18 Best Stocks to Buy for 2018

If this bull market survives beyond August, it will be the longest bull market ever. And yet, there's reason to believe it still has has some room left to run. One key factor: A modestly growing economy that's spared us the sort of boom-and-bust cycles that can end a bull market. That also bodes well for companies that do well when the economy is growing, so-called cyclical stocks. Also poised to outperform in 2018: the financial sector, especially banks, and technology firms.

Here are 18 stocks to buy now for 2018 picked by Kiplinger contributors James K. Glassman and Tom Petruno based on the promise they offer in the year ahead. As well, Petruno picks five stocks you should avoid—or consider selling if you have them in your portfolio.

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Exploding global demand for computer chips is a bonanza for Applied Materials (AMAT), the world’s leading maker of chip-manufacturing equipment. The firm should benefit from the proliferation of chips in cars, industrial machinery and smartphones. And the rise of artificial intelligence—computers that can learn on their own—adds another layer of long-term demand for chips, says investment firm RBC Capital. Although Applied’s stock has surged 95% over the past year, it still looks appealing, trading at a modest 14 times estimated year-ahead earnings.

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Berkshire Hathaway (BRK.B), the company that's synonymous with master investor Warren Buffett, offers investors a three-fer. It owns dozens of businesses that touch virtually every corner of the economy, from insurance (Geico) to railroads (Burlington Northern). So its portfolio of businesses stands to benefit if U.S. economic growth picks up in 2018, which we think it will. And if the market forges ahead, Berkshire’s stock holdings, including big stakes in Bank of America (BAC) and Apple (AAPL), should deliver gains. A third attraction: If the market stumbles, Buffett and his team of ace value hunters have $100 billion in cash to swoop in on bargains.

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You may think of Charles Schwab (SCHW) as a discount brokerage, but that’s now a fraction of its business. By offering a broad menu of financial products and services at low cost, Schwab continues to attract individual investors and financial advisers alike. Client assets top $3.1 trillion. Schwab also benefits from rising interest rates, thanks to a wide gap between what it pays on short-term accounts such as money market funds and what it earns on investments. Schwab “has the best strategic position of any retail broker,” according to analysts at SunTrust Robinson Humphrey.

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Citigroup (C), one of America’s four largest banks, is the top holding of large-cap fund Oakmark Fund (OAKMX).The stock was crushed in the Great Recession but has nearly doubled since early 2016 (thanks in part to cutbacks that drastically reduced its footprint both here and abroad). The dividend should rise briskly.

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Cubic (CUB) has a hand in two sectors: Defense (where it provides combat training for the U.S. armed services and American allies, as well as electronic mission support) and transportation (automated fare systems). In October, Cubic won a contract in New York City that will allow bus and subway commuters to pay by waving their smartphones. If the firm meets analysts’ targets, by 2020 revenues will rise by one-third and the stock by one-half. Raymond James analysts Brian Gesuale and Ryan Rackley rate ot a strong buy.

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Delphi (DLPH) has remade itself since emerging from bankruptcy protection in 2005. The auto-parts giant is a leading low-cost supplier of electronics and other components for electric and self-driving vehicles—a market expected to boom for years. In the near term, Delphi (which is renaming itself Aptiv) could face pressure from a U.S. slowdown in auto sales. But investment firm Cowen views Delphi as “the bridge between the tech sector and the auto sector.” The stock, trading at 14 times estimated 2018 earnings, “is just beginning to reflect the shift,” reports Cowen.

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DXC (DXC) is in the midst of a turnaround. The firm, one of the world’s largest providers of technology-consulting services, was formed in April 2017 by the merger of Computer Sciences Corp. and the business-services arm of Hewlett Packard Enterprise. DXC’s precursor businesses were disappointing. Now, a new team is working rapidly to boost profitability and ratchet up the level of tech expertise to help DXC’s 6,000 clients navigate the digital age. Analysts expect DXC to earn $6.84 a share in the fiscal year that ends in March 2018, then earn $8.22 a share the following year.

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Facebook's (FB) forward P/E of 31 isn't high for a company that increased its revenues in the third quarter by 47% over the previous year. In the wake of revelations about Russian spending on election ads, Facebook has warned investors that increased spending to protect its network from manipulation will eat into profits in the near term, but patient investors will be rewarded. It's the top holding of Fidelity Contrafund (FCNTX), run by Will Danoff.

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The Goldfield Corp. (GV) provides electrical construction and maintenance services for the utility industry. It has a market cap of just $146 million.

It's a favorite of Dan Abramowitz, of Hillson Financial Management, in Rockville, Md. who tracks micro-cap stocks. He notes that Goldfield reported record revenues and earnings in 2016, but that sales and earnings declined in the first half of 2017 due to the completion of some large projects. The stock’s subsequent sharp decline is one reason Abramowitz likes it now. He says the stock is “cheap on an absolute basis and relative to the peer group" and would do even better with an infrastructure bill or tax cut out of Washington.

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HubSpot (HUBS) develops software-marketing platforms that help companies attract visitors to their websites and convert them to customers. Based in Cambridge, Mass., it isn't profitable yet but should be soon. Sales are forecast by analysts to rise 31% in 2018. HubSpot is a favorite of veteran stock-picker Terry Tillman, who works for SunTrust Robinson Humphrey.

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Intuitive Surgical (ISRG) makes robotic systems surgeons use for minimally invasive procedures. Its “da Vinci” system is expected to generate $3.4 billion in sales in 2018 and earnings of $9.22 a share. Bulls see potential for growth as the firm sells more systems and tools for an increasing array of procedures and expands in foreign markets, such as China. A price-earnings ratio of 43, more than double the broad-market average, makes the stock a high-risk bet. Analysts at JPMorgan say the price is worth it for one of health care’s “most significant” growth opportunities.

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Kornit Digital (KRNT) is an Israeli maker of high-speed printers for the textile industry. The stock is down nearly 30% since July, pummeled by investors when a huge expected order failed to materialize. The setback, however, may be only temporary, and at this price, investors can afford to wait for business to pick up. Be aware that Kornit, with a tiny market capitalization (price times shares outstanding) of $525 million, will be volatile.

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Lululemon Athletica (LULU), an athletic clothing manufacturer and retailer, provides the best way for investors to buy into yoga and fitness, trends that will only keep rising. It enjoys an almost cult-like following among customers and has no debt, a hefty profit margin and prospects for double-digit earnings and revenue growth for 2018.

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It’s a rare stock that gains top marks from the Value Line Investment Survey in three categories: timeliness, safety and financial strength. McDonald’s (MCD) just hit this trifecta. Value Line analyst Matthew Spencer forecasts earnings will rise at a 9.5% annualized rate for the next three to five years. With a P/E of 25, McDonald’s isn’t cheap, but it has a lot going for it: strength in China, successful introductions of premium sandwiches in the U.S. and more-efficient technology everywhere.

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When Satya Nadella became chief executive of Microsoft (MSFT) in 2014, he vowed to shift the firm’s focus from personal computers to mobile computing. Shareholders are reaping the rewards: Microsoft’s sales jumped 12% in the quarter ending September 30, powered by soaring usage of its Azure cloud service. Strong sales of Microsoft Office software show that it remains the most popular workplace tool of its kind. The stock’s P/E of 24, based on estimated year-ahead earnings, isn’t excessive for a revitalized tech titan.

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Polaris (PII) makes snowmobiles and other recreational vehicles. The company’s sales jumped 25% in the quarter ending September 30 compared with a year earlier, and even though the stock shot up 15% in a single day, shares still appear underpriced. Matthew 25 (MXXVX), a diversified, large-company stock funds, has held this stock since 2000—and it's still among its top 10 holdings.

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With almost 50 million members, UnitedHealthcare (UNH) has become “the indisputable industry leader in managed care,” say analysts at BMO Capital Markets. The health insurer operates in all three major insurance markets: individual, group and government-sponsored. It also fills 1.2 billion prescriptions each year via its OptumRx unit. UnitedHealthcare’s navigation of the Affordable Care Act boosted confidence in its ability to prosper under whatever new policy regime emerges from Washington. The firm is “well positioned for a long runway of growth,” BMO says.

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United Parcel Service (UPS)—you know what it does—is a steady performer benefiting from the sharp rise in online sales. It enjoys a solid “moat," as it would take a fortune or two and decades for a competitor to replicate its delivery business. UPS is a new holding for Parnassus Endeavor (PARWX), the socially conscious investing fund run by Jerome Dodson— which only holds 32 stocks total.

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Many of the biggest players in the packaged-food industry continue to struggle amid heated competition and changing consumer tastes. Shares of General Mills (GIS, $52) have been falling since mid 2016. The stock took another hit when the company, known for brands such as Cheerios, Betty Crocker and Yoplait, reported that sales in the quarter ended August 27 slid 4% from a year earlier. Goldman Sachs advises selling the stock, predicting continued earnings erosion “for the foreseeable future.”

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Likewise, Goldman has a bleak outlook for J.M. Smucker (SJM, $106), known for its iconic jellies but also home to brands that include Crisco, Folgers, Jif and Milk-Bone. Smucker is among the most vulnerable to industry pressures, including market resistance to price increases and more competition from grocers’ private-label brands, Goldman says. The brokerage sees flat sales and earnings for at least the next two years.

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Consumer-products companies’ woes are bleeding into the advertisers that get paid to peddle their brands. Brokerage Morgan Stanley says revenue growth at major U.S. ad agencies has been decelerating over the past 18 months as consumer-goods companies rethink their marketing spending. The brokerage is particularly concerned about ad firm Omnicom Group (OMC, $67). In October, fast-food king McDonald’s, an Omnicom client, said it was reviewing its ad-buying decisions. Morgan Stanley says Omnicom’s shares could fall to $52 if revenue growth shrinks further.

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Department-store shareholders keep looking for reasons to hang on. Dillard’s (DDS, $51), which operates 268 stores in 29 states, has seen its shares plunge 64% since April 2015. Yet even with sales at its stores still shrinking, management has been “complacent” about innovation, says Deutsche Bank. With the shares priced at about 17 times expected profit of $3.06 a share in the fiscal year ending January 2019, the brokerage says Dillard’s has the “least compelling” valuation in the industry.

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A year ago we said you should sell electric-car phenomenon Tesla (TSLA, $332), when it traded for $190 a share. We were too early. But we think Tesla is even more overpriced now.

There’s no denying that Tesla’s technology is exciting. But production snafus have caused the company to repeatedly scale back founder Elon Musk’s plan to churn out 500,000 of the new mass-market Model 3 cars in 2018. Even so, analysts at stock research firm CFRA still are optimistic that Tesla’s losses will continue to shrink, and that the company can earn $5.50 a share in 2019. But as Tesla gets closer to profitability, investors should begin to value it more in line with other manufacturers. Even allowing for a very rich P/E of 50 on the 2019 profit estimate, CFRA says, the shares should be trading at $275 a year from now.

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