Many investors have been loudly heralding a new bull market for the S&P 500. However, the major index has yet to meet one key criterion to convince everyone that a new bull market has arrived: It hasn't reached a new high.
Investors looking for safer bets during the ongoing macro uncertainty can consider several mega-cap stocks that can deliver attractive long-term returns.
Mega-caps are stocks with a market capitalization of over $200 billion. These stocks are associated with large, well-established companies with solid track records and are among the leading players in their respective industries. Using
TipRanks’ Stock Comparison Tool, we placed Amazon (
NASDAQ:AMZN
), Costco (
NASDAQ:COST
), and Tesla (
NASDAQ:TSLA
) against each other to find the most attractive mega-cap stock as per Wall Street analysts.
Amazon (NASDAQ:AMZN)
Amazon
smashed analysts’ second-quarter earnings expectations, driven by the company’s productivity measures and an
11% rise in its revenue. The company reported
earnings per share (EPS) of $0.65 compared with a net loss per share of $0.20 in the prior-year quarter.
Despite macro pressures, Amazon’s retail business performance reflected strength in the second quarter, with sales of both North American and International segments rising 11%. Moreover, sales of the company’s Amazon Web Services’ (AWS) cloud business increased 12% and fared better than expectations.
Enterprises pulled back their cloud spending in recent quarters due to macro pressures. However, Amazon said that AWS growth in the second quarter stabilized as customers started shifting from cost optimization to new workload deployment. The company added that AWS continues to strengthen its leadership position in the cloud with many generative
artificial intelligence (AI) releases that will help companies train and run AI models and build generative AI applications in a more cost-effective manner.
Interestingly, revenue from the company’s emerging advertising business grew 22% and also beat estimates. Overall, Amazon delivered impressive growth across all its segments and also impressed investors with a Q3 2023 revenue growth outlook of 9% to 13%.
Is Amazon Stock a Buy or Sell?
On August 21,
Wedbush analyst Michael Pachter added Amazon stock to his firm's "Best Ideas List," as he believes that the backdrop for the company is beginning to strengthen due to better or stabilizing growth across its e-commerce, advertising, and web services verticals.
The analyst believes that Amazon's core business has been underappreciated in recent quarters and the company is now well-positioned with an industry-leading fulfillment infrastructure. Pachter has a Buy rating on AMZN stock and a price target of $180.
Wall Street’s Strong Buy consensus rating on
Amazon stock is based on 39 Buys and one Hold. The average price target of $175.63 implies 27.1% upside.
Shares have risen 65% year-to-date.
Costco (NASDAQ:COST)
Low-cost retailer Costco is known for its consistent performance and the ability to navigate challenging markets. The membership warehouse operator boasts a loyal customer base. At the end of the fiscal third quarter, Costco’s U.S. and Canada membership renewal rate was 92.6% while the worldwide rate was 90.5%.
Meanwhile, for the retail month ended August 27,
Costco’s net sales increased 5% to $18.4 billion and comparable sales were up 3.4%. However, e-commerce sales declined in August. Nonetheless, the overall top-line growth improved in August compared to July and the fiscal third quarter.
Is COST Stock a Buy or Sell?
On August 31,
D.A. Davidson analyst Michael Baker reiterated a Hold rating on Costco with a price target of $478, noting that the retailer’s August sales showed a second month of acceleration in a row after negative prints in May and June.
That said, the analyst pointed out the July comparable sales growth saw a 75 basis points benefit in the U.S. from a July 4th shift, and when adjusted for this tailwind, August and July comparable sales growth rates were only 60 basis points apart. The analyst said that he is looking for a better entry point, given that Costco stock is trading at a premium of 35.2 times earnings multiple compared to consensus estimates for the next 12 months.
With 17 Buys and three Holds, Costco claims a Strong Buy consensus rating. At $588.84, the average price target implies nearly 7% upside.
Shares have risen about 21% so far in 2023.
Tesla (NASDAQ:TSLA)
Shares of
electric vehicle (EV) maker Tesla have recovered strongly after last year’s slump and have rallied about 108% so far in 2023. However, CEO
Elon Musk’s aggressive price cuts to spur volumes have sparked concerns about the impact on the company’s operating margin.
While the company’s
second-quarter results exceeded expectations, its operating margin declined 493 basis points year-over-year to 9.6%. This was Tesla’s lowest quarterly operating margin in at least the last five quarters.
During the Q2 2023 earnings call, Musk dismissed concerns about short-term variances in gross margin and profitability, saying that vehicle autonomy “will make all of these numbers look silly.” However, several analysts remain cautious due to the growing competition in the EV space.
What is the Price Target for TSLA?
On August 30,
Guggenheim analyst Ronald Jewsikow noted that Tesla's U.S. inventory trends indicate that supply is running ahead of demand. He believes that quarter-to-date U.S. inventory is a clear indicator that the domestic demand is lagging behind production at the current run rate supply.
While summer production shutdowns may limit the near-term requirement for price cuts, the analyst feels that the magnitude of downtime remains unclear. Jewsikow lowered his estimates and reiterated a Sell rating on Tesla stock with a price target of $125.
Overall, Wall Street has a Hold consensus rating on
TSLA stock based on 11 Buys, 13 Holds, and five Sells. The average price target of $266.73 suggests 7.3% upside potential.
Conclusion
Wall Street is highly bullish on Amazon and Costco, while it is sidelined on Tesla following a stellar year-to-date rally. Analysts see higher upside potential in Amazon stock than Costco. Amazon’s leadership in e-commerce, the dominance of AWS in cloud computing, and the solid prospects for the company’s advertising business make it an attractive long-term mega-stock pick.
Disclosure
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