Potential Skyrocket of S&P 500 in 2025: Two Remarkable Stocks to Purchase Prior to Its Increase, Suggests Wall Street Analysts
Ungrateful analysts have assigned more than 12,000 individual ratings to the stocks in the S&P 500 universe. Naturally curious folks at FactSet Research then use this data to construct a "bottom-up" target price for the entire index. Right now, this estimation suggests a 13% surge for the S&P 500, pushing it up to 6,920 points within the next year, starting from its current humble position of 6,145.
Investors dreaming of cashing in on or capitalizing on this forecasted surge might want to take a closer look at two potential stocks: Microsoft (MSFT) and MercadoLibre (MELI).
Microsoft, this tech behemoth, expects to see its stock price soaring to $510 per share within the next 12 months, according to the averaged expectations of 59 analysts. This 23% increase from its current share price of $415 offers an attractive opportunity to those eager to invest in tech.
Likewise, MercadoLibre, the dominant online marketplace across Latin America, has analysts forecasting an average target price of $2,300 per share; a 11% increase from its current share price of $2,075.
Let's delve deeper into these two stocks:
1. Microsoft
Microsoft has two key growth engines that power its expansion: enterprise software and cloud computing. It has cleverly integrated artificial intelligence (AI) features into both product ecosystems to generate new revenue streams. The market has shown mixed feelings towards Microsoft's commitment to AI, manifested in its stock experiencing a 9% decline over the past three months. However, this slight dip creates an enticing opportunity for thoughtful investors.
Microsoft shows no signs of slowing down in monetizing AI in enterprise software. Boasting a strong position in several product categories, including office productivity, enterprise resource planning, business intelligence, and cybersecurity, it currently finds itself in use by a staggering 70% of Fortune 500 companies. Microsoft 365's generative AI assistant, which saw a 60% sequential increase in usage in the latest quarter, is particularly in-demand.
The cloud computing giant is poised to capitalize on AI opportunities through its Azure cloud platform, given its strategic partnership with OpenAI. In fact, RBC Capital analyst Rishi Jaluria places Azure as the stronger contender in the AI arms race against industry leader Amazon Web Services (AWS). A survey conducted by Morgan Stanley reinforces this view, indicating Azure has a solid chance of taking a bigger piece of the cloud market share in the near future.
With Wall Street projecting a 13% annual increase in Microsoft's earnings through fiscal 2026, its current valuation of a hefty 33 times earnings does seem somewhat extravagant. Nevertheless, unlike some other tech stocks, the multiple represents a significant discount to its 12-month average ratio of 36 times earnings. This healthy discount creates a justifiable entry point for long-term investors, best practiced through the method of dollar-cost averaging.
2. MercadoLibre
MercadoLibre is the kingpin of Latin American online shopping, expected to reach a market share of 30% by 2026, compared to the 28% it currently holds. With an impressive first-mover advantage, MercadoLibre has flourished with its expansive inclusion of advertising, fulfillment, shipping, and financing services to benefit merchants.
The company's booming logistics network is the fastest and most extensive across Latin America. It holds the region's largest retail media advertiser position, reaching beyond 50% of the market. MercadoLibre's strongest presence can be found in Argentina, Chile, Mexico, and Brazil, which hosts the second-largest fintech platform. These diverse services enhance the overall appeal of MercadoLibre's marketplace, enticing merchants and reinforcing the powerful network effect that drives its business growth.
The Latin American economy is in the midst of an energetic digitization phase. Online retail sales are projected to grow at 10% yearly through 2028, at a similar pace as digital payments. Meanwhile, digital advertising expenditure is forecasted to rise by 12% annually. All these projections hint at substantial double-digit growth for MercadoLibre in the upcoming years.
Analysts are extremely optimistic about MercadoLibre's future earnings, predicting a 43% annual expansion through 2025. With its current valuation at 73 times earnings, this seems like a reasonable and affordable price. However, as a word of caution, MercadoLibre reports earnings in US dollars even though it operates in 18 Latin American countries. Given the strong US dollar's present position, unfavorable exchange rates could present a challenge in the short term, possibly causing earnings growth to fall shy of projections. But Patient investors, willing to weather volatility, can consider small purchases today — provided they are prepared to hold onto their shares for at least 3 to 5 years.
- The median cost for investing in Microsoft, based on analysts' forecasts, is around $510 per share in the next year, representing a significant increase from its current price of $415. This presents a potential opportunity for investors looking to dive into the tech sector.
- In contrast, MercadoLibre, with an expected median share price of $2,300 per share, offers a more modest increase from its current price of $2,075. Despite this, the e-commerce giant's expansive services and the Latin American digital market's growth potential make it an attractive investment for foreseeable future-oriented analysts.
