When seeking out the best stocks to buy now, investors will need to be brave and patient in regard to timing, as well as agile in a stock market that recently transitioned from bear market to bull market.
Given the Federal Reserve's aggressive rate-hiking campaign, it's likely the U.S. will enter a recession, says Russ Koesterich, portfolio manager of the BlackRock Global Allocation Fund. "That said, given strong household balance sheets and resilient consumption, our base case is that it will be a mild recession."
What's the chance for a recession?
Gross domestic product (GDP) growth rose to 4.9% in in the third quarter from 2.1% in Q2.
"[A] recession may be avoided, with the odds of one in early 2024 at 30%," writes Kiplinger economist David Payne in Kiplinger's GDP outlook. "Consumer and business spending is expected to slow into next year, but perhaps not so much as to cause an outright recession." Look for inflation to be around 4.3% by the end of 2023, down from the 5.0% seen at the end of March.
After the Fed kept interest rates unchanged at its September meeting, we expect the central bank to be done raising rates for now, leaving the federal funds rate in the 5.25%-5.50% range, up from 0.25% in March 2022. The Federal Reserve is currently expecting two rate cuts in 2024.
For stocks, the turn from tighter monetary policy to easing will be a compelling all-clear signal – as will rock bottom valuations in prices. "History tells us that markets don't find a bottom until investors can see Federal Reserve rate cuts or a trough in economic activity on the horizon, or when valuations are so low that they price in a bear-case scenario," says Mark Haefele, chief investment officer at UBS Global Wealth Management. "Today, none of those conditions are in place."
How do I find the best stocks to buy?
Given the uncertain, sometimes roiling backdrop for stocks, where should investors look when seeking out the best stocks to buy now? A popular piece of advice among Wall Street strategists now is to resist the bargain-basement appeal of the most beaten-up stocks and focus instead on high-quality shares. "Investors should avoid volatile names and be cautious on both deep-value and unprofitable growth companies," Koesterich says. "Instead, emphasize quality with a focus on earnings consistency and good profitability."
Generous and growing dividends are a hallmark of high quality and are likely to make up a much bigger portion of total returns than they have recently, says Caroline Randall, a portfolio manager at mutual fund company Capital Group.
So, with all of this in mind, here are 12 of the best stocks to buy now. To compile the list, we looked for high-quality companies with solid fundamentals like strong earnings and revenue growth, as well as free cash flow, and many with a value tilt as measured by their forward price-to-earnings (P/E) ratios. The names featured here vary by size and industry and are not meant to compose a diversified portfolio. But all, for one reason or another, are well positioned to benefit from the transition to a bull market from a bear market.
Data is as of October 30. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Halliburton
- Market value: $35.3 billion
- Dividend yield: 1.6%
Haliburton (HAL, $39.42) is one of the world's largest energy services companies, according to Argus Research, with more than 40,000 employees and operations in over 70 countries. It supplies products and services to assist in energy exploration and production, from locating the oil to constructing and completing the well to managing geological data.
Oil was already in short supply as the global economy opened up post-pandemic; then came the war in Ukraine and rising geopolitical tensions in the Middle East. Haliburton stands to benefit as oil companies ramp up production.
Jeffrey Miller, Haliburton's CEO, told analysts that it was entering a "multiyear upcycle," according to Argus. The investment-research firm expects Haliburton to generate strong free cash flow in the coming quarters and notes that the company nearly tripled its dividend in January 2022.
The shares trade at 10.5 times forward earnings estimates, well below the five-year average of 26.5.
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Amazon.com
- Market value: $1.37 trillion
- Dividend yield: N/A
Amazon.com (AMZN, $132.71) was so cheap following its 2022 slump that the managers at the Dodge & Cox Stock fund – one of the best no-load mutual funds – who are sticklers about price, scooped up shares of the e-commerce and cloud-computing juggernaut. The managers say they take the long view and are drawn to companies with "attractive fundamentals where expectations and valuations have declined."
Amazon has certainly rewarded tactical investors who picked it up at low valuations, with shares up 58% for the year-to-date. This rally no longer has this growth-stock darling being considered a value stock. At $132, Amazon stock trades at 73.5 times forward earnings; its five-year historical forward P/E is 63.
Still, analysts expect Amazon to see impressive 27.1% earnings growth over the next three to five years. Additionally, the company's dominant role in its key markets will buoy AMZN – and help it secure a place on this list of best stocks to buy now. And the average price target of $172.48 implies expected upside of 30% to current levels.
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Advanced Micro Devices
- Market value: $155.4billion
- Dividend yield: N/A
Don't ignore the tenets of diversification and shun tech or the growthier side of the market completely when adjusting your portfolio to include the best stocks to buy now, says Tony DeSpirito, managing director and portfolio manager at BlackRock. Companies will continue to invest in software and hardware solutions to high labor costs, he says, and many of the firms have "fantastic" balance sheets.
Take Advanced Micro Devices (AMD, $96.18), a leading semiconductor manufacturer. Analysts are bullish on one of Wall Street's best semiconductor stocks in part because of optimism toward the company's artificial intelligence (AI) initiatives.
The shares are up more than 48% for the year-to-date, but trade at 39 times expected earnings for the year ahead – in line with the typical price-earnings multiple over the past five years.
Plus, analysts, on average, expect a 31% jump in annual earnings over the next three to five years, according to S&P Global Market Intelligence, ahead of the company's peers, fueled in part by market-share gains for AI and its data-center chips.
"In past years AMD has gained meaningful global market share in CPUs for data center and client, mainly at Intel's (INTC) expense," says Argus Research analyst Jim Kelleher, who has a Buy rating on AMD.
"Share gains in client and in data center CPUs, market leadership in console gaming, and the much-enhanced embedded business position AMD for long-term growth exceeding growth of the market and the peer group," Kelleher adds. Additionally, Advanced Micro Devices "continues to release innovative new products, as it expands from PC, data center and gaming to AI workloads in the hyperscale space."
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Deckers Outdoor
- Market value: $15.3 billion
- Dividend yield: N/A
Deckers Outdoor (DECK, $584.56) may be known for its Uggs brand of cozy sheepskin footwear, but analysts at BofA Securities believe that the small-midsize company's crown jewel is its HOKA brand running shoes, with a (pun intended?) "clear runway for growth." BofA expects HOKA brand sales to double to $2.2 billion by fiscal year 2025 (ending March 31). Total company revenues in fiscal 2022: $3.2 billion.
Uggs is Deckers' largest business, though, with high profit margins and strong cash flow. The brand has a good chance of seeing its pandemic-era popularity stick.
BofA likes DECK'S historically conservative management team, which has a strong track record of beating expectations. In short, Deckers is a "high-quality stock with a compelling growth trajectory," say the analysts.
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Rexford Industrial Realty
- Market value: $8.9 billion
- Dividend yield: 3.6%
Real estate investment trusts (REITs), among the most interest-rate-sensitive industries, have fallen an average of roughly 13% this year.
"The recent selloff is overdone," say analysts at investment firm Stifel. You may still be reluctant to invest in office parks or shopping malls, but industrial REITs, which provide warehouse and logistics services, present an opportunity for growth at a reasonable price, according to Stifel.
The firm has a Buy rating and $56 price target on Rexford Industrial Realty (REXR, $42.37), an industrial REIT that focuses on just one huge market – Southern California. This, according to Stifel, is the largest industrial market in the United States.
While a broad economic slowdown and higher interest rates pose near-term risks to REXR, the firm's "deep roots and long history" within the region provide the team with a great sense of market demand, the analysts say, adding that the scarcity of available space allows Rexford to push above average rental rates. Rexford's balance sheet is solid; the shares yield 3.6%.
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T-Mobile US
- Market value: $163.7 billion
- Dividend yield: N/A
T-Mobile US (TMUS, $141.57) is the second-largest wireless carrier in terms of U.S. market share. But it is sprinting ahead of the others in terms of growth, says analyst Keith Snyder, at investment research firm CFRA. "
"Our Strong Buy recommendation reflects our expectation that T-Mobile will continue to outgrow peers," Snyder says. The rollout of T-Mobile's 5G network is at least 12 months ahead of both Verizon (VZ) and AT&T (T), he adds. That, and aggressive phone plan pricing, "has enabled T-Mobile to capture market share, while competitors struggle to keep up," the analyst says.
Moreover, the carrier is on track with its goal of doubling its share of the large-business and government market from less than 10% to nearly 20% over five years. CFRA expects earnings to jump from $2.06 a share in 2022 to $6.40 in 2023; the shares could see $175 within the next 12 months.
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Workday
- Market value: $54.3 billion
- Dividend yield: N/A
Workday (WDAY, $207.20) is a leader in cloud-based software for human-resources management.
"It has really been able to carve out a strong position based on its patented technology," says Parnassus Mid Cap fund co-manager Lori Keith. Half of the Fortune 500 uses its platform. And once installed, customers tend to stick – Workday has a customer retention rate of 95%.
Like most tech stocks, WDAY struggled in 2022, finishing the year down nearly 39%. (However, WDAY is up 24% so far in 2023 thanks to a rebound in the best growth stocks.)
And Workday isn't very profitable – it eked out a small profit last fiscal year (ending in January). But analysts expect that to turn in 2024, buoyed by revenue growth of 16% in the next fiscal year.
Investors seeking out the best stocks to buy now might consider holding for longer than one year: Keith says she sees "significant market-share opportunity" for Workday, and over the next three years, the stock's potential reward outweighs the risk.
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Matador Resources
- Market value: $7.3 billion
- Dividend yield: 1.3%
Matador Resources (MTDR, $60.21) is an oil and gas exploration and production company that struggled alongside its fellow energy stocks to start 2023. However, shares are rebounding, and are up more than 40% since early May.
There are several things working in Matador's favor right now, including output cuts by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) that have created tailwinds for energy prices.
"Not long ago, it looked like oil prices were finally retreating, which would have been welcome news to drivers paying relatively high gas prices," writes Jim Patterson, managing editor for The Kiplinger Letter, in Kiplinger's energy outlook. "But after the brutal attack by Hamas on Israel ... the situation appears to have changed."
While the Middle East tensions so not create any immediate threat to oil production in the region, Patterson says, "we expect that the United States will tighten sanctions on Iran’s oil industry to punish Tehran for the support it provides to Hamas. And we expect any loss of Iranian oil figures to tighten the global oil market."
As for MTDR stock, analysts think it will continue to climb. The consensus price target, according to S&P Global Market Intelligence, is $76.62, representing expected upside of more than 27% over the next 12 months or so.
What's more, MTDR is one of best values on this list of the best stocks to buy now. Shares are currently trading at just 6.1 times forward earnings, well below Matador's five-year average of 9.2.
Looking ahead, Matador's natural gas business is a bridge to the time when renewables will provide most of the fuel for electricity. We'll need that gas for the next 20 or 30 years.
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Lululemon Athletica
- Market value: $49.5 billion
- Dividend yield: N/A
Lululemon Athletica (LULU, $391.75) is a retailer of leisure attire. The stock is up 22% for the year-to-date, thanks in part to comparable-store sales rising 11% in the second quarter. Still, LULU is attractively valued.
Shares are currently trading at 32 times forward earnings. At first glance, this certainly seems pricey, but not quite as much when compared to the five-year forward P/E ratio of 43.
Argus Research analyst John Staszak certainly believes LULU is one of the best stocks to buy for the long term.
"Lululemon has a strong brand and growing direct-to-consumer sales, which we expect will lead to higher margins over the next several years," the analyst writes in a note. While Staszak admits that LULU has "relatively high inventory," he adds that the company typically sells more products at full price than its peers. As a result, it "should not have to cut prices much to move its inventory."
Additionally, any selloff in LULU shares creates a "buying opportunity," Staszak says. The analyst has a long-term Buy rating on one of Wall Street's best consumer discretionary stocks.
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Merck
- Market value: $260.6 billion
- Dividend yield: 2.8%
Why is Merck (MRK, $102.68) on this list of the best stocks to buy now? The pharmaceutical giant is known for its high returns over the past decade. Analysts are upbeat toward MRK, too, as evidenced by a consensus rating of Buy. Of the 29 analysts that follow Merck tracked by S&P Global Market Intelligence, 15 say it's a Strong Buy, six have it a Buy and eight call it a Hold.
Speaking for the bulls is Argus Research analyst Jasper Hellweg, who has a Buy rating on MRK. "The company generates strong cash flows from its portfolio of oncology, hospital care, and antiviral products," Hellweg says. "The company also continues to receive regulatory approvals for additional indications for its products." These include new approvals for Keytruda in non-small cell lung cancer and the intramuscular administration of the company's MMRV (measles, mumps, rubella and varicella) family of vaccines, the analyst adds.
And while management expects adjusted earnings and revenue to decline on a year-over-year basis in fiscal 2023 due to forex headwinds and lower sales of its COVID-19 treatment Lagevrio, Merck's financial strength remains sound, Hellweg says.
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Amgen
- Market value: $140.8 billion
- Dividend yield: 3.2%
Many analysts are neutral about Amgen (AMGN, $263.19), a bio-pharma firm. Though some new drugs are off to a good start and selling well, that's been offset by slowing sales for its older treatments, which are under pressure from competitors.
But Amgen is an 800-pound gorilla in its industry, with a diversified roster of 26 drugs on the market (and dozens in development). It boasts a robust cash flow and a solid 3.3% dividend yield. In other words, it's somewhat defensive.
Jefferies analyst Michael Yee recently reiterated a bullish long-term outlook on the stock, citing strength in the company's pipeline, including its drugs for obesity and chronic obstructive pulmonary disease (COPD). And while the shares have underperformed in 2023, "we think the stock will recover as [the] Horizon Therapeutics (HZNP) merger closes by year end, and they grow [thyroid eye disease drug] Tepezza, but also as AMGN's pipeline starts to generate data that can provide confidence to their long term guidance of $30 billion-plus in revenues and $34 earnings per share by 2030," Yee says.
Amgen shares are up nearly 3% for the year-to-date and trade at 12 times forward earnings, a fraction of the P/E of 70 that's typical for biotech firms. With all this in mind, it's easy to see why AMGN is on this list of the best stocks to buy now.
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Archer-Daniels-Midland
- Market value: $38.1 billion
- Dividend yield: 2.5%
Archer-Daniels-Midland (ADM, $71.42) buys, transports and processes food commodities. An inflation hedge, ADM stock was a big winner in 2022, benefiting from rising prices caused by supply chain disruptions, though the stock has lagged so far this year amid an increased appetite for growthier names. Still, food scarcity seems like a longer-term problem, and the stock is reasonably priced at a forward P/E of 11.
"Our bullish outlook reflects the company's strong recent performance and our expectations for further growth in the oilseeds business and improvement in the origination and nutrition division," says Argus Research analyst Taylor Conrad (Buy). "The balance sheet is clean and management signaled confidence with the increased dividend."
As for that dividend, ADM has issued 50 years of consecutive increases to its payout – most recently lifting it by 12.5% in January 2023. This not only makes Archer-Daniels-Midland one of the best dividend stocks to own, but one of the best stocks to buy period.
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