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U.S. stock markets rallied in the first half of 2023, after wrapping up 2022 as the worst year since 2008 and terminating a three-year winning streak. Large cap-centric indexes like the S&P 500 and the Nasdaq Composite rallied 15.9% and 31.7%, respectively. The small cap -centric Russell 2000 and the mid cap-centric S&P 400 advanced more than 5% and 7%, respectively. However, the blue-chip Dow gained only 3.8%.
Importantly, the rally in the first half rally was primarily driven by growth stocks like technology, communication services and consumer discretionary. These stocks have a relatively low weight in Dow rather than the S&P 500 and Nasdaq Composite. The cyclical stocks, which have more weight in Dow, did not participate in the rally.
However, the situation likely to change in the second half. At present, cyclical stocks are undervalued. Technically, at its current level of 33,944.40, the Dow is well above its 50-day and 200-day moving averages of 33,662.29 and 32,992.06, respectively.
The 50-day moving average line is generally recognized as a short-term trendsetter in financial literature, while the 200-day moving average is considered a long-term trend setter. Historically it has been noticed in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Our Top Picks
Defying a tepid Dow, we have narrowed our search to five blue-chip (components of Dow) stocks with strong potential for 2023. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries either 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 year to date.
Image Source: Zacks Investment Research
Caterpillar Inc. (CAT - Free Report) has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19% and revenues to rise 7%.
Zacks Rank #2 Caterpillar has an expected revenue and earnings growth rate of 10.2% and 28.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days.
salesforce.com inc. (CRM - Free Report) is 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 #1 salesforce.com has an expected revenue and earnings growth rate of 10.5% and 42%, respectively, for the current year (January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.
McDonald's Corp. (MCD - Free Report) continues to impress investors with robust comps growth. MCD’s increased focus on menu innovation and loyalty program expansion is commendable. MCD is also undertaking every effort to drive growth in international markets. Robust digitalization is likely to help McDonald's in driving long-term growth and capture market share. MCD plans to open more than 1,900 restaurants globally in 2023.
Zacks Rank #2 McDonald’s has an expected revenue and earnings growth rate of 7.7% and 9.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
Visa Inc.’s (V - Free Report) numerous buyouts and alliances paved the way for long-term growth and consistently drove its revenues. Constant investments in technology are solidifying V’s position in the payments market. A shift in payments to the digital mode is a boon. Backed by a strong cash position, Visa remains committed to boosting its shareholder value through share buybacks and dividend payments.
Zacks Rank #2 Visa has an expected earnings growth rate of 11% and 14.5%, respectively, for the current year (September 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Honeywell International Inc. (HON - Free Report) is benefiting from a recovery in commercial flight hours and strength in advanced materials and UOP businesses. Solid operational execution, pricing actions and cost-control measures continue to drive HON’s top line. The company’s bullish forecast for 2023 holds promise. HON’s deal to acquire Compressor Controls will be beneficial going forward.
Zacks Rank #2 Honeywell International has an expected revenue and earnings growth rate of 3.2% and 3.6%, respectively, for the current quarter (ending September 2023). The Zacks Consensus Estimate for current-quarter earnings has improved 0.1% over the last 30 days.
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Will Dow Regain Momentum in 2H 2023? 5 Top Picks
U.S. stock markets rallied in the first half of 2023, after wrapping up 2022 as the worst year since 2008 and terminating a three-year winning streak. Large cap-centric indexes like the S&P 500 and the Nasdaq Composite rallied 15.9% and 31.7%, respectively. The small cap -centric Russell 2000 and the mid cap-centric S&P 400 advanced more than 5% and 7%, respectively. However, the blue-chip Dow gained only 3.8%.
Importantly, the rally in the first half rally was primarily driven by growth stocks like technology, communication services and consumer discretionary. These stocks have a relatively low weight in Dow rather than the S&P 500 and Nasdaq Composite. The cyclical stocks, which have more weight in Dow, did not participate in the rally.
However, the situation likely to change in the second half. At present, cyclical stocks are undervalued. Technically, at its current level of 33,944.40, the Dow is well above its 50-day and 200-day moving averages of 33,662.29 and 32,992.06, respectively.
The 50-day moving average line is generally recognized as a short-term trendsetter in financial literature, while the 200-day moving average is considered a long-term trend setter. Historically it has been noticed in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Our Top Picks
Defying a tepid Dow, we have narrowed our search to five blue-chip (components of Dow) stocks with strong potential for 2023. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries either 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 year to date.
Image Source: Zacks Investment Research
Caterpillar Inc. (CAT - Free Report) has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19% and revenues to rise 7%.
Zacks Rank #2 Caterpillar has an expected revenue and earnings growth rate of 10.2% and 28.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days.
salesforce.com inc. (CRM - Free Report) is 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 #1 salesforce.com has an expected revenue and earnings growth rate of 10.5% and 42%, respectively, for the current year (January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.
McDonald's Corp. (MCD - Free Report) continues to impress investors with robust comps growth. MCD’s increased focus on menu innovation and loyalty program expansion is commendable. MCD is also undertaking every effort to drive growth in international markets. Robust digitalization is likely to help McDonald's in driving long-term growth and capture market share. MCD plans to open more than 1,900 restaurants globally in 2023.
Zacks Rank #2 McDonald’s has an expected revenue and earnings growth rate of 7.7% and 9.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
Visa Inc.’s (V - Free Report) numerous buyouts and alliances paved the way for long-term growth and consistently drove its revenues. Constant investments in technology are solidifying V’s position in the payments market. A shift in payments to the digital mode is a boon. Backed by a strong cash position, Visa remains committed to boosting its shareholder value through share buybacks and dividend payments.
Zacks Rank #2 Visa has an expected earnings growth rate of 11% and 14.5%, respectively, for the current year (September 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Honeywell International Inc. (HON - Free Report) is benefiting from a recovery in commercial flight hours and strength in advanced materials and UOP businesses. Solid operational execution, pricing actions and cost-control measures continue to drive HON’s top line. The company’s bullish forecast for 2023 holds promise. HON’s deal to acquire Compressor Controls will be beneficial going forward.
Zacks Rank #2 Honeywell International has an expected revenue and earnings growth rate of 3.2% and 3.6%, respectively, for the current quarter (ending September 2023). The Zacks Consensus Estimate for current-quarter earnings has improved 0.1% over the last 30 days.