The stock market has endured a challenging year due to the strong headwinds of high inflation, the Federal Reserve’s aggressive interest rate hikes, and geopolitical tensions. Although inflation has slightly cooled off, the odds of a recession are still high as the monetary policy is set to tighten further.
The Fed officials have indicated that the rates are expected to be higher through next year with no reductions until 2024.
However, some analysts believe the stock market will stabilize next year. Fundstrat’s Tom Lee said in his 2023 outlook that the U.S. stocks are poised to surge 18% next year as the economy is likely to achieve a “soft landing.”
Wells Fargo sees the light at the end of the tunnel in the second half of next year, projecting a modest target of 4,200 for the S&P 500 in 2023. Senior global market strategist, Sameer Samana at Wells Fargo Investment Institute, expects that smaller hikes and, eventually, no hikes should reduce the headwind the economy faces as the year progresses.
Moreover, better-than-expected consumer confidence data for December, which jumped to the highest level since April, is lifting optimism. Given this backdrop, investing in fundamentally strong stocks, Cisco Systems, Inc. (CSCO) and Lifeway Foods, Inc. (LWAY) could be ideal picks for new investors in 2023.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol-based networking and other communications and information technology products. In addition, it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products.
On November 29, 2022, the company launched new AppDynamics Cloud capabilities that allow organizations to achieve observability over cloud-native applications correlated to business context across the entire IT estate.
The new capabilities will initially support cloud-native applications and digital services running on AWS as both companies continue to empower organizations on their journey to full-stack observability.
CSCO’s total revenue increased 5.7% year-over-year to $13.63 billion for the fiscal first quarter ended October 29, 2022. The company’s operating income grew 3% year-over-year to $3.54 billion, while its non-GAAP net income came in at $3.55 billion, representing a 2.1% year-over-year increase. Also, its non-GAAP EPS came in at $0.86, up 4.9% year-over-year.
The consensus EPS estimate of $0.86 for the second quarter ending January 31, 2023, represents a 1.8% improvement year-over-year. The consensus revenue estimate of $13.41 billion for the current quarter represents a 5.4% increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
It has gained 14.6% over the past three months to close the last trading session at $47.66.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Stability. Within the Technology – Communication/Networking industry, it is ranked #3 out of 47 stocks. Click here to see the other ratings of CSCO for Growth, Value, Momentum, and Sentiment.
Lifeway Foods, Inc. (LWAY)
LWAY produces, markets, and sells probiotic-based products internationally. Its primary product is drinkable kefir, a cultured dairy product. The company also offers European-style soft cheeses, probiotic oat milk, and a ProBugs line for kids. LWAY sells its products under the Lifeway and Fresh Made brand names and under private labels.
Julie Smolyansky, LWAY’s President and CEO, stated, “We have recently gained traction within the convenience channel and see this as an opportunity to build brand awareness and introduce new consumers to our single-serve products. We look forward to finishing the year strong and preparing for a healthy 2023.”
LWAY’s net sales increased 29.1% year-over-year to $38.14 million in the third quarter ended September 30, 2022. The company’s gross profit grew 8.5% year-over-year to $7.59 million, while its income from operations increased 14.5% year-over-year to $1.19 million.
In addition, its net income improved 104.8% from the prior-year quarter to $983K. Also, its EPS came in at $0.06, representing an increase of 100% year-over-year.
Analysts expect LWAY’s EPS and revenue for fiscal 2023 to increase 375% and 5% year-over-year to $0.38 and $152 million, respectively. The stock has gained 28.9% year-to-date to close the last trading session at $5.93.
LWAY’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Stability, Sentiment, and Quality. It is ranked #4 out of 49 stocks in the Food Makers industry. Click here to see LWAY’s rating for Momentum as well.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
CSCO shares were trading at $47.18 per share on Thursday morning, down $0.48 (-1.01%). Year-to-date, CSCO has declined -23.21%, versus a -18.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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