Wall Street suffered setbacks in the past three weeks after a smooth sail in the first seven months of 2023. Market participants remain uncertain up to what level the Fed will continue to hike its interest rate. Fed’s July FOMC meeting minutes clearly indicated that a majority of officials were in favor of pursuing the rate hike cycle as the inflation rate remains well above the central bank’s target level supported by resiliency in the labor market and consumer spending.
Moreover, a series of bad news hit markets in August. On Aug 1, Fitch Ratings downgraded the U.S long-term foreign currency issuer default rating to AA+ from AAA. On Aug 8, Moody’s Investors Service cut the rating of 10 small and mid-sized U.S. banks by a single notch. The rating agency put six big banks under review for a potential downgrade. Moody’s also changed its rating outlook to negative for 11 banks.
On Aug 15, Fitch Ratings warned that it may downgrade ratings of more than a dozen U.S. heavyweight banks in the near future. Fitch said that another one-notch downgrade of the banking sector’s rating from AA- to A+ will compel the rating agency to reevaluate the ratings of all 70 U.S., banks that it covers for a possible downgrade.
Our Top Picks
At this stage, we have adopted two selection criteria. First, we select blue-chip stocks with a favorable Zacks Rank. These companies have a robust business model, a strong financial position and globally acclaimed brand value. Second, these companies came up with strong earnings results in the recently reported quarter and issued solid guidance.
We have narrowed our search to five such stocks with strong growth potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Caterpillar Inc. CAT 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 CAT’s adjusted earnings per share for 2023 to grow 20% and revenues to rise 8%.
Zacks Rank #1 CAT has an expected revenue and earnings growth rate of 12% and 40.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the last seven days.
JPMorgan Chase & Co.‘s JPM second-quarter 2023 results show the impacts of the First Republic Bank buyout, higher rates and worsening economic outlook. High rates, global expansion efforts and decent loan demand should support net interest income (NII) of JPM. Our estimates for NII (managed) indicate a CAGR of 5.8% by 2025. With green shoots visible in the investment banking (IB) business, IB fees are likely to witness a turnaround soon.
Zacks Rank #1 JPM has an expected revenue and earnings growth rate of 22% and 30.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 30 days.
Walmart Inc. WMT has been benefiting from its robust omnichannel operations due to its efforts to enhance store and online experience. WMT has been particularly gaining from its efforts to boost delivery services. Increased market share in grocery continued to boost U.S. comps in the first quarter of fiscal 2024. Moreover, the top and bottom lines beat the Zacks Consensus Estimate and grew year over year. Strong comps growth globally, expense leverage and e-commerce growth across all units favored the company. WMT raised its guidance for fiscal 2024.
Zacks Rank #2 Walmart has an expected revenue and earnings growth rate of 5% and 1.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the last seven days.
Johnson & Johnson JNJ beat estimates for both earnings and sales in second-quarter 2023. JNJ’s Pharma unit is performing at above-market levels. Growth in 2023 is expected to be driven by products like Darzalex, Tremfya, Erleada, Invega Sustenna and Uptravi, and continued uptake of new launches, including Spravato, Carvykti and Tecvayli.
The MedTech unit is showing improving trends driven by recovery in surgical procedures and contribution from new products. JNJ is making rapid progress with its pipeline and line extensions.
Zacks Rank #2 Johnson & Johnson has an expected revenue and earnings growth rate of 5.5% and 5.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 30 days.
McDonald’s Corp. MCD continues to impress investors with robust comps growth. MCD’s increased focus on menu innovation and loyalty program expansion is commendable. MCD is also making every effort to drive growth in international markets. Robust digitalization is likely to help boost McDonald’s 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 9.8% and 13.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the last 30 days.
JPMorgan Chase & Co. (JPM): Free Stock Analysis Report
Caterpillar Inc. (CAT): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
Walmart Inc. (WMT): Free Stock Analysis Report
McDonald’s Corporation (MCD): Free Stock Analysis Report
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