Past performance doesn't guarantee future results. Or does it?
The age-old investment disclaimer is certainly being put to the test this year. Some of last year's biggest winners are off to hot starts in 2024.
NVIDIA is the best example. After soaring 239% last year, the semiconductor leader is up almost 50% year-to-date. Meta Platforms Inc. (NASDAQ: META) has followed up its 194% surge with a 34% year-to-date advance. CrowdStrike Holdings Inc. (NASDAQ: CRWD), Advanced Micro Devices Inc. (NASDAQ: AMD) and Palo Alto Networks Inc. (NASDAQ: PANW) are also backing up huge 2023 rallies with big 2024 gains.
Looking beyond the Nasdaq-100's top five stocks of 2023, however, there are exceptions. After doubling last year, Tesla Inc. (NASDAQ: TSLA) has seen nearly one-fourth of its market cap wiped out. Intel and Atlassian are also off to slow starts.
With artificial intelligence (AI) euphoria driving the Nasdaq-100 to almost daily record highs, the valuation on the tech-centric index has swelled to 32x. This suggests that investors should be more cautious when it comes to individual stock selection. Wall Street research firms are echoing this sentiment.
Since valuations are getting stretched on most Nasdaq outperformers, their upside likely isn't anywhere near where it was a year ago. This has analysts gradually shifting toward underperforming, less prominent names to find the next big thing.
One way to identify Wall Street's latest "flavors of the month" is to compare consensus analyst ratings. While "buy," "hold," and "sell" are the basic calls an individual analyst makes, combined, they can reveal which stocks rank highest.
Aggregated analyst data from the Institutional Brokers' Estimate System, or IBES, is one way to obtain such granularity. IBES uses a 1.0 to 5.0 rating system, with 1.0 being a strong buy and 5.0 being a strong sell. The lower the score, the more bullish the Street is — and vice versa.
The latest IBES rating scores for Nasdaq-100 are telling. Analysts still love NVIDIA, Amazon.com, CrowdStrike and Microsoft, all of which have 1.7 ratings. What goes up must keep going up. But these aren't the top picks.
With slightly stronger IBES scores, these three companies are Wall Street's current faves.
What is the consensus analyst rating on DexCom?
DexCom, Inc. (NASDAQ: DXCM) has a 1.6 IBES rating, which puts it on the cusp of being a strong buy. Considering there are 14 analysts who actively cover the company, this speaks volumes.
Last week, the continuous glucose monitoring (CGM) device maker announced that fourth quarter revenue and adjusted earnings per share (EPS) rose 27% and 47%, respectively. Both growth figures exceeded consensus expectations and reflected increased product distribution, customer acquisition and a successful global launch of Dexcom G7.
The results helped ease concerns that the GLP-1 diabetes drug boom will limit demand for CGM devices. Management noted that while many studies are ongoing, it anticipates "good data over the course of the year." This gave it the confidence to forecast 16% to 21% organic revenue growth for 2024. While this marks a slowdown from 24% growth last year, it may prove conservative since DexCom has topped its guidance in each of the last three years.
What is the upside for PDD stock?
PDD Holdings Inc. (NASDAQ: PDD) will continue to rebound from its March 2022 low in the eyes of Wall Street analysts. A $176 consensus price points to a 33% upside for the Chinese online retailer over the next 12 months. The timing may be favorable to jump in on what's been one of the Nasdaq's best momentum plays of recent months. PDD ran as high as $152.99 in January 2023 but has pulled back about $20.00.
The stock got to where it did last month because of a strong third quarter earnings report that flashed 94% top-line growth. Transactions services revenue soared 315% at PDD — which operates in the world's largest e-commerce market — helping both sales and EPS sprint past analyst estimates. Wall Street will be hoping for more of the same when the company releases fourth quarter financials next month. Thirteen of fourteen firms call PDD a buy, giving it a 1.6 IBES rating.
Will Synopsys stock reach $600?
Synopsys, Inc. (NASDAQ: SNPS) blasted higher by more than 60% in 2023, but analysts see it reaching new heights in 2024. The stock has been one of the biggest beneficiaries of a strong semiconductor industry rebound and, in particular, AI chip demand. Customers designing AI chips, hardware and networking products are embracing the company's ZeBu Server 4 and software security offerings. In the future, Synopsys expects to derive diversified growth from not just machine learning but interconnected smart devices, autonomous vehicles and other high-growth markets.
Last month, Synopsys bolstered its chip design technology leadership by acquiring Ansys in a cash and stock deal worth approximately $35 billion. While acquiring stocks often drop on such news because of the big outlay and integration uncertainty, SNPS held firm and has trended higher since. Five analysts reiterated buy ratings after the takeover announcement to keep the stock's unanimous buy rating intact.
