Duds

Over the long term, the S&P 500 has delivered an average annual return in the ballpark of 10%. When a given stock generates a return below that level it can be disappointing. That’s especially the case for growth stocks for which investors have great expectations.

Such growth stocks led the charge last year, helping the major market indexes achieve big gains. Many analysts don’t think you should look for a similar performance in the new year from all of them, though. These five wildly popular high-flying stocks of 2023 could be duds in the rest of 2024, according to Wall Street.

1. Microsoft

Thanks to a 57% return in 2023, Microsoft (MSFT 1.22%) ended the year just a hair away from becoming the most valuable company in the world based on market cap. The tech stock’s modest rise in recent weeks has allowed it to claim the title, albeit just barely.

However, Wall Street doesn’t expect much more from Microsoft. The average 12-month price target for the stock reflects an upside potential of less than 6%. The most pessimistic analyst thinks that Microsoft’s share price could fall nearly 22%.

Valuation is one key concern. Microsoft’s shares trade at a sky-high forward earnings multiple of 34.8.

2. Apple

You can probably guess which company Microsoft knocked out of the No. 1 spot. Apple (AAPL 1.55%) reigned as the largest company in the world for several years. But the stock’s 48% gain in 2023 wasn’t enough to keep it on top after losing ground a little this month.

Analysts expect Apple to continue to go neck-and-neck with Microsoft in the battle of market caps. The average 12-month price target for the stock is also less than 6% above its current price.

The main knock against Apple is its lack of growth. In its last reported quarter, the company’s revenue slipped 1% year over year. Even with services revenue reaching an all-time high, Apple simply isn’t delivering the growth that it has in the past.

3. Alphabet

Google parent Alphabet (GOOG 2.06%) (GOOGL 2.02%) is another “Magnificent Seven” stock that sizzled last year. Its shares skyrocketed 58% thanks in large part to the flurry of interest in generative AI.

Wall Street doesn’t expect Alphabet’s sizzle to completely fizzle in 2024. However, the consensus forecast is decidedly less enthusiastic than investors would like. The average 12-month price target for the stock reflects an upside potential of just over 7%.

Some investors could still be concerned about Google Cloud after Alphabet reported slowing growth for the unit in the third quarter of 2023. Others could worry that the U.S. economy won’t have the soft landing that many economists predict, which could dampen Alphabet’s advertising revenue growth.

4. Tesla

Tesla (TSLA 0.15%) wowed investors in 2023 with its share price more than doubling. The company ramped up production of its electric vehicles and launched its Cybertruck.

But Wall Street doesn’t predict nearly as big of a wow from Tesla this year. The average price target for the stock is nearly 8% above the current price. That’s not bad, but it’s a lot lower than investors would prefer. One especially bearish analyst even thinks that Tesla stock could plunge almost 90%.

Most of the analyst ratings came before Tesla CEO Elon Musk posted on X (the social media platform formerly known as Twitter) that he wants to gain around 25% voting control of the company. Whether or not Musk achieves his goal — and what it might mean for the stock — remains to be seen.

5. Eli Lilly

Eli Lilly (LLY 0.84%) is something of an outlier in this group. It isn’t part of the “Magnificent Seven.” The company doesn’t have a clear connection with AI. However, Lilly was without question a wildly popular stock last year with its shares jumping 59%.

Analysts aren’t looking for a wild performance from Lilly in 2024, though. The average 12-month price target reflects an upside potential of barely over 2%.

As was the case with Microsoft, valuation appears to be the primary issue for Wall Street with Lilly. The pharma stock’s forward earnings multiple tops 51. That’s a nosebleed level.

Is Wall Street right about these stocks?

I don’t know if these five stocks will beat analysts’ price targets or not. Wall Street could be right about the stocks’ near-term prospects. However, it doesn’t matter, in my opinion. What’s important are the long-term prospects for each company.

My view is that AI will provide a strong tailwind for Microsoft, Apple, Alphabet, and Tesla over the next decade and beyond. I think that the opportunities for Lilly’s diabetes drug Mounjaro, weight-loss drug Zepbound, and Alzheimer’s disease drug donanemab (which awaits an approval decision) put its valuation in a much more favorable light.

It wouldn’t surprise me one bit if analysts revise their price targets upward for several, if not all, of these stocks in the coming months. Whether they do or not, I predict that all five will remain wildly popular in 2024 and for years to come — for good reasons.