Despite economic uncertainty, there are still highly rated stocks to help you diversify.
The stock market has had a bumpy ride in 2022. The Federal Reserve has been aggressively raising interest rates in its ongoing battle against inflation and is expected to continue to tighten monetary policy in early 2023. The war in Ukraine and supply chain disruptions have contributed to economic uncertainty. In these unpredictable times, investors can always mitigate risk through the power of diversification. The Bank of America research team maintains a list of diversified top-tier American stock picks. Here’s one top stock to buy from each of the 11 market sectors, according to Bank of America.
Information technology: Microsoft Corp. (ticker: MSFT)
Microsoft is the world’s largest software company and is well-known for its Windows operating system, Office professional software suite and Azure cloud services business. Analyst Brad Sills says Microsoft’s recent deceleration in Azure revenue growth is only temporary. He projects overall revenue growth will rebound from just 7% in 2023 to 13.2% in 2024. Sills says Microsoft is positioned to continue to generate double-digit overall revenue growth for at least the next three years and has an opportunity to further expand its margins. Bank of America has a “buy” rating and $300 price target for MSFT stock, which closed at $244.43 on Dec. 21.
Consumer discretionary: Starbucks Corp. (SBUX)
Starbucks is a leading global retailer of coffee products. Analyst Sara Senatore says Starbucks’ 11% U.S. same-store sales growth in the fiscal fourth quarter exceeded lofty market expectations and outpaced all other restaurant stocks covered by Bank of America. Even the 16% drop in China same-store sales growth in the quarter was better than expected, Senatore says. She says the company has multiple bullish catalysts ahead in 2023, including sales leverage, U.S. efficiency improvements and at least a partial recovery in China. Bank of America has a “buy” rating and $109 price target for SBUX stock, which closed at $98.67 on Dec. 21.
Alphabet is the parent company of Google and YouTube, and is a global leader in online advertising and search. Class A shares are down 38.2% this year through Dec. 21, making it the worst performing stock on this list. Analyst Justin Post says the weakness in Alphabet shares is a buying opportunity for long-term investors. Post says Alphabet is a highly profitable, defensive stock with valuation support, and he projects 7.3% revenue growth for Alphabet in 2023. Bank of America has a “buy” rating and $114 price target for GOOGL stock, which closed at $89.58 on Dec. 21.
Health care: Pfizer Inc. (PFE)
Pfizer is one of the world’s largest pharmaceutical companies and co-developed one of the leading COVID-19 vaccines along with partner BioNTech SE (BNTX). Analyst Geoff Meacham says Pfizer is well on its way to achieving its goal of adding at least $45 billion in new drug revenue by 2030 to offset loss of exclusivity on its existing portfolio of drugs. Meacham says Pfizer’s recent analyst day event highlighted the company’s long-term potential in several markets, including vaccines, migraine headaches, inflammation, immunology, oncology, diabetes and obesity. Bank of America has a “buy” rating and $60 price target for PFE stock, which closed at $51.66 on Dec. 21.
Consumer staples: Coca-Cola Co. (KO)
Coca-Cola is a leading soft drink company. Analyst Bryan Spillane says Coca-Cola’s recent earnings upside has been driven largely by higher prices. Spillane says earnings growth in 2023 is not a given considering European consumer weakness and difficult year-over-year comparisons. While he projects earnings per share growth of just 0.8% in 2023, he anticipates EPS growth will rebound to 8% in 2024. In the long term, Spillane says Coca-Cola is a best-in-class beverage company with a clear strategy and a long track record of growth. Bank of America has a “buy” rating and $65 price target for KO stock, which closed at $63.80 on Dec. 21.
Financials: Ares Management Corp. (ARES)
Ares Management is one of the world’s largest alternative asset management firms. Analyst Craig Siegenthaler says the company’s fee-related performance from its two real estate investment trusts, or REITs, and net realized performance fees from its 2017-18 vintage flagship credit funds could generate significant earnings upside for the firm in the next four quarters. Ares management is targeting at least 20% annualized fee-related earnings growth through 2025, and Siegenthaler says the company has a rare combination of attractive offensive and defensive investment qualities. Bank of America has a “buy” rating and $103 price target for ARES stock, which closed at $68.79 on Dec. 21.
Industrials: Northrop Grumman Corp. (NOC)
Northrop Grumman is a top aerospace and defense contractor that produces advanced military technology. Analyst Ronald Epstein says Northrop Grumman has managed supply chain disruptions exceptionally well in 2022. Epstein says the company may experience near-term margin weakness as it shifts from legacy programs to new ones, such as the Ground Based Strategic Deterrent and the Next Generation Interceptor programs. However, he says Northrop has high-quality earnings and a strong enough balance sheet to support $1.5 billion in buybacks in fiscal 2022. Bank of America has a “buy” rating and $700 price target for NOC stock, which closed at $538.79 on Dec. 21.
Energy: Schlumberger Ltd. (SLB)
Schlumberger is one of the world’s leading oilfield services companies. Soaring energy prices have led to an increase in oil and gas activity in 2022. Schlumberger’s share price is up 78% this year through Dec. 21, making it the best-performing stock on this list. Analyst Chase Mulvehill says Schlumberger is positioned for 40% compound annual EPS growth through 2025. He says supply and demand imbalances in the oil market and growing concerns over global energy security will be tail winds for Schlumberger’s core business in 2023. Bank of America has a “buy” rating and $60 price target for SLB stock, which closed at $53.31 on Dec. 21.
Materials: Nutrien Ltd. (NTR)
Nutrien is one of the world’s largest producers of crop nutrients, including potash, nitrogen and phosphate used in fertilizers. The war in Ukraine disrupted global fertilizer supplies, sending fertilizer prices to record highs and allowing Nutrien to report record earnings in 2022. The stock also pays an attractive 2.6% dividend. Analyst Steve Byrne says potash shipments will increase significantly in 2023. He has a favorable outlook for both the current agriculture cycle and the fertilizer markets, and anticipates demand will remain strong through 2024. Bank of America has a “buy” rating and $120 price target for NTR stock, which closed at $74.13 on Dec. 21.
Real estate: SBA Communications Corp. (SBAC)
SBA Communications is a specialty REIT that operates wireless communications towers around the world. Analyst David Barden says SBA has bullish business fundamentals and generates solid organic sales growth. Ongoing U.S. 5G deployments and international 4G deployments have contributed to impressive results for SBA in recent quarters. SBA acquired 131 communication sites and built 113 towers in the third quarter alone. Management anticipates activity will remain strong in 2023, and Barden predicts more acquisitions and share buybacks in the near future. Bank of America has a “buy” rating and $425 price target for SBA stock, which closed at $280.68 on Dec. 21.
Utilities: NextEra Energy Inc. (NEE)
NextEra Energy is the parent company of Florida Power & Light and NextEra Energy Resources. Analyst Julien Dumoulin-Smith says NextEra offers investors one of the best growth profiles within the utilities sector, and the Inflation Reduction Act should boost demand. Dumoulin-Smith anticipates NextEra management will provide an in-depth financial update on the company’s fourth-quarter earnings call, but he projects NextEra’s originations will accelerate in the first half of 2023. Dumoulin-Smith says the company is a best-in-class utility and has a track record of successful renewables development. Bank of America has a “buy” rating and $94 price target for NEE stock, which closed at $84.65 on Dec. 21.
Top stocks to buy in 11 different sectors:
— Information technology: Microsoft Corp. (MSFT)
— Consumer discretionary: Starbucks Corp. (SBUX)
— Communication services: Alphabet Inc. (GOOG, GOOGL)
— Health care: Pfizer Inc. (PFE)
— Consumer staples: Coca-Cola Co. (KO)
— Financials: Ares Management Corp. (ARES)
— Industrials: Northrop Grumman Corp. (NOC)
— Energy: Schlumberger Ltd. (SLB)
— Materials: Nutrien Ltd. (NTR)
— Real estate: SBA Communications Corp. (SBAC)
— Utilities: NextEra Energy Inc. (NEE)
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Update 12/22/22: This story was previously published at an earlier date and has been updated with new information.