Best shares to watch in December 2023

While the UK economy has avoided a recession this year and interest rate hikes have eased, it isn’t all plane sailing. Recent research from Paris-based organisation the OECD warns that central banks in the UK and Europe will have to keep interest rates high next year to avoid entering a recession. It said it expects the European Central Bank and the Bank of England to hold rates at their current highs until 2025 because of inflationary pressure – much longer than financial markets have priced in, according to the Financial Times.

The picture painted also looks gloomier than that in the US, where the US Federal Reserve is expected to cut interest rates in the second half of 2024. The OECD forecasts the UK economy to grow by 0.7% next year and 1.2% in 2025, while the US is expected to grow by 1.5% next year and by 1.7% in 2025.

With the UK economy continuing to look sluggish, what are the best stocks to watch in December 2023? We think these shares could be worth a second look.

Serco – benefiting from outsourcing trends

With large corporates and governments busy trying to cut costs as the tough economic times continue, outsourcers should continue to benefit. Serco could be one such beneficiary. The company works with governments around the world to deliver public services, such as running prisons, defence services and international immigration services. It also has a stake in the space sector.

At the half-year results in August the company reported a 13% increase in revenues to £2.5 billion, including 6% organic growth, and upgraded its cash generation forecast for the full year. Half-year cash flow came in at £98 million. Meanwhile, Serco posted a 14% increase in underlying profits to £148 million. The company also recently completed its £90 million share buyback programme.

While it may not be popular, Serco also looks set to benefit from rising immigration as it provides immigration services on an international basis. It houses asylum seekers and provides ‘citizen services’, such as helping jobseekers in Ontario find work.

The shares are down 7% over the past 12 months to 158p – some way off their three-year highs of 190p and are worth keeping an eye on. Analysts at broker Royal Bank of Canada currently have a price target of 190p on the stock.

AstraZeneca – a safe port in the storm

AstraZeneca recently reported solid third quarter results and the drug giant is recovering well following the collapse of sales of its Covid testing products. Third quarter sales rose by 5% to $11 billion, while operating profits improved by 4% to $2 billion during the period. Sales from the company’s portfolio of cancer drugs also increased by 20%, while revenues from products for rare diseases were up by 12%.

The drug giant also has a possible blockbuster in its – albeit, early stage – product pipeline; an obesity drug which works in a similar way to Novo Nordisk’s product Wevgovy. Wevgovy delivered $1.4 billion in sales between July and September this year alone. Recent early stage results from AstraZeneca’s drug have showed it is well tolerated by patients and has helped them lose weight. If successful, it is expected to be used in combination with other therapies, which could also boost sales.

The pharmaceutical sector tends to remain a solid bet in tough times because patients will always need medicines, regardless of what the economy holds. The shares have fallen 7% this year to £101.80 and are worth watching, given they are trading below their three-year highs. Analysts at broker Barclays currently have a buy recommendation and a price target on the stock of £135.

British American Tobacco – attractive to income seekers

Another industry that is traditionally considered a good option in tough times is the tobacco sector. While not popular with everyone, its sales tend to be reliable, given that customers will continue to purchase its products regardless of the state of the economy. British American Tobacco tends to throw off a lot of cash and return money to shareholders on a regular basis. It is also busy getting its vaping business off the ground and this is now beginning to break-even on it.

BATs is due to publish its pre-close trading update on Wednesday 6 December. The shares are down 26% this year to 2,512p and trade on a price earnings ratio of just 6.4%. They are worth keeping an eye on, especially given their healthy dividend yield of 9%.

Tesla – further upside?

Tesla shares have come back some way since sliding earlier this year, and are up 23% to $240. However, shares in the electric car manufacturer led by Elon Musk have not rebounded as strongly from the tech slump as other tech stocks, such as Alphabet, Amazon and Apple. However, there could still be some upside in the shares, which, while highly rated, are still trading some way off their three-year highs of $414.50.

Growth in the electric car market continues and the company’s gigafactories in Europe mean that Teslas are now a common sight in the UK and mainland Europe. The company remains on target to produce 1.8 million cars this year and recently debuted its Cybertruck at an event in Austin, Texas.

However, a labour dispute with Swedish Tesla workers and Musk’s activities at Twitter are weighing on the shares. Analysts at broker Wedbush have an outperform rating on the stock and think they could reach $310. Nevertheless, other brokers are more pessimistic, with analysts at Jefferies lowering their target to $210 with a hold rating.

Burberry – recovery play?

A riskier option, which could be worth watching over time, is the luxury retailer Burberry, which is facing tough times. The shares have slumped by 27% this year and dipped 9% earlier this month after the company warned that it may miss its revenue targets for the year. High end clients are feeling the pinch of the cost of living crisis, and other luxury goods brands, such as Gucci and LVMH, have reported similar issues.

There is no rush to buy the shares as things may get worse before they get better. However, they could offer interest as a possible long-term recovery play or even perhaps as a takeover target.

Past performance is not a guide to future performance

Trade and invest in over 17,000 UK, US and global shares from zero commission with us, the UK's No.1 trading provider.* Learn more about trading or investing in shares with us, or open an account to get started today.

*Based on revenue excluding fx (published financial statements, October 2021).