The S&P 500 had a strong start to the year, with a 6.2% increase in January 2023. The rise is largely due to falling inflation and the Federal Reserve’s plans to slow its interest rate hikes.
Here are the top three best-performing stocks in January.
Warner Bros. Discovery Leads the Pack
Warner Bros. Discovery (WBD) shares had a rough year in 2022, largely due to AT&T’s spinoff and merger with Discovery Communications. However, the stock saw a significant boost in the early part of 2023, driven by a combination of bullish analyst notes, strong earnings reports from Netflix, hopes for economic recovery, and the announcement of price hikes. The company is “relaunching and rebuilding” this year and has plans to raise the ad-free prices on HBOMax from $14.99 to $15.99 per month.
According to the Financial Times, the company is also considering selling its music library, which could fetch as much as $1 billion. The better-than-expected subscriber growth from Netflix in its fourth-quarter earnings report and a jump in Paramount Global stock indicate that investors are once again taking an interest in legacy media companies. However, WBD still faces some challenges, including nearly $50 billion in debt, and investors may want to see signs of GAAP profitability before investing.
Tesla’s Stock Soars
Tesla (TSLA) was the S&P 500’s second-best-performing stock in January, with a 41% gain. The stock initially took a hit at the beginning of the month due to missed expectations for fourth-quarter deliveries and production, as well as price cuts in the US and China. However, the stock rose over most of the month, driven by the broad-market recovery and anticipation of a slowdown in interest rate hikes.
Tesla’s stock took off after the company reported fourth-quarter earnings and beat estimates on both the top and bottom lines. The company also announced plans to produce 1.8 million vehicles this year. CEO Elon Musk defended the price cuts, saying demand for Tesla vehicles was strong and the price cuts were a reflection of improving efficiencies. Given its volatility and cyclical nature, the stock of Tesla may be susceptible to market sentiment, however, it is expected to end the year at an even higher value if it reaches its production goal of 1.8 million units and demonstrates robust operating margins.
Western Digital Rises on Merger Talk
Western Digital (WDC) stock rose 39% in January, driven by reports of merger talks with Kioxia Holdings, another data storage provider. The stock received a boost from analyst upgrades and reports of progressing merger talks, with a dual-listing structure planned in the US and Japan, and Western Digital spinning off its flash business to merge with Kioxia.
However, Western Digital’s earnings report was disappointing, with a 36% drop in revenue and a much worse-than-expected loss per share, due to an inventory glut and falling prices in flash memory drives. The buy case for Western Digital only makes sense if the merger with Kioxia goes through, otherwise, the stock could drift lower as the company focuses on cost-cutting and streamlining for a lower-demand environment.
So, What’s Up?
The start of 2023 has been a positive one for the S&P 500, with a 6.2% rise in January. Three of the top performing stocks in January include Warner Bros. Discovery, Tesla, and Western Digital. Each of these companies has had its own unique set of challenges and opportunities, and the outlook for the rest of the year will largely depend on how they handle these factors.
For Warner Bros. Discovery, the company is in the process of relaunching and rebuilding, with plans to raise the ad-free prices on HBOMax. Despite this, the stock still faces challenges, including nearly $50 billion in debt, and investors may want to see signs of GAAP profitability before investing.
Tesla, on the other hand, has had a strong start to the year, despite some initial turbulence at the beginning of the month. The stock rose over the rest of the month due to the broad-market recovery and anticipation of a slowdown in interest rate hikes. However, the stock is likely to be sensitive to market sentiment due to its volatility and cyclical nature.
Western Digital’s stock rose 39% in January due to reports of merger talks with Kioxia Holdings. However, the buy case for Western Digital only makes sense if the merger with Kioxia goes through, otherwise, the stock could drift lower as it focuses on cost-cutting and streamlining for a lower-demand environment.
In the end, it is important for investors to keep a close eye on these stocks and to carefully evaluate their potential for growth and profitability before making any investment decisions.
