Stock market performance has become more bifurcated this year. While high-flying tech stocks have driven the S&P 500 Index The index hits new highs, but consumer spending headwinds have weighed on the performance of the industry's leading consumer brands.
Two widely held stocks that have delivered mediocre performance are Tesla (NASDAQ:TSLA) and Starbucks (NASDAQ: SBUX)However, both stocks have rallied recently as new growth catalysts have come to the fore, and two Wall Street analysts believe now is the time to buy. Here's why these top stocks are poised to take off in the coming years.
1. Tesla
Tesla stock has generated phenomenal returns for investors over the past decade, but the stock has been stagnant in recent years. It has been a challenge to sell more electric cars, with higher interest rates making financing more expensive, as well as increasing competition. Despite the hurdles, Tesla stock is up 16% over the past three months as investors have also turned their attention to other promising opportunities in the near term.
Piper Sandler Analyst Alexander Potter thinks the stock is a good buy ahead of Tesla's robotaxi unveiling on Oct. 10. A robotaxi service should be very profitable for Tesla over time, but he also points to the opportunity in the company's battery production, which aims to reduce manufacturing costs and improve margins.
Tesla's battery production is ramping up rapidly. In the second quarter, it produced 50% more 4,680 cells than in the first. This will support the rapid growth Tesla is experiencing in its energy storage business while also potentially supplying millions of electric cars on the road, especially robotaxis.
Ark Invest believes Tesla's operating profit per kilowatt-hour used could be $466 for robotaxis, compared with $60 for regular electric cars. This fits with the company's projection that Tesla will increase its profitability and boost its stock value to $2,600 by 2029.
CEO Elon Musk believes the optimistic projection is possible. The world is shifting toward electric and autonomous transportation. Tesla’s rapid growth in battery production highlights a manufacturing advantage that will be invaluable. Transportation is a $10 trillion market, and Tesla is the disruptor.
2. Starbucks
Starbucks is the world's top restaurant brand, according to Brand Finance, but like Tesla, its stock is weighed down by sluggish consumer spending. Starbucks' comparable sales have declined over the past two quarters, but its stock rose 30% after the company announced it would hire Brian Niccol from Chipotle Mexican Grill as CEO.
Niccol led Chipotle to incredible growth over the past five years. It was already a high-performing business, but Niccol was able to squeeze higher margins out of restaurants, helping the stock rise 232% over the past five years.
Evercore ISI analyst David Palmer sees a similar opportunity at Starbucks. Palmer recently upgraded the stock to outperform. Niccol's hiring increases the likelihood of a successful turnaround for Starbucks, according to Palmer.
One factor that has benefited Chipotle is its digital ordering capability, which accounts for 35% of Chipotle’s business. Starbucks is also great at implementing mobile ordering, but should see further improvements under new management that could reduce wait times and improve store efficiency. Niccol’s prior track record leading similar initiatives at Chipotle should put Starbucks on a profitable growth trajectory.
Palmer sees Starbucks annualized earnings Growth reaching 15% or more over the next three years. Assuming the stock continues to trade at a market average price-earnings ratio From the 27th, investors should see an attractive return on their investment.
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John Ballard has positions in Tesla. The Motley Fool has positions in Chipotle Mexican Grill, Starbucks, and Tesla and recommends them. The Motley Fool recommends the following options: short September 2024 $52 put options on Chipotle Mexican Grill. The Motley Fool has a Disclosure Policy.
The 2 best stocks to buy now, according to Wall Street Originally published by The Motley Fool