As we approach the end of 2023, investors are eagerly seeking out solid ideas for the next year. One effective approach is to focus on well-liked companies with promising outlooks. These companies not only offer a relatively simple investment opportunity but also have the potential to deliver impressive returns.
To identify such stocks, we have analyzed the most popular stocks in the S&P 500 based on favorable Wall Street ratings and rising earnings estimates for 2024.
Why These Stocks?
This strategy starts with the confidence of analysts who possess in-depth knowledge of their coverage universe. These experts have a positive outlook on these stocks, and what's even more encouraging is that the overall outlook is improving.
The Top Contenders
Here are the 15 stocks that have emerged as the frontrunners with the highest Buy-rating ratios coupled with strong earnings momentum:
- Alexandria Real Estate Equities (ticker: ARE)
- Delta Air Lines (DAL)
- Amazon.com (AMZN)
- Jacobs Solutions (J) - Construction-Services Firm
- Nvidia (NVDA)
- S&P Global (SPGI) - Index Provider
- Axon Enterprise (AXON) - Security-Equipment Provider
- Vici Properties (VICI) - Casino Real-Estate Investor
- ServiceNow (NOW) - Software Firm
- T-Mobile US (TMUS)
- Alphabet (GOOGL) - Google Parent
- DexCom (DXCM) - Diabetes-Monitoring Firm
- Palo Alto Networks (PANW) - Network-Security Firm
- Meta Platforms (META) - Facebook Parent
- Visa (V) - Card Firm
Superior Performance and Ratings
The average Buy-rating ratio for these 15 stocks stands at an impressive 91%, well above the average Buy-rating ratio of approximately 55% for stocks in the S&P 500. As for the past 12 months, these top stocks have delivered an average return of about 36%, exhibiting their potential for substantial gains. In contrast, the average stock in the S&P 500 (without adjusting for market cap) has yielded a modest return of about 8%.
Rising Earnings Estimates
The estimated 2024 earnings for these stocks have recorded an impressive average increase of 4% over the past three months. Comparatively, the estimates for the average stock in the S&P 500 have witnessed a smaller rise of about 2%.
This analysis presents promising investment opportunities that hint at a successful 2024. By considering these top stock ideas, investors have a chance to capitalize on the positive outlook and potential growth of these well-regarded companies.
The Best-Performing Stocks of the Past Year
The stocks that were most loved by investors a year ago had an impressive performance over the last 12 months. On average, they returned about 22%, outperforming the overall market. What's even more impressive is that only three out of the fifteen stocks, or 20%, posted a negative return in this period. In contrast, approximately 42% of the stocks in the S&P 500 experienced a negative return.
Among the top-performing stocks, there are some familiar names from the year-ago list, namely Alexandria, Amazon, Axon, ServiceNow, Alphabet, Jacobs, Dexcom, and Visa. These stocks have remained well-liked by investors. Their average return over the past year is around 20%.
It appears that Wall Street has been successful in identifying winning stocks lately. Additionally, rising earnings estimates seem to have a positive impact on stock performance.
An interesting observation is that only 25% of the stocks with upward revisions to their 2024 earnings estimates in the past three months have recorded a negative return over the past year. This is significantly lower than the 42% negative return for the overall index. Furthermore, the average return for stocks with increasing earnings estimates over the past year is about 18%, which is better than the 8% return of the average stock in the S&P 500.
Given these findings, it might be wise to stick with Wall Street's best ideas as we enter a new year.
However, it's important to note that a screen is just the starting point for making investment decisions. Once we have narrowed down the list of potential investments, thorough research on companies, their strategies, competitive positions, industries, and management teams is crucial.