Wedbush: These are the 23 best stocks to buy now from a list that has beaten the market by 5% this y

2023 has brought its fair share of challenges, and there may be more lying ahead.
Wedbush Securities' Kevin Merritt detailed the potential pros and cons of the remaining few months.
He also discussed Wedbush's best ideas list: 23 stock picks that have beaten the market YTD.

2023 has been anything but boring in markets.

Kevin Merritt, the director of equity research at Wedbush Securities, recently summarized the state of the market so far this year, pointing out where he believes equities go from here and which stocks are the best buys now.

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Only 4 months left in a wild year

Although 2023 has been a much better year than 2022, performance has been mixed. For example, growth stocks have beaten value stocks, and within growth, tech is far outperforming biotech, Merritt said in a recent note to clients.

That variation in performance extended to earnings expectations as well. And while earnings per share across the market fell for a third straight quarter, Merritt pointed out that they held up better than analysts had expected.

But perhaps the most important element determining the stock market's performance this year has been the Federal Reserve and its restrictive monetary policies.

Investors have watched for any signs of Fed hawkishness, combing through Jerome Powell's and the governors' statements for indications of what will happen next.

Merritt said the Fed has done a good job of tackling inflation, despite "some pockets of stickiness" in consensus CPI. Although that has led to more rate hikes this year, and many still wonder if the Fed can truly stick a soft landing after thinking inflation was transitory, Merritt believes that the worst is behind the market.

"In any case, barring a materially negative surprise on the inflation front, we are well past peak Fed hawkishness (i.e., Jackson Hole was much more pleasant this year, relative to last), and economic/EPS trends will likely dictate market direction, from here," he wrote.

What's next for the stock market

So how will the market, and the economy for that matter, perform in the coming months?

"We seem to have avoided a nasty US recession, at least for now, due to excess savings and pent-up demand, though I am not convinced we won't face a mild one at some point in the next couple years," Merritt wrote. "In any case, in the here and now, the employment market remains solid, as does aggregate economic growth; not excellent, and not without risks, but solid."

If a recession does hit, Merritt cautioned, there are some levels of support that could keep the S&P 500 from falling too far. If a recession is "not too nasty/prolonged," he wrote, then the market could find some support between 3200 and 4000. If, however, a recession hits harder than expected, Merritt said the market will find stronger support around 2500.

Merritt noted plenty of downside risks ahead, including the war in Ukraine, the potential for conflict with China over Taiwan, and consumers' student loan repayments resuming just as pandemic savings are running out.

However, it's not all doom and gloom. Merritt pointed to some positive possibilities as well, including a large pile of private equity cash waiting to be deployed, the possibility that inflation rapidly cools, higher spending by companies on advances in AI, and a change of power in Russia.

"In a medium-term upside scenario, heading into 2025, assuming that inflation continues to subside, even if not nearly as much as consensus implies, and any recession we encounter is relatively contained, an upside SPX target approaching ~5000 feels doable (i.e., ~19x 2025 EPS of ~$265 )," Merritt wrote.

As for the Fed, Merritt isn't particularly concerned about whether it cuts or hikes rates once again this year. Next year, however, he is a contrarian — unlike the rest of the market, he doesn't anticipate the Fed cutting rates at all.

The best stocks to buy now

Broadly, Merritt is neutral on equities, primarily because of the opportunity investors have to profit from bonds.

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Wedbush: These are the 23 best stocks to buy now from a list that has beaten the market by 5% this y

Only 4 months left in a wild year

What's next for the stock market

The best stocks to buy now

1. Apple

2. Amazon

3. Ascendis Pharma

4. Activision Blizzard

5. BJ's Restaurants

6. Booking Holdings

7. Celsius Holdings

8. Check Point Software

9. Deckers Outdoor

10. Geron

11. IMAX

12. MoonLake Immunotherapeutics

13. Microsoft

14. M&T Bank

15. Netflix

16. New York Community Bancorp

17. Pegasystems

18. Regions Financial Corp.

19. Silicon Motion Technology Corp.

20. Tenable Holdings

21. Tempur Sealy International

22. Tesla

23. Western Digital Corp.