Savvy investors recognize the value of investing in growth stocks that are part of emerging industries with the potential to generate strong long-term returns. Here are two such magnificent stocks that can provide investors with double- to triple-digit returns over the next 12 months - and possibly more, if held for a longer time.
Since the artificial intelligence (AI) frenzy began, Applied Materials (AMAT) has been riding the semiconductor boom. AMAT stock has risen 22.1% year-to-date, outpacing the S&P 500 Index’s ($SPX) gain of 6.2%. The second magnificent stock is legacy automotive player General Motors Company (GM). Recently, GM reported stellar first-quarter 2024 results and an upbeat outlook for the year. The stock is now up 24.3% year-to-date.
Wall Street rates both stocks a “moderate buy,” while forecasting double- to triple-digit upside, based on the Street-high price target estimates. Let’s find out why.
General Motors Stock
Few names are as powerful and significant in the automotive industry as General Motors (GM). GM was founded in 1908, and after facing significant challenges, the company has grown into a vast automotive empire.
In the first quarter, revenue increased by 7.6% to $43 billion, while adjusted earnings increased by 18.6% to $2.62 per share. The company generated adjusted automotive free cash flow (FCF) of $1.1 billion in Q1, an impressive change from negative $132 million in the year-ago quarter.
Driven by a strong quarter, GM updated its guidance for the full year. GM now expects a 17% to 30% increase in earnings to $9.00 to $10.00 per share. Analysts predict that earnings will grow by 22.8% in 2024, with a 2.2% increase in revenue to $775 billion.
GM also pays a quarterly dividend, which yields 1.08%. Beyond its products, GM is also investing heavily in new technologies and business models to keep up with the evolving industry. GM is breaking new ground in areas such as autonomous vehicle technology.
Furthermore, GM expects to generate an adjusted automotive FCF of $8.5 billion to $10.5 billion in 2024. In the Q1 earnings call, management stated that strong cash flow growth enables the company to fund its EV transformation by "investing in future products, transitioning manufacturing capacity to EVs, and deploying resources into cutting-edge battery technology."
GM also ended the quarter with cash and cash equivalents of $11.9 billion.
Following the Q1 results, DBS analyst Elizabelle Pang maintained a "neutral" rating on GM stock, while raising the stock's price target to $50. Pang is impressed with GM’s core business strength and new products, though the analyst is cautious about challenges in the Chinese market and the EV industry's uncertainties. Additionally, Piper Sandler also reiterated its “hold” rating with a $45 price target.
Overall, Wall Street rates GM stock a “moderate buy.” Of the 22 analysts covering GM, 13 have rated it a “strong buy,” one suggests a “moderate buy” recommendation, seven suggest a "hold,” and one rates it a “strong sell.”
Its mean price target of $52.60 implies a potential upside of 17.7% from current levels. Plus, its high target price of $96 suggests the stock could go as high as 114.9% over the next 12 months.
The automotive industry is constantly changing and full of outstanding players. However, GM's ability to adapt and evolve will allow it to thrive despite the challenges. Looking at GM’s growth forecast for this year, the stock seems attractively valued at 4 times forward earnings.
Applied Materials Stock
Applied Materials (AMAT) is a semiconductor fabrication equipment supplier. In its recently reported first quarter, net revenue remained flat at $6.7 billion, but adjusted earnings increased by 5% year-over-year to $2.13.
The company generated FCF of $2.09 billion in the quarter, which enabled it to pay $266 million in dividends and repurchase shares worth $700 million. Management predicts second-quarter revenue could be around $6.5 billion (plus or minus $400 million), which is consistent with consensus estimates. Additionally, adjusted earnings per share could range between $1.79 and $2.15. Analysts' estimates for EPS are also within the same range.
While the company did not provide full-year guidance, analysts expect modest revenue and earnings growth of 0.79% and 2.4%, respectively. However, revenue and earnings are expected to grow by 11.3% and 16.4%, respectively, in 2025.
As semiconductor demand continues to rise, fueled by trends such as AI, 5G, and the Internet of Things (IoT), Applied Materials is well-positioned to benefit from the growing demand for advanced chips.
Overall, Wall Street rates AMAT stock a “moderate buy.” Of the 31 analysts covering AMAT, 20 have rated it a “strong buy,” two have a “moderate buy” recommendation, eight suggest a "hold,” and one rates it a “strong sell.”
AMAT's mean price target of $214 implies a potential upside of 8.1% from current levels. Plus, its high target price of $260 suggests the stock could go as high as 31.4% over the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
