3 stocks that could light up the skies in 2023 like fireworks on July 4th

For the most part, it's been a great year for investors in the S&P 500, assuming they owned a small group of technology stocks. But for the rest of the index, dominated by a few notable laggards, it's been a pretty turbulent year.

“Part of that, we think, is because average stocks are a better reflection of the overall macroeconomic uncertainty and the significant hike in Fed interest rates over the past year,” Truist co-chief investment officer Keith Lerner told Yahoo Finance.

According to data from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, seven stocks have powered most of the S&P 500's 15% year-to-date gain, driven largely by hype surrounding new generative AI technology.

Another view from Goldman Sachs (chart below): 15 of the largest companies have generated 86% of the S&P 500's year-to-date return.

Nvidia (AI hype) and Meta (cost cutting and AI hype) lead the S&P 500 with gains of 180% and 133%, respectively. Tesla shares are up 109% (AI hype and strong demand for electric vehicles).

Apple is up 46% on optimism about some expensive new VR glasses. Amazon is oddly up 52% ​​despite not announcing anything in the AI ​​space and continuing to post poor quarters. And Microsoft and Alphabet traded blows on AI developments, resulting in share price increases of 39% and 34%, respectively.

“These stocks have benefited from being oversold earlier in the year, from the excitement surrounding AI, and from rising earnings revision trends,” said Lerner. “Also, even if the economy slows as expected, it's likely that companies will continue to spend on technology or fear falling behind. That should be positive for technology gains on a relative basis.”

However, non-tech companies haven't fared quite as well. CVS Health is down 26%, Moderna is down 34%, and VF Corp is down 31%.

Will the rest of the S&P 500 finally spark more interest from investors in the second half of the year? Pros like Lerner and BMO's Brian Belski expect the market rally to extend slightly as investors hunt for bargains and bet on no rate hikes in 2024.

“The specter of narrow breadth has started to widen, and we expect that trend to continue,” says Belski.

Here are three relative laggards from the S&P 500 this year that could gain popularity in the stock market.

PURCHASE #1: AT&T

AT&T (T) had a challenging first half as declining subscriber growth, weaker-than-expected revenue and disappointing free cash flow levels kept investors away from the telecoms giant.

But despite those headwinds, David Sekera, Morningstar's chief US market strategist, told Yahoo Finance that AT&T is a top pick.

“AT&T is at the nexus of a deep value company,” said Sekera. “Basically, it's in a relatively strong position. We value the company with a narrow economic moat, which means that it has structural cost advantages over the long term.”

On an additional positive note, AT&T CFO Pascal Desroches told Yahoo Finance Live that key parts of the business have started to turn around.

PURCHASE #2: OCCIDENTAL PETROLEUM

Occidental Petroleum (OXY), the Houston-based oil company backed by billionaire investor Warren Buffett, has surprisingly been let down.

Shares are down more than 8% year-to-date amid ongoing concerns over slowing oil demand amid sluggish global economic growth. And the oil producer is not alone. The S&P 500's Energy Select Sector (XLE) is down 10% year-to-date after the sector posted a massive 57.6% gain last year.

Buffett, Occidental's largest shareholder, saved the stock from the worst sell-off in the energy sector this year. He increased his stake in the company to over 25% after buying 2.1 million more shares worth about $123 million.

As Warren Buffett doubles his price on Occidental, Portfolio Wealth Advisors CEO Lee Munson sees an opportunity to also bet on the “weakened” stock.

“In 2019 they bought Anadarko — which means they own half of the Permian Basin,” Munson told Yahoo Finance Live. “The Permian is the crown jewel. It's cheap to produce and once you pump it out you can frack it to bleed it out of a rock – print money… I love that there's cheap production out there.”

PURCHASE #3: CISCO

A challenging macro environment has caused Cisco (CSCO) stock to lag far behind its technology peers and the broader S&P 500.

The stock's 7% gain so far this year pales in comparison to the 36% rise in the Nasdaq 100 Index (^NDX). Investors have overlooked the computer networking equipment maker fearing customers will cut IT spending. Orders were down 23% in the most recent quarter.

David Trainer, CEO of New Constructs, told Yahoo Finance he viewed Cisco's recent underperformance as a buying opportunity given “excellent fundamentals with a 15% return on invested capital (ROIC).”

Trainer added, “The stock also has an attractive valuation that implies just 4% earnings growth over the next decade. We expect the company to be closer to 9% or 10% earnings growth.”

Brian Sozzi is Editor-in-Chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn. Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith.

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