Rich Moroney, editor of Dow Theory Forecasts, has released his mid-year list of top investment ideas; here's a review of his favorite stocks for capital gains over the next 12 months.

In the past 2 months, Alphabet (GOOGL) has launched new AI tools to help marketers create ads and drug companies develop new treatments. Alphabet also won an AI contract with Wendy’s to automate its drive-through service.

Complementing its long-term kicker from AI, Alphabet appears poised to return to growth after five straight quarters of lower earnings per share. The consensus calls for profits to climb 10% in the June quarter, 25% in the September quarter, and 44% in the December quarter, followed by growth of 18% in 2024 and 17% in 2025.

Semiconductor-equipment maker Applied Materials (AMAT) has increased both per-share profits and revenue in 14 straight quarters. But management anticipates a challenging year for parts of the semiconductor industry, likely resulting in lower profits in the coming quarters.

Still, its long-term outlook remains upbeat, with Applied Materials pledging to invest up to $4 billion in a new facility for research and development in California.

Grainger (GWW) — an online retailer of safety products, hand tools, and plumbing equipment for corporate and government customers — looks attractive from most angles.

Annual sales have risen in 13 straight years, while per-share profits advanced in nine of those 13 years. For the 12 months ended March, Grainger grew earnings per share 44%, revenue 15%, and operating cash flow 46%. Free cash flow doubled to $774 million.

Microsoft (MSFT), the face of the surging interest in artificial intelligence, isn’t cheap at 36 times trailing earnings — but we are willing to pay up for the stock.

The quick pace of AI innovation is matched with robust demand; about 4,500 customers are already using Microsoft’s Azure OpenAI Services, the fastest adoption in Azure’s history. Microsoft’s profit growth rebounded last quarter and should climb at a double-digit clip well into 2024.

Market-share gains in the automotive and industrial end markets have driven recent operating momentum for ON Semiconductor (ON). The stock has climbed 9% in the past month, contributing to a sub-par Value score. But, contrary to many stocks, ON has tended to perform best when it’s not excessively cheap.

In late May, ON said it remained cautiously optimistic that its results for the second half of 2023 would be stronger than the first half. The consensus calls for per-share profits to slump 9% this year and rise 12% in 2024.

Parker-Hannifin (PH) boasts excellent operating momentum, steady dividend growth, and rising analyst estimates. For the 12 months ended March, Parker-Hannifin increased sales 17% for its North American industrials unit and 52% or aerospace systems, while sales held flat for its international industrials segment.

Backlog of $10.9 billion represents about 55% of projected 12-month sales, up from 27% of sales in fiscal 2016. Yielding 1.6%, Parker-Hannifin has increased its dividend in 67 straight years, including an 11% hike announced in May.

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