 18.8 million retail mobile services, 3.8 million retail fixed bundles and standalone data services, and 960,000 retail fixed standalone voice services.

ASX telecoms stocks can be attractive in uncertain economic times; while better growth can be found elsewhere, mobile and broadband services are very defensive — customers usually consider connectivity a necessity rather than as a luxury.

With an international presence spanning 20 countries, Telstra’s FY22 revenue came in at circa $21.3 billion, a slight decline on FY21 but a reasonable result compared to larger falls at its international peers.