Nvidia tops list of Wall Street's 20 favorite stocks for 2024

By Philip van Doorn

The stock market has picked up steam now that investors are convinced the Federal Reserve is finished raising interest rates.

This is the first of a three-part series featuring lists of top stock picks among analysts working for brokerage firms. Part 2 screens small-cap stocks and Part 3 screens midcaps.

Investors have driving quite a bounceback for stocks during 2023, and the trend for gains that started late in October has been gaining steam. Below is a list of the favorite stocks for 2024 among analysts working for brokerage firms.

For perspective, take a look at the S&P 500's return since the end of 2021:

All returns in this article include reinvested dividends. The chart incorporates the 25.9% increase for the S&P 500 SPX this year, which has followed an 18.1% decline in 2022. So the index is up only 3.1% since the end of 2021. The action in 2022 tracked the Federal Reserve's change in policy to raise the federal-funds rate repeatedly and push long-term rates higher by shrinking its bond portfolio.

And now that investors are convinced the Fed is finished raising rates, with the central bank's projections even baking-in three cuts to the federal-funds rate in 2024, the S&P 500's upward path has accelerated since late October.

Here is a summary of how the 11 sectors of the S&P 500 have performed, along with forward price-to-earnings ratios. The full index is at the bottom:

   Sector or index           2023 return  2022 return  Return since end of 2021  Forward P/E  Current P/E to 5-year average  Current P/E to 10-year average  Current P/E to 15-year average 
   Information Technology            57%         -28%                       13%         26.6                           117%                            141%                            159% 
   Communication Services            56%         -40%                       -6%         17.4                            92%                             92%                            100% 
   Consumer Discretionary            43%         -37%                      -10%         26.2                            86%                            102%                            118% 
   Industrials                       17%          -5%                       11%         19.9                            96%                            107%                            117% 
   Materials                         13%         -12%                       -1%         19.4                           113%                            118%                            126% 
   Real Estate                       11%         -26%                      -18%         18.0                            91%                             95%                             96% 
   Financials                        11%         -11%                        0%         14.5                            98%                            102%                            109% 
   Healthcare                         1%          -2%                       -1%         18.1                           109%                            110%                            122% 
   Energy                             0%          66%                       66%         11.0                           100%                             59%                             68% 
   Consumer Staples                  -1%          -1%                       -1%         19.2                            96%                             99%                            108% 
   Utilities                         -8%           2%                       -7%         15.7                            86%                             90%                             99% 
   S&P 500                           26%         -18%                        3%         19.6                           102%                            109%                            121% 
                                                                                                                                                                            Source: FactSet 

You will see dire warnings that stocks are overvalued at all times, especially at year-end. So the current forward price-to-earnings ratios are compared with average levels over the past 5, 10 and 15 years. Forward P/E ratios in the table are based on rolling weighted consensus earnings-per-share estimates among analysts polled by FactSet.

Seven sectors are trading at weighted aggregate forward P/E ratios that are below their five-year averages, with utilities cheapest by this measure. That may not be a surprise, as utility stocks are generally relied upon by investors to pay dividends, and valuations for income-producing securities fell as interest rates rose. If we go out to 10 years, five sectors trade below average P/E, while only three sectors trade below their 15-year average P/E levels.

Analysts' favorite stocks

Sell-side analysts (those who work for brokerage firms) typically set 12-month price targets for stocks. For this screen we began with the S&P 500 and tossed the one company with less than five ratings among analysts polled by FactSet (Lowes Corp. (L), an insurer). Then we narrowed the list to 92 companies with at least 75% "buy" or equivalent ratings.

Among these 92 companies, here are the 20 with the most upside potential for 2024 implied by consensus price targets:

   Corteva Inc.                        Ticker   Share "buy" ratings  Dec. 22 price  Consensus price target  Implied upside potential  Forward P/E 
   Nvidia Corp.                         NVDA                    94%        $488.30                 $668.11                       37%         24.5 
   First Solar Inc.                     FSLR                    83%        $170.39                 $231.56                       36%         13.1 
   Halliburton Co.                      HAL                     87%         $36.59                  $49.04                       34%         10.6 
   Bunge Global SA                       BG                     77%        $101.64                 $135.33                       33%          8.8 
   Bio-Rad Laboratories Inc. Class A    BIO                     75%        $320.74                 $424.00                       32%         27.5 
   Las Vegas Sands Corp.                LVS                     83%         $48.92                  $64.45                       32%         16.4 
   Schlumberger N.V.                    SLB                     93%         $53.08                  $69.72                       31%         14.8 
   LKQ Corp.                            LKQ                     75%         $47.80                  $61.89                       29%         11.4 
   Aptiv PLC                            APTV                    85%         $89.02                 $113.96                       28%         15.1 
   Delta Air Lines Inc.                 DAL                     96%         $41.13                  $52.40                       27%          6.3 
   Targa Resources Corp.                TRGP                    95%         $86.71                 $107.96                       25%         14.5 
   Corteva Inc                          CTVA                    78%         $47.46                  $58.53                       23%         15.7 
   Constellation Brands Inc. Class A    STZ                     83%        $237.88                 $292.37                       23%         18.0 
   Biogen Inc.                          BIIB                    82%        $257.97                 $315.48                       22%         16.3 
   Baker Hughes Co. Class A             BKR                     79%         $34.12                  $41.58                       22%         16.6 
   Live Nation Entertainment Inc.       LYV                     80%         $91.43                 $111.17                       22%         41.6 
   MGM Resorts International            MGM                     79%         $44.38                  $53.74                       21%         18.6 
   Elevance Health Inc.                 ELV                     86%        $466.59                 $563.67                       21%         12.6 
   Jacobs Solutions Inc.                 J                      88%        $128.07                 $153.17                       20%         15.4 
   Synopsys Inc.                        SNPS                    88%        $524.46                 $624.57                       19%         38.1 
                                                                                                                                  Source: FactSet 

Click on the tickers for more about each company.

Click here for Tomi Kilgore's detailed guide to the wealth of information available for free on the MarketWatch quote page.

Nvidia tops the list, as analysts expect the company to maintain its leading position providing graphics processing units (GPU) to data centers building up their capability to support corporate clients rolling out artificial intelligence technology.

Here's a sampling of recent coverage of Nvidia:

How Nvidia and AI changed the landscape of the chip industry, as rivals must now play catch-up'Magnificent Seven' up for another bull run? What to expect from technology stocks in 2024.Nvidia, Disney and Tesla are among 2023's buzziest stocks. Can they continue to sizzle in 2024?Nvidia is now using its AI windfall to invest in startups, with hopes for more big bucksNvidia pulls further away from other chip makers by this one measureHere's why Nvidia is a compelling stock when compared with the rest of the 'Magnificent Seven'

A focus on value: 13 stocks that are down for 2023 but may bounce back in 2024 or beyond

-Philip van Doorn

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12-30-23 0637ET

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