UBS Sees S&P 500 To Hit 6,200 By Next Year – Here Are 2 Stocks That Will Ride The Wave

As summer draws to a close, market watchers are witnessing a mix of resilience and challenges. The S&P 500 has shown its strength with an 18% gain year to date, currently just 19 points from its all-time high. However, with uncertainties surrounding US growth and the November election, investors are carefully weighing their next moves.

So where could the markets go from here? This is what every investor wants to know and what every savvy analyst strives to predict.

In a recent note, UBS’s investment desk shared its predictions for market direction in the coming months, noting: “We see room for US equities to continue to rise in a constructive environment driven by Fed rate cuts, the growth story in around artificial intelligence (AI) and healthy earnings growth. We estimate the S&P 500 will rise to 5,900 by the end of the year and 6,200 by June 2025.”

Stock analysts at UBS support this outlook by selecting the stocks they believe will ride this wave of gains. Let’s look at two of their picks, each with a potential upside of at least 50%.

PVH Corporation (PVC)

The first stock we’ll look at is PVH, a clothing company that traces its roots, in part, to the New York City garment industry of the 1880s and 1890s. Today, the company owns the popular clothing lines Tommy Hilfiger and Calvin Klein, which markets these brands and others through department stores and branded retail locations. The company is truly international, generating over 65% of its revenue outside the US markets and operating in over 40 countries worldwide.

PVH’s goal is simple: the company aims to transform Hilfiger and Calvin into the world’s most desirable lifestyle brands. The company has a detailed plan to achieve this, including developing the best products and customer engagement and using data-driven operations and efficiency to win in a digital world. PVH’s activities are divided into three main regions: North America, Europe and Asia-Pacific.

Despite some recent challenges, including a decline in revenue due to sluggish sales, PVH has managed to remain highly profitable. In its most recent Q2-24 report, PVH reported a year-over-year revenue decline of 6.3% to $2.07 billion. Although this was a decrease from the previous year, it was in line with expectations. On the earnings side, PVH delivered strong results with non-GAAP EPS of $3.01 per share, beating forecasts by 73 cents.

In addition, PVH was able to strengthen its cash position. In the year-ago quarter, the company reported liquid cash assets of $372.8 million; in the current report, this figure has increased significantly to $610 million.

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The strong cash balance and ability to sustain earnings growth have caught the attention of UBS analyst Jay Sole, who writes of the company: “We believe PVH has the brand strength and balance sheet to drive long-term earnings growth. We estimate that the company will deliver 10.5% over 5 years. EPS CAGR. We also expect major margin unlocks over the next few years as CEO Stefan Larsson’s PVH+ plan comes into full effect. As PVH’s earnings recover and long-term drivers become clear, we expect the stock’s annualized P/E of ~8x to expand towards its target valuation of ~12x.”

For Sole, PVH deserves a clear buy rating with a price target of $174 implying a one-year upside potential of 76%. (To track Sole’s history, 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 price target 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; in February, it changed its branding to Dayforce, which aligns with its core product, the Dayforce HCM software platform.

HCM, or human capital management, is the nickname for a holistic approach to human resources in business. The Dayforce platform enables its users to manage vital HR, payroll and workforce management functions in one 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 has achieved this by offering a solid product that is tailored for today’s complex digital world. Dayforce promotes its platform as a solution for various HCM needs, leveraging AI technology to tackle complex problems and adapt to evolving challenges. Known for delivering “simplicity at scale,” Dayforce facilitates easy feature management and clear visibility into results. With more than 6 million users globally, the platform serves a wide range of prominent organizations, including the City of Columbus, Danone, Gannett and others. It is available in over 200 countries and territories, making it a truly global solution.

In its latest reported financial results for Q2 2024, Dayforce achieved total revenue of $423.3 million, marking a nearly 16% year-over-year increase and beating forecasts by $5.87 million. Recurring revenue accounted for $321.6 million of that total, comprising nearly 76% of revenue and up 20% year-over-year. Net cash from operations also saw a significant year-over-year increase of 16% to $108.3 million. Bottom line, Dayforce delivered non-GAAP earnings of 48 cents per share, beating expectations by 12 cents per share.

UBS analyst Kevin McVeigh has an unrelentingly positive view of Dayforce, writing: “We continue to have substantial confidence in our thesis as we believe DAY stock is poised to outperform cloud revenue remix + free cash flow conversion improvement – ​​we believe the underperformance recent decline is largely due to risk-off sentiment amid higher Treasury yields and macroeconomic concerns. We believe this is more than discounted in the stock, which is poised to benefit from more constructive 10-year returns + fundamental performance.”

McVeigh’s optimism is reflected in his buy rating on Dayforce shares, accompanied by a $90 price target — indicating a potential 57% gain in the coming months. (To follow McVeigh’s history, click here)

That’s UBS’s view, but what does the wider street think of Dayforce? With 8 additional buys and 4 holds, the stock claims a Moderate Buy consensus rating. The average price target of $68.92 suggests a potential gain of 20.5% 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.