5 Stocks For A New Bull Market

By Brian Nelson, CFA

Artificial intelligence is here. Inflation appears tamed. Unemployment is still near all-time lows. The residential housing market is holding up. The stock market remains resilient supporting household wealth. The Fed has raised rates considerably, translating into tremendous future dry powder to stimulate equities. The banking system was challenged yet again with SVB Financial (OTCPK:SIVBQ) and showed that government agencies were ready to act and in a big way to keep the financial system sound. The regular goings-on and tit-for-tat with China, North Korea and Russia continue, but that’s nothing out of the ordinary. Asset allocators again were burnt by shifting into bonds as big cap tech and large cap growth rallied significantly so far in 2023.

What does all this mean? Well, we believe it’s a new bull market in equities, and in this article, we highlight five stocks to consider for the good times to come. Many of the stocks below pay a dividend, but it’s important to note that a focus on dividends should not be the primary area of concern for investors. For example, as we note in this article, high yield investing and dividend growth investing may have cost retirees greatly during the past decade or so. When it comes to the dividend, it’s important to think of it this way: If you have a $10 stock, and it pays a dividend, you now have a stock that is $9 and a $1 in dividends. That’s how it works. With that said, let’s dig into five of our favorite ideas for this new bull market!

Microsoft Corp. (MSFT)

Microsoft, by far, is one of the best ways to play the proliferation of artificial intelligence. The company has already rolled out AI across some of its products for a nice step-change in price, and we would expect price increases to continue as more and more users see tremendous value in its AI tools. The firm is working to close its proposed acquisition of Activision Blizzard (ATVI), and while we generally don’t like the all-cash deal, we’re starting to think that upside over the next decade for this transaction may turn out to be significantly material as Microsoft post-deal continues to re-build a war chest of net cash on the books as its gaming assets proliferate. We were very cautious on its prior acquisition of LinkedIn, and we were probably wrong about being skeptical on the deal when it turned out to be a great one. We are probably wrong about being cautious on Activision, too, as it could pave the way for significant synergies across the firm’s product suite. We’re huge fans of Microsoft and think the company will remain a leading driver behind the strength in big cap tech and large cap growth.

Apple Inc. (AAPL)

Apple is simply phenomenal and meets a lot of the criteria we look for in a great investment idea consideration. But seriously, what can we say about Apple that hasn’t already been said? Well, truth be told, we’re not against repeating what Warren Buffett recently said about the company:

“The good thing about Apple is (Berkshire) can go up (in our ownership stake). They keep buying their stock; instead of our owning 5.6%, if they get down to… 15.25 billion of shares outstanding, without our doing anything we got 6%. Our criteria for Apple isn’t different than the other businesses we own; it just happens to be a better business than any we own. And we put a fair amount of money in it… and our railroad business is a very good business, but it is not remotely as good as Apple’s business. Apple has a position with consumers where they are paying $1,500 or whatever it may be for a phone, and these same people pay $35,000 for having a second car, and if they had to give up their second car or give up their iPhone, they’d give up their second car. I mean it’s an extraordinary (product). We don’t have anything like that that we own 100% of… but we’re very, very, very, happy to have 5.6% or whatever it may be percent (of Apple), and we’re delighted every tenth of a percent that it goes up.”

Apple’s products are an extremely valuable part of consumer life, and we love the firm’s tremendous net cash position and significant free cash flow — two of the most important cash-based sources of intrinsic value. We expect the firm’s iPhone to continue to be a fan-favorite, and its Services business and entrenched installed base are ripe for upselling and cross-selling opportunities, whether it be in AI or other areas. We’re excited about the company’s ‘Vision Pro’ and expect some big…