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After gains in December, the S&P 500 (SPX) market benchmark is in a weekly decline, now at -1.5%. This comes as a mix of weakened Apple device sales and “window dressing” reallocation from the Magnificent Seven stocks, which hold around $11 trillion market cap weight.Likewise, the Dow Jones Industrial Average (DJI) is down 0.5% for the week. However, both market indices are already showing signs of recovery this Friday, above 0.3%. The latest non-farm payroll (NFP) report beat expectations for December at 216,000 jobs added vs 170,000 forecasted.This surprise caused a temporary drop in Dow Jones and Nasdaq futures to 37,647 and 16,418, respectively. The dip indicates that the market still fears the Fed’s reaction, potentially delaying the first rate cut presently priced in for March. After all, a strong labor market is not conducive to sustained disinflation. In this precarious landscape, stock investors prefer safer bets. Alongside previously covered Microsoft (Nasdaq: MSFT), Visa (NYSE: V)Visa and AMD (Nasdaq: AMD), which stocks should one watch for in January?
Applied Optoelectronics, Inc. (Nasdaq: AAOI)
The performance of this fiber-optic supplier is akin to a newly released cryptocurrency, having gained 917% year-over-year. Over the last week, AAOI is down 13%, indicating the end of the rush. Nonetheless, AAOI has a strong market position in the never-ending data bandwidth demand era. The company is well-diversified to absorb the sector’s cyclical nature, providing data center operators, telecom and cable broadband companies. During 2023, AAOI reported an increased demand for 100G and 400G data center products. Moreover, AAOI reported increased gross margin in Q3 2023 at 32.3%, compared to the year-ago quarter of 17.2%. This significant profitability boost attracted investors as AAOI shifted its focus to higher-margin products and greater manufacturing efficiency. Based on three analyst inputs pulled by Nasdaq, AAOI stock is a “strong buy.” The average AAOI price target is $21 vs. the current price of $19. The high estimate is $22, while the low forecast is above the current price at $20 per share.
Broadcom, Inc. (Nasdaq: AVGO)
Although not as performant as AAOI, Broadcom gained an impressive 97% boost during 2023. Over the last week, AVGO shares underwent a similar price correction, down 6.4%. Both companies are key cogs of the digital civilization, as Broadcom develops semiconductor and infrastructure software solutions. Broadcom is the backbone of personal connectivity as the leading provider of Wi-Fi and Bluetooth chips. For data centers, the company is equally essential for routing chips and network switches to maintain cloud computing platforms. Across all personal devices, Broadcom supplies storage and memory solutions, from NAND flash to DRAM chips.In Q3 2023, Broadcom reported a 5% YoY revenue increase to $8.9 billion, with $4.6 billion in free cash flow. For the Q4 guidance, the company expects further gains to $9.27 billion, with adjusted EBITDA guidance of 65% of projected revenue. This level of profitability is considered very strong, mirroring its 2023 stock gains. Additionally, Broadcom rolls out regular stock buybacks. For the third quarter, the company spent $2.167 billion worth of 2.4 million AVGO shares.Based on 25 analyst inputs pulled by Nasdaq, AVGO stock is a “strong buy.” The average AVGO price target is $1145.31 vs the current $1051. The high estimate is $1250 while the low forecast is $1000 per share.
Costco Wholesale Corporation (Nasdaq: COST)
For investors concerned about sector cycles and recession, Costco is a strong contender to weather both. Owing to bulk shopping and consistent profits from its membership model, Costco has a proven track record and a large loyal customer base.Year-over-year, COST shares gained 46% value, having widened its customer base by 7.5% from 2022 to 2023, now just under 128 million members. For December, Costco reported an 8.5% increase in sales and a 17.7% increase in e-commerce, delivering net sales of $82.86 billion, a 5.9% uptick from the year prior.On top of a reliable profitability record, Costco is becoming more appealing as the membership model prohibits the phenomenon of mass looting present in regular retail chains. Based on 30 analyst inputs pulled by Nasdaq, COST is a “strong buy.”The average COST price target is $675.56 vs the current $657. The high estimate is $745, while the low forecast is $502 per share. Investors should also note that Costco has a $4 billion stock repurchase program set to expire in January 2027. More By This Author:NFP Report Shows A Hot Labor Market with 216k Jobs Added In December
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