For more than 60 years, the benchmark S&P 500 (^GSPC +1.02%) has served as the broadest barometer of Wall Street's health. The 500 companies contained within the index (a few of which have multiple classes of shares) are highly diverse and often time-tested. It's why S&P 500-tracking indexes have been surefire moneymakers for decades.
The S&P 500 is also a stomping ground for incredible investment ideas, which is a fact not lost on Wall Street analysts. Based on the high-water price targets of a trio of Wall Street analysts, three S&P 500 stocks offer upside ranging from 127% to 170% in 2024.
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General Motors: Implied upside of 170%
The first S&P 500 component with purported triple-digit upside in the new year, based on the lofty price target of one Wall Street analyst, is automaker General Motors (GM +0.46%). In early December, analyst Itay Michaeli of Citigroup upped the firm's price target on GM to a whopping $95 per share. Based on a closing price of $35.23 on Jan. 23, 2024, Michaeli's price target implies upside of up to 170% in 2024.
One reason for optimism is General Motors firmly putting the United Auto Workers' strike in the rearview mirror. Despite higher expected labor expenses in the future, GM reinstated full-year 2023 guidance of net income ranging from $9.1 billion to $9.7 billion, or $7.20 to $7.70 in earnings per share (EPS). It's also planning to initiate an accelerated share repurchase program totaling $10 billion and is increasing its quarterly dividend by 33% to $0.12 per share in 2024.
NYSE: GM
Key Data Points
Beyond value-enhancing initiatives for shareholders, General Motors is making decisive moves to avoid margin-crushing price reductions on its electric vehicles (EVs). It's increasing production at a more modest pace to align with deliveries, as well as working on manufacturing efficiencies to make each produced EV more profitable. This approach should help GM avoid the operating margin degradation seen with Tesla in recent quarters.
China represents another significant opportunity for Detroit's finest. GM has an established presence in the world's No. 2 economy by gross domestic product and has been profitable in China on a recurring basis. China is the largest auto market in the world, and its EV industry remains nascent, with market share very much up for grabs.
Lastly, the valuation for General Motors makes a lot of sense. The midpoint of GM's 2023 EPS guidance implies a price-to-earnings (P/E) ratio of 5. While auto stocks are notoriously cyclical and known for trading at single-digit P/E multiples, a P/E ratio of 5 is below the norm -- even for this industry.
The big headwind for GM in the new year is whether or not a recession will take shape. A couple of money-based metrics and predictive indicators strongly suggest that a U.S. recession is likely. Cyclical stocks like General Motors would be expected to struggle until the U.S. economy finds its footing.
While I'm not sold that Michaeli's price target is reachable in 2024, I do believe long-term investors are getting a bargain with GM shares at $35.
NASDAQ: MRNA
Key Data Points
Moderna: Implied upside of 127%
A second S&P 500 stock with abundant upside potential in 2024, based on the forecast of one Wall Street analyst, is biotech company Moderna (MRNA 0.51%). Analyst Salveen Richter of Goldman Sachs set a $231 price target on shares of Moderna in November, which indicates it could rise by as much as 127%, based on its closing price of $101.92 on Jan. 23.
Although Moderna is best known for being one of the most successful developers of COVID-19 vaccines, Richter believes the Moderna growth story is just getting started. In an interview on CNBC's Closing Bell Overtime in July, Richter pointed to Moderna's foray into influenza and respiratory syncytial virus (RSV) vaccines, as well as its work in various cancer indications, as reasons to believe shares could move notably higher.
For instance, Moderna has announced multiple regulatory submissions for mRNA-1345, its messenger-RNA-based RSV vaccine for RSV-associated lower respiratory tract disease (RSV-LRTD) and acute respiratory disease in adults age 60 and older. In late-stage trials, mRNA-1345 met both of its primary endpoints by demonstrating a vaccine efficacy of 83.7% against RSV-LRTD with two or more symptoms and 82.4% against RSV-LRTD with three or more symptoms. If approved, peak sales could eventually top $1 billion.
Perhaps even more exciting is what Moderna can bring to the table for cancer patients. In December, Moderna and Merck (MRK 1.05%) announced that their experimental combination treatment of Merck's Keytruda and Moderna's mRNA-4157 reduced the risk of death or relapse in patients with advanced melanoma by a stunning 49%. Merck's Keytruda has been a superstar among cancer immunotherapies, meaning any approved combination therapies would be expected to shine from a revenue standpoint.
On the flip side, Moderna's COVID-19 vaccine sales have fallen off of a cliff. Pushing past the worst of the pandemic, coupled with COVID-19 vaccines moving to the private market (i.e., consumers having to pay for these vaccines now) has demonstrably slowed sales. After reporting nearly $19.3 billion in product sales in 2022, Moderna's full-year sales could dip to a consensus $4.4 billion in 2024.
Despite promising clinical trials, the company's ongoing losses and COVID-19 vaccine sales slump make it highly unlikely that Moderna will make a run at $231 in the current year.
Image source: Getty Images.
Warner Bros. Discovery: Implied upside of 128%
The third S&P 500 stock with jaw-dropping upside in 2024, based on the high-water price target of one Wall Street analyst, is media giant Warner Bros. Discovery (WBD 0.18%). In December, Benchmark analyst Matthew Harrigan set a $24 price target on shares of Warner Bros. Discovery, which implies up to 128% upside this year, relative to where shares closed on Jan. 23.
One of the top reasons to be positive on Warner Bros. Discovery is an expected bounce-back in advertising. The company's networks segment experienced a 13% year-over-year currency-neutral decline in ad revenue in the September-ended quarter. Given near-term economic uncertainty, it's not unexpected to see businesses paring back their ad spending.
However, 2024 is an election year, and that often leads to a big boost in political ad spending. According to estimates from GroupM, U.S. political advertising is expected to grow to $15.9 billion this year, which represents a 31% increase from the 2020 election cycle. Legacy media companies like Warner Bros. Discovery should enjoy a healthy boost in ad revenue.
NASDAQ: WBD
Key Data Points
I'll also note that the U.S. economy spends a disproportionate amount of time expanding. Even though recessions are an inevitable part of the economic cycle, three-quarters of the 12 recessions since the end of World War II resolved in less than a year. By comparison, two periods of expansion since World War II endured longer than a decade. These long-winded periods of expansion work in favor of ad-driven businesses.
There are bright spots for Warner Bros. Discovery's direct-to-consumer (DTC) segment, too. Despite large losses from its streaming segment, higher average revenue per user suggests the company isn't having any trouble raising subscription prices. Strong pricing power, coupled with mindful spending, is a necessity to push Warner Bros. Discovery's DTC segment to recurring profitability.
The cautionary tale for the company is that it ended September with a little over $41 billion in net debt. A debt-laden balance sheet could make things challenging if a recession materializes this year.
While I remain a Warner Bros. Discovery bull, I'd expect modest returns in 2024 as investors digest the company's turnaround efforts.
