As the S&P 500 inches closer to record highs, the prospect of a new bull market is becoming increasingly tantalizing.
In the world of investing, this raises the question: which stocks are poised for impressive gains? Wall Street analysts have cast their votes, and two standout candidates have emerged: Alphabet and Adyen.
Alphabet: Potential Upside of 47%
Alphabet, the parent company of tech giant Google, currently boasts a “buy” consensus rating among 55 Wall Street analysts. With a median 12-month price target of $150 per share, Alphabet has the potential to deliver a hefty 47% upside from its current valuation.
Although Alphabet’s recent financial performance in the second quarter saw a 7% increase in revenue to $74.6 billion, which was slower than the previous year, the company’s growth trajectory is promising. Google’s dominance in the ad tech space, driven by popular platforms like Google Search, YouTube, and Chrome, gives it a significant edge. Moreover, its presence as the third-largest global cloud infrastructure and platform services provider positions it well to tap into the expanding cloud computing market, projected to grow at 14% annually through 2030.
Notably, Alphabet’s innovations, such as Duet AI for Google Workspace, are expected to drive growth in the generative AI market, predicted to grow at a rapid 24% annually through 2030. With a solid shot at mid-teens revenue growth and a 17.6% annual earnings growth forecast, Alphabet’s current valuation at 28.7 times earnings appears reasonable for investors with a long-term horizon of three to five years.
Adyen: Potential Upside of 147%
Adyen, a European payments company, holds a “hold” consensus rating among 30 investment analysts. Despite this, a median 12-month price target of $11.93 per American depositary receipt (ADR) implies an enticing 43% upside, while the highest target of $20.69 per ADR suggests an astonishing 147% potential upside.
Adyen stands out in the payments industry by offering a unified platform that enables merchants to accept various forms of electronic payments seamlessly, eliminating the complexity of working with individual processors and acquirers. With a client roster that includes industry giants like McDonald’s and Microsoft, Adyen’s robust data-driven approach enhances authorization rates, informs marketing strategies, and minimizes fraud for its partners.
While Adyen experienced a 39% share price drop following its H1 2023 financial update, it’s crucial to consider the bigger picture. The company attributed its slower sales growth and margin contraction to temporary economic headwinds from inflation and rising interest rates, along with an expansion in headcount to support future growth. Management remains optimistic, forecasting revenue growth ranging from the mid-20s to low-30s in the medium term and an EBITDA margin of 65% in the long term.
Despite its recent challenges, Adyen’s shares currently trade at their lowest valuation in three years, at just 4.3 times sales. For long-term investors, this presents a compelling buying opportunity, even if triple-digit returns are not anticipated within the next year.
Navigating Bull Market Potential
In the current market climate, with the potential for a new bull market on the horizon, investors seeking growth opportunities might find Alphabet and Adyen intriguing prospects.
Alphabet’s strong foothold in ad tech and cloud computing, coupled with its foray into generative AI, positions it for robust growth. Meanwhile, Adyen’s unified payment processing platform and value proposition to both traditional businesses and platform operators make it an enticing option, especially given its attractive valuation.
As always, investors are encouraged to conduct their due diligence and consider their long-term investment goals before making any decisions in this dynamic market.
