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The Wall Street rally in the first seven months of this year suffered a severe setback consecutively in August and September. Volatility continues in October as the Fed warned of one more rate hike of 25 basis points by the end of this year and a higher interest rate regime for a longer period. The first rate cut is not expected before September 2024 and the inflation rate is unlikely to decline to the central bank’s target rate of 2% before 2026.
However, the inflation rate has been systematically dwindling since its peak in June 2022, barring some minor fluctuations. This indicates that the Fed’s policy of tight monetary control and a higher interest rate regime is finally paying off.
Moreover, October is historically known as being favorable to U.S. stock markets. Stocks of several corporate giants with a well-established business model internationally, a robust financial position and globally acclaimed brand recognition are currently available at attractive valuations. Investment in these stocks with a favorable Zacks Rank should be prudent going forward.
Our Top Picks
We have narrowed our search to five large-cap (market capital > $10 billion) stocks with attractive valuations. These stocks have strong potential for 2023 and have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Twilio Inc. (TWLO - Free Report) is benefiting from accelerated digital transformation amid a growing hybrid working trend. TWLO’s selective acquisitions and strategic investments in businesses and technologies are enhancing its product portfolio and fortifying its global presence.
TWLO is not only gaining traction from the solid expansion of its existing clientele but is also aided by first-time deals with new customers, supported by its firm focus on introducing products and the go-to-market sales strategy. We expect TWLO’s top line to witness a CAGR of about 8.3% from 2023-2025.
Twilio has an expected revenue and earnings growth rate of 5.7% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 23.2% over the last 60 days. The stock price of TWLO is currently trading at a 29.4% discount to its 52-week high.
Ulta Beauty Inc. (ULTA - Free Report) has been benefiting from its omnichannel strength. Also, the skincare category has been gaining from consumers’ rising interest in self-care. ULTA’s solid performance was backed by the strong execution of its strategies and solid guest demand, with the latter gaining from exciting brand launches.
Also, increased in-person activities and travel have been leading to the revival of the beauty category demand. All major categories delivered double-digit comps growth, an increased number of loyalty members and greater brand engagement. Management raised its fiscal 2023 guidance.
Ulta Beauty has an expected revenue and earnings growth rate of 9.5% and 5.7%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. The stock price of ULTA is currently trading at a 31.2% discount to its 52-week high.
Keurig Dr Pepper Inc. (KDP - Free Report) posted second-quarter 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Both metrics improved year over year. Results have gained from continued brand strength and significant pricing.
KDP has been witnessing continued momentum in the Refreshment Beverages segment for a long time. KDP witnessed market share expansion above 88% of its cold beverage portfolio. This mainly reflected strength in CSDs, seltzers, energy, apple juice, coconut waters and fruit drinks. For 2023, KDP expects sales growth of 5-6%, which is higher than the 5% projected earlier.
Keurig Dr Pepper has an expected revenue and earnings growth rate of 6% and 6.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last seven days. The stock price of KDP is currently trading at a 29.8% discount to its 52-week high.
Align Technology Inc. (ALGN - Free Report) is expanding its global presence to address the huge untapped demand in the malocclusion space. Annually, only 21 million people globally elect orthodontic treatment and a large portion of the patient base remains unattended. To address this untapped market, ALGN has taken several strategic initiatives, including digital marketing in alliance with influencers and digital platforms.
ALGN has launched its first subscription-based clear aligner program DSP worldwide. Within the Scanner business, ALGN is scaling up the production and distribution of iTero in several countries. Innovations and market expansion efforts are helping ALGN offset the impact of inflation and supply disruptions.
Align Technology has an expected revenue and earnings growth rate of 6.6% and 13.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days. The stock price of ALGN is currently trading at a 35.1% discount to its 52-week high.
Zimmer Biomet Holdings Inc. (ZBH - Free Report) is expanding its global presence to address the huge demand in the musculoskeletal space. This market is expanding at a rapid pace on favorable demographics and growing utilization of musculoskeletal healthcare, particularly in emerging markets and under-penetrated developed markets.
Since the beginning of 2023, ZBH is witnessing strong procedure recovery aided by no meaningful impact from COVID-19 and staffing challenges. We are also hopeful about the recent implementation of four meaningful pillars inside Zimmer Biomet’s Knee business to drive pricing stability, mix benefit and competitive conversions.
Zimmer Biomet Holdings has an expected revenue and earnings growth rate of 6.7% and 9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. The stock price of ZBH is currently trading at a 31.2% discount to its 52-week high.
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5 Large-Cap Stocks to Buy on the Dip for Q4 2023
The Wall Street rally in the first seven months of this year suffered a severe setback consecutively in August and September. Volatility continues in October as the Fed warned of one more rate hike of 25 basis points by the end of this year and a higher interest rate regime for a longer period. The first rate cut is not expected before September 2024 and the inflation rate is unlikely to decline to the central bank’s target rate of 2% before 2026.
However, the inflation rate has been systematically dwindling since its peak in June 2022, barring some minor fluctuations. This indicates that the Fed’s policy of tight monetary control and a higher interest rate regime is finally paying off.
Moreover, October is historically known as being favorable to U.S. stock markets. Stocks of several corporate giants with a well-established business model internationally, a robust financial position and globally acclaimed brand recognition are currently available at attractive valuations. Investment in these stocks with a favorable Zacks Rank should be prudent going forward.
Our Top Picks
We have narrowed our search to five large-cap (market capital > $10 billion) stocks with attractive valuations. These stocks have strong potential for 2023 and have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Twilio Inc. (TWLO - Free Report) is benefiting from accelerated digital transformation amid a growing hybrid working trend. TWLO’s selective acquisitions and strategic investments in businesses and technologies are enhancing its product portfolio and fortifying its global presence.
TWLO is not only gaining traction from the solid expansion of its existing clientele but is also aided by first-time deals with new customers, supported by its firm focus on introducing products and the go-to-market sales strategy. We expect TWLO’s top line to witness a CAGR of about 8.3% from 2023-2025.
Twilio has an expected revenue and earnings growth rate of 5.7% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 23.2% over the last 60 days. The stock price of TWLO is currently trading at a 29.4% discount to its 52-week high.
Ulta Beauty Inc. (ULTA - Free Report) has been benefiting from its omnichannel strength. Also, the skincare category has been gaining from consumers’ rising interest in self-care. ULTA’s solid performance was backed by the strong execution of its strategies and solid guest demand, with the latter gaining from exciting brand launches.
Also, increased in-person activities and travel have been leading to the revival of the beauty category demand. All major categories delivered double-digit comps growth, an increased number of loyalty members and greater brand engagement. Management raised its fiscal 2023 guidance.
Ulta Beauty has an expected revenue and earnings growth rate of 9.5% and 5.7%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. The stock price of ULTA is currently trading at a 31.2% discount to its 52-week high.
Keurig Dr Pepper Inc. (KDP - Free Report) posted second-quarter 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Both metrics improved year over year. Results have gained from continued brand strength and significant pricing.
KDP has been witnessing continued momentum in the Refreshment Beverages segment for a long time. KDP witnessed market share expansion above 88% of its cold beverage portfolio. This mainly reflected strength in CSDs, seltzers, energy, apple juice, coconut waters and fruit drinks. For 2023, KDP expects sales growth of 5-6%, which is higher than the 5% projected earlier.
Keurig Dr Pepper has an expected revenue and earnings growth rate of 6% and 6.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last seven days. The stock price of KDP is currently trading at a 29.8% discount to its 52-week high.
Align Technology Inc. (ALGN - Free Report) is expanding its global presence to address the huge untapped demand in the malocclusion space. Annually, only 21 million people globally elect orthodontic treatment and a large portion of the patient base remains unattended. To address this untapped market, ALGN has taken several strategic initiatives, including digital marketing in alliance with influencers and digital platforms.
ALGN has launched its first subscription-based clear aligner program DSP worldwide. Within the Scanner business, ALGN is scaling up the production and distribution of iTero in several countries. Innovations and market expansion efforts are helping ALGN offset the impact of inflation and supply disruptions.
Align Technology has an expected revenue and earnings growth rate of 6.6% and 13.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days. The stock price of ALGN is currently trading at a 35.1% discount to its 52-week high.
Zimmer Biomet Holdings Inc. (ZBH - Free Report) is expanding its global presence to address the huge demand in the musculoskeletal space. This market is expanding at a rapid pace on favorable demographics and growing utilization of musculoskeletal healthcare, particularly in emerging markets and under-penetrated developed markets.
Since the beginning of 2023, ZBH is witnessing strong procedure recovery aided by no meaningful impact from COVID-19 and staffing challenges. We are also hopeful about the recent implementation of four meaningful pillars inside Zimmer Biomet’s Knee business to drive pricing stability, mix benefit and competitive conversions.
Zimmer Biomet Holdings has an expected revenue and earnings growth rate of 6.7% and 9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. The stock price of ZBH is currently trading at a 31.2% discount to its 52-week high.