On the heels of last year's historic downturn, Wall Street has reason to rejoice in 2023. The S&P 500 has climbed nearly 27% from its bottom late last year and sits just 5% below its all-time high. Once the index surpasses this closely watched benchmark, it will have checked the final box, signaling the start of the new bull market.
One of the more interesting developments in the stock market this year is the unequal distribution of gains. While some stocks continue to tread water near multiyear lows, others are within striking distance of new all-time highs. Yet, as the economy continues to improve, it could fuel a resurgence, providing upside for stocks on both sides of the equation.
Here are two stocks investors should buy hand over fist before they soar 109% and 128% -- or more -- over the coming 12 to 18 months, according to select Wall Street analysts.
Image source: Getty Images.
1. PayPal Holdings -- implied upside 117%
After a pandemic-era growth spurt driven by the rapid adoption of digital payments, PayPal (PYPL +1.24%) suffered a setback resulting from last year's downturn. While most people were hit by rampant inflation and higher interest rates, lower-income consumers were hit especially hard. Many were forced to make tough choices in the grocery aisle and at the gas pump, which weighed on discretionary spending and, ultimately, PayPal's results.
Furthermore, Wall Street dislikes uncertainty, and several recent developments have given investors plenty to digest. Former CEO Dan Schulman recently stepped down, passing the torch to successor Alex Chriss. PayPal also named Jamie Miller as CFO and Archie Deskus as chief technology officer. As a result of the C-suite changes, investors are taking a "wait and see" approach, which is hanging over the stock.
PayPal's results, however, are recovering nicely. Third-quarter revenue of $7.4 billion grew 8% year over year, driven by total payment volume that climbed 15% to $388 billion. At the same time, adjusted earnings per share (EPS) of $1.30 rose 20%.
NASDAQ: PYPL
Key Data Points
Wall Street remains firmly behind PayPal. Of the 44 analysts that cover the stock, 32 rate it a buy or strong buy, and not a single one recommends selling. Furthermore, the average analyst's price target of $69 suggests a potential upside of 22%. Yet, Morgan Stanley analyst James Faucette is much more bullish regarding the potential upside for PayPal, with an overweight (buy) rating and a price target of $118, which implies potential gains of 109% for investors.
Faucette addresses concerns regarding the potential loss of payment share to Apple's ApplePay. He notes that the inclusion of PayPal and Venmo credit and debit cards in the Apple Wallet should alleviate those concerns, which he suggests should be "a modest relief to investors."
As a result of PayPal's recent fall from grace, the stock trades about 82% off its peak. This puts it in bargain basement territory, selling for just 17 times earnings and 2 times sales, both significantly lower than its three-year averages of 48 and 8, respectively.
The company's historically low valuation, increasing profitability, and a ringing endorsement from Wall Street illustrate why investors should be buying PayPal stock hand over fist.
2. Nvidia -- implied upside 122%
Many market watchers point to the emergence of generative AI as the catalyst for much of this year's market rally. It's also generally agreed the poster child and biggest beneficiary of the trend is Nvidia (NVDA +1.63%).
While the company's graphics processing units (GPUs) were already recognized as the gold standard for training and running AI systems, the recent debut of Nvidia's GH200 Grace Hopper Superchip has left rival offerings in the dust. This AI workhorse combines the 72 Arm-based CPU cores of the Grace chip with the 144 GPU cores of the Hopper, providing unparalleled performance for AI processing.
Nvidia's recent results help make the case for its AI dominance. For its fiscal 2024 third quarter (ended Oct. 29), Nvidia delivered record revenue of $18.1 billion, which soared 206% year over year, while its diluted earnings per share (EPS) of $3.71 surged 1,274%. Data center revenue, which includes semiconductors purposed for AI, jumped 279%, prompted by accelerating demand for generative AI.
NASDAQ: NVDA
Key Data Points
Management is forecasting a third consecutive record quarter, guiding for revenue of $20 billion, an increase of 231% year over year.
Notwithstanding the stock's 230% gains thus far in 2023, most analysts believe there's more to come. The average analyst's price target of $585 suggests a potential upside of 22%. Of the 53 analysts that covered Nvidia in October, 51 rated it a buy or strong buy, and none recommended selling.
Rosenblatt analyst Hans Mosesmann is much more bullish than his Wall Street colleagues. In his most recent call, the analyst maintained his buy rating on the shares and raised his firm's price target to a Street-high $1,100, suggesting the stock could surge another 128% compared to Friday's closing price.
The analyst pointed to Nvidia's triple-digit year-over-year growth, calling it "unprecedented." He further cited the data center market, with an installed base worth roughly $1 trillion, which is pivoting to accommodate advances in generative AI and high-performance computing, both of which will fuel Nvidia's future growth.
The elephant in the room is, of course, Nvidia's sky-high valuation. The stock is selling for 40 times forward earnings and 13 times forward sales (as of this writing). However, viewed through the lens of Nvidia's triple-digit growth, it illustrates the stock is deserving of a premium valuation. The accelerating demand for AI shows no signs of slowing, with Nvidia's processors fueling the trend.
