2 Top Stocks to Buy Now, According to Wall Street

Stock market performance has become more bifurcated this year. While high-flying technology stocks determined S&P 500 index to new highs, consumer spending has hurt the performance of industry-leading consumer brands.

Two widely held stocks that underperformed are adze (TSLA 3.80%) and Starbucks (SBUX -0.31%). However, both stocks have rallied recently as new growth catalysts have come into focus, and two Wall Street analysts believe now is the time to buy. Here’s why these top stocks are about to break out in the coming years.

1. Tesla

Tesla stock has delivered phenomenal returns for investors over the past decade, but the stock has remained flat over the past few years. It has been a challenge to sell more electric cars, with higher interest rates making financing more expensive, in addition to increasing competition. Despite the headwinds, Tesla shares have risen 16% over the past three months as investors have turned their attention to other promising near-term opportunities.

Piper Sandler analyst Alexander Potter believes the stock is a buy ahead of Tesla’s robotaxi unveiling, scheduled for October 10. A robotaxi service should be very profitable for Tesla over time, but it also highlights the opportunity in the company’s battery production, which aims to reduce production. costs and improving margins.

Tesla’s battery production is growing rapidly. It produced 50% more 4680 cells in the second trimester than in the first trimester. This will support the rapid growth Tesla is experiencing in its energy storage business, while also powering millions of electric cars on the road, particularly robotaxis.

Ark Invest reckons Tesla’s operating profit per kilowatt-hour used could be $466 for robotaxis, compared to just $60 for normal electric cars. That’s in line with the company’s projection that Tesla will increase profitability and send the stock up to $2,600 by 2029.

CEO Elon Musk believes the optimistic projection is possible. The world is moving towards electric and autonomous transport. Tesla’s rapidly growing battery production highlights a manufacturing advantage that will become quite valuable. Transportation is a $10 trillion market, and Tesla is the disruptor.

2. Starbucks

Starbucks is the world’s best restaurant brand, according to Brand Finance, but like Tesla, the stock is weighed down by sluggish consumer spending. Starbucks’ comp sales have fallen over the past two quarters, but the stock jumped 30% after the company announced it was hiring Brian Niccol from Chipotle Mexican Grill as CEO.

Niccol has led Chipotle to incredible growth over the past five years. It was already a high-performing business, but Niccol was able to capture higher margins from restaurants, which helped the stock grow 232% over the past five years.

Evercore ISI analyst David Palmer sees a similar opportunity at Starbucks. Palmer recently upgraded the stock to an Outperform (Buy) rating. Hiring Niccol increases the likelihood of success for Starbucks, according to Palmer.

One factor that has benefited Chipotle is its digital ordering capabilities, which account for 35 percent of Chipotle’s business. Starbucks is also great at implementing mobile ordering, but should see more improvements under new management that could reduce wait times and improve store efficiency. Niccol’s previous track record of leading similar initiatives at Chipotle should put Starbucks on a profitable growth trajectory.

Palmer sees Starbucks’ annualized earnings growth reaching 15% or more over the next three years. Assuming the stock continues to trade at a market-average price-to-earnings ratio of 27, investors should see attractive returns on their investment.