The stock market looks set to end 2022 on a positive note following a rough year thanks to positive data on the inflation front that could encourage the Federal Reserve to reduce the pace of rate hikes.
What's more, U.S. Treasury Secretary Janet Yellen sees inflation cooling substantially by the end of 2023. As such, it wouldn't be surprising to see the S&P 500 sustain its momentum into the new year. The index has gained 11% since the beginning of October, and it could head higher in 2023 if inflation falls and the Fed dials down rate hikes.
Such a scenario could present an ideal situation for shares of Apple (AAPL 1.27%) and Ciena (CIEN 0.72%) to go on bull runs. Let's look at the reasons why.
1. Apple
Apple has been in the financial news for the wrong reasons of late. Morgan Stanley recently cut its iPhone shipment estimates for the fourth quarter of 2022 by 3 million units. The latest cut is in addition to the 6 million units shaved off by Morgan Stanley in November. Apple is now expected to ship 75.5 million iPhone units in the current quarter -- down substantially from the earlier estimate of 85 million units -- owing to troubles at a factory in China that has been the center of worker unrest and a COVID-related shutdown.
The new year may start on a negative note for Apple -- but there are a few solid reasons why it could regain its mojo as the year progresses.
Strong growth in the 5G smartphone market is one reason to be upbeat about Apple's 2023 prospects. iPhone sales have been heading higher at a time when the global smartphone market has been declining, thanks to healthy demand for Apple's latest smartphones and its robust share in 5G smartphones.
Apple controls over 29% of the global 5G smartphone market. Sales of 5G smartphones are expected to increase by 15% from 2021 to around 620 million units in 2022. But by 2026, 5G smartphone shipments are expected to exceed 1.11 billion units annually and account for 80% of the global smartphone market.
There is a lot of room for Apple to grow its iPhone sales in the long run. The tech giant could see an acceleration in smartphone sales from the second half of 2023 when the overall market is expected to start recovering. In all, stronger iPhone sales next year could give Apple a big boost: The device produced over $205 billion in revenue in fiscal 2022, accounting for over 52% of the company's top line.
But the iPhone likely isn't the only catalyst for the company. Noted Apple analyst Ming-Chi Kuo of TF International Securities, who has a reliable track record of making predictions on Apple products, estimates that the company could start mass-producing its augmented reality/virtual reality (AR/VR) headset in the first half of 2023, with shipments beginning in the second half.
Market intelligence firm IDC estimates that shipments of VR headsets could jump to 31 million units by the end of 2026, compared to this year's estimate of around 11 million. AR headsets, on the other hand, could hit 4.1 million units in annual shipments by 2026, compared to just 259,000 units in 2022.
The opportunity here is massive. If Apple's purported headset hits the market at the right time next year, the move could unlock new opportunities in terms of both hardware and software. All this indicates that Apple could overcome the challenges it has faced in 2022 and turn in a much better performance in the new year, and that could send this tech stock on a bull run.
2. Ciena
Ciena stock was on fire last week after the company released stellar results for the fourth quarter of fiscal 2022 (ended Oct. 29) on Dec. 8. Shares of the networking equipment supplier surged 20% in a single day as its top and bottom lines crushed estimates.
Ciena's revenue of $971 million was way higher than consensus estimates of $850 million. Also, adjusted earnings of $0.61 per share handsomely exceeded the $0.08 per share Wall Street estimate. Ciena credited its stronger-than-expected results to an improving supply chain scenario that allowed it to fulfill more orders last quarter.
More importantly, Ciena management expects to deliver "outsized growth" in the new fiscal year. The company's top line remained flat in fiscal 2022 at $3.6 billion as it was unable to fulfill orders on account of a shortage of components. In fiscal 2023, however, Ciena is anticipating a 16% to 18% increase in revenue. That would translate into $4.2 billion in revenue in the current fiscal year at the midpoint of the guidance range.
Ciena's backlog should be solid enough to help it achieve its target. The networking specialist was sitting on $4.2 billion worth of order backlog at the end of fiscal 2022, which was nearly double its backlog at the beginning of the year. Moreover, Ciena saw a 26% increase in orders last fiscal year thanks to the strong demand for its various offerings such as routers, switches, and optical networking solutions.
Ciena's top-line acceleration in 2023 is expected to filter down to the bottom line as well, with analysts expecting a sharp jump over fiscal 2022's adjusted earnings of $1.90 per share.
CIEN EPS Estimates for Current Fiscal Year data by YCharts
Even better, Ciena is expected to sustain its earnings growth in the long run as well, as the chart above indicates. All this makes Ciena a top stock to buy right now, especially considering that it is trading at 2.1 times sales, which represents a slight discount to the S&P 500's sales multiple of 2.4. The company's latest results and guidance for next year suggest that it could go on a bull run, so now would be a good time to buy Ciena.
