U.S. stock markets have rallied in 2023, after wrapping up 2022 as the worst year since 2008 and terminating a three-year winning streak. Major stock indexes suffered a huge blow last year. However, the Dow suffered the least.
In 2022, the Dow fell 8.8% year over year, while the S&P 500 and the Nasdaq Composite plummeted 19.4% and 33.1%, respectively. Last year, the Fed raised the benchmark interest rate by 4.25% to combat 40-year high inflation.
A higher interest rate is detrimental to growth stocks like consumer discretionary and technology. In contrast to the Nasdaq Composite and the S&P 500 indexes, the 30-stock Dow is more inclined to cyclical stocks than growth stocks. Therefore, the index suffered the least. However, the situation has taken a turn in 2023.
Dow Changes Course in 2023
Several economic data have pointed out that the U.S. economy has been cooling since the beginning of 2023. The inflation rate has dropped to a good extent despite remaining elevated in absolute terms.
Consequently, the Fed has reduced the magnitude of interest rate hike in 2023. Market participants anticipate that the Fed is already through with its interest rate hike cycle. The CME FedWatch tool currently shows a 100% probability the central bank will keep the Fed Fund rate unchanged at the existing level of 5.25-5.5%.
A lower rate hike has enabled growth sectors like technology, communication services and consumer discretionary to thrive this year. Consequently, the tech-heavy Nasdaq Composite has jumped 35.7% year to date. The broad-market S&P 500 Index has also seen a decent rally of 18.2%. However, the Dow is up just 5.9% so far this year.
Our Top Picks
Defying a tepid Dow, we have narrowed our search to five blue-chip (components of Dow) stocks with strong potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past month.
Zacks Investment Research
Image Source: Zacks Investment Research
Intel Corp. INTC designs, develops, manufactures, markets, and sells computing and related products worldwide. INTC operates through the Client Computing Group, Data Center and AI, Network and Edge, Mobileye, Accelerated Computing Systems and Graphics, Intel Foundry Services, and Other segments.
INTC mainly offers platform products, such as central processing units and chipsets, system-on-chip and multichip packages, accelerators, boards and systems, connectivity products, and memory and storage products.
Zacks Rank #1 Intel has an expected revenue and earnings growth rate of 13.7% and more than 100%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 12.1% over the last 30 days.
The Procter & Gamble Co. PG has been gaining from robust pricing and a favorable mix, along with strength across segments. PG has been focused on productivity and cost-saving plans to boost margins. This led to the top and bottom-lines beating the consensus mark for the fourth consecutive timer in the fourth quarter of fiscal 2023.
Consequently, PG has provided an optimistic view for fiscal 2024. PG anticipates year-over-year all-in sales growth of 3-4% for fiscal 2024, in-line with our estimate of 3.6% growth. PG’s continued investment in the business alongside its efforts to offset macro cost headwinds and balance top and bottom-line growth underscores its productivity efforts.
The Procter & Gamble, which currently carries a Zacks Rank #2, has an expected revenue and earnings growth rate of 4.1% and 7.9%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.3% over the last seven days.
3M Co. MMM has benefited from strength in roofing granules, auto Original Equipment Manufacturer and medical solutions businesses. Improvement in supply chains and easier availability of labor and raw materials should drive MMM’s performance in 2023. Pricing actions and restructuring savings are aiding MMM’s margins.
Zacks Rank #2 3M has an expected revenue and earnings growth rate of 2% and 8%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 1.8% over the last 30 days.
salesforce.com inc. CRM has been benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of its cloud-based solutions is driving demand for CRM’s products. CRM’s sustained focus on introducing more aligned products as per customer needs is driving its top-line.
Zacks Rank #2 salesforce.com has an expected revenue and earnings growth rate of 10.8% and 53.8%, respectively, for the current year (January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Microsoft Corp. MSFT has gained from strong Intelligent Cloud and Productivity and Business Processes revenues. Intelligent Cloud revenues were driven by growth in Azure and other cloud services. Productivity and Business Processes revenues of MSFT rose due to the strong adoption of Office 365 Commercial solutions.
Continued momentum in small and medium businesses, frontline worker offerings and a gain in revenue per user drove the top line of MSFT. Steady growth in Dynamics products and cloud services aided LinkedIn revenues.
Zacks Rank #2 Microsoft has an expected revenue and earnings growth rate of 14.1% and 13.3%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days.
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