As summer draws to a close, market watchers are witnessing a mix of resilience and challenges. The S&P 500 has showcased its strength with an 18% year-to-date gain, currently just 19 points shy of its all-time high. However, with uncertainties around US growth and the November elections, investors are carefully weighing their next moves.
So, where might the markets go from here? This is what every investor wants to know, and what every savvy analyst is striving to predict.
In a recent note, UBS’ investment office shared its forecast for the market’s direction in the coming months, noting: “We see room for US equities to rise further in a constructive environment driven by Fed rate cuts, the growth story around artificial intelligence (AI), and healthy earnings growth. We forecast the S&P 500 to rise to 5,900 by year-end and 6,200 by June 2025.”
The stock analysts at UBS are backing up this outlook by selecting the stocks they believe will ride this wave to gains. Let’s dive into two of their picks, each with a potential upside of at least 50%.
PVH Corporation (PVH)
The first stock we’ll look at is PVH, a clothing company that traces its roots, in part, to the garment industry of New York City in the 1880s and 1890s. Today, the company is the owner of the popular Tommy Hilfiger and Calvin Klein clothing lines, marketing these brands, and others, through department stores and branded retail locations. The company is truly international, generating more than 65% of its revenue outside of the US markets, and operating in over 40 countries around the world.
PVH’s goal is simple: the company aims to make Hilfiger and Calvin into the world’s most desirable lifestyle brands. The company has a detailed plan to accomplish this, including developing the best products and the best customer engagement, and using data-driven operations and efficiencies to win in a digital world. PVH’s activities are split among three main regions: North America, Europe, and the Asia-Pacific.
Despite some recent challenges, including a decline in revenue due to sluggish sales, PVH has managed to remain highly profitable. In its latest report for fiscal 2Q24, PVH posted a 6.3% year-over-year revenue decline, bringing in $2.07 billion. While this represented a dip from the previous year, it was in line with expectations. On the earnings front, PVH delivered strong results, with a non-GAAP EPS of $3.01 per share, surpassing forecasts by 73 cents.
Furthermore, PVH has been able to shore up its cash position. In the prior-year quarter, the company reported $372.8 million in cash liquid assets; in the current report, that figure was up significantly, to $610 million.
The sound cash balance and the ability to maintain earnings growth caught the attention of UBS analyst Jay Sole, who writes about the company: “We think PVH has the brand strength and balance sheet to drive earnings growth over the long term. We forecast the company delivering a 10.5% 5-yr. EPS CAGR. We also expect major margin unlocks in the next few years, as CEO Stefan Larsson’s PVH+ Plan goes into full effect. As PVH’s earnings rebound and long-term drivers become clear, we expect stock’s ~8x FY2 P/E to expand towards our ~12x target valuation.”
For Sole, PVH deserves a clear Buy rating, with a $174 price target that implies a one-year upside potential of 76%. (To watch Sole’s track record, click here)
Overall, PVH has earned a Moderate Buy rating from the Street’s analyst consensus, based on 15 recent reviews, including 11 Buys and 4 Holds. Currently trading at $98.69, the stock has an average target price of $134.27, suggesting a 36% gain over the next 12 months. (See PVH stock forecast)
Dayforce, Inc. (DAY)
The next UBS pick we’ll look at is Dayforce, an HCM software company. Until earlier this year, the company was called Ceridian; this past February, it changed its branding to Dayforce, which lines up with its chief product, the Dayforce HCM software platform.
HCM, or human capital management, is the moniker for a holistic approach to human resources in business. The Dayforce platform allows its users to manage vital functions of HR, payroll, and workforce management in a single, unified platform. The company has been in business since the early 1990s and generated more than $1.5 billion in revenue last year.
The company achieved that by offering a solid product that is tailored for today’s complex digital world. Dayforce promotes its platform as a solution to diverse HCM needs, leveraging AI technology to address complex issues and adapt to evolving challenges. Known for delivering ‘simplicity at scale,’ Dayforce facilitates easy management of functions and clear visibility of results. With over 6 million users globally, the platform serves a broad array of prominent organizations, including the City of Columbus, Danone, Gannett, and others. It’s available in more than 200 countries and territories, making it a truly global solution.
In its last reported financial results for Q2 2024, Dayforce achieved total revenues of $423.3 million, marking a nearly 16% year-over-year increase and surpassing forecasts by $5.87 million. Recurring revenue accounted for $321.6 million of this total, comprising nearly 76% of the revenue and growing 20% year-over-year. Net cash from operations also saw a significant year-over-year increase of 16%, reaching $108.3 million. At the bottom line, Dayforce delivered non-GAAP earnings of 48 cents per share, outperforming expectations by 12 cents per share.
UBS analyst Kevin McVeigh takes an unabashedly positive view of Dayforce, writing: “We continue to have substantial confidence in our thesis as we believe DAY stock is poised to outperform on cloud revenue remix + improving free cash flow conversion—we believe recent underperformance is mostly due to risk-off sentiment amid higher treasury yields and macro concerns. We believe this is more than discounted in the stock, which is poised to benefit on more constructive 10-year yields + fundamental performance.”
McVeigh’s optimism is reflected in his Buy rating for Dayforce stock, accompanied by a $90 price target – indicating a potential 57% gain in the months ahead. (To watch McVeigh’s track record, click here)
That’s the UBS perspective, but what does the broader Street think about Dayforce? With 8 additional Buys and 4 Holds, the stock claims a Moderate Buy consensus rating. The average target price of $68.92 suggests a potential 20.5% gain over the next year. (See Dayforce stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
