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Recent U.S. economic data has offered a sobering outlook, with disappointing GDP and inflation readings compounded by disappointing labor market data. Surprisingly, the market appears to be finding comfort in these discouraging indicators.
That’s because investors are interpreting this data as a potential catalyst for the Federal Reserve to speed up its policy pivot, potentially easing monetary policy due to the economic deceleration. This optimistic perspective has driven a rebound rally in major U.S. indexes, including the tech-heavy Nasdaq-100 Index ($IUXX).
After tech-focused selling hit markets in April, here are three Nasdaq-100 stocks to consider that are trailing the index this year, but tipped for immense upside potential by optimistic analysts.
Nasdaq-100 Stock #1: Adobe
With a mega market cap of over $220.5 billion, San Jose-based Adobe Inc. (ADBE) is a prominent software company primarily known for its creativity and multimedia software products like Photoshop and Illustrator, now enhanced with cutting-edge artificial intelligence (AI) features.
Shares of Adobe have tumbled 18% on a YTD basis, lagging behind the Nasdaq-100’s 7.5% gains during the same time frame.
The stock is trading at 33.41 times forward earnings and 11.39 times sales, lower than its own five-year averages of 36.09x and 14.42x, respectively.
On March 14, Adobe reported its Q1 earnings results, which topped Wall Street’s forecasts on both the top and bottom lines. Its total revenue of $5.2 billion rose 11.3% year over year, surpassing Wall Street’s projections marginally. Non-GAAP EPS of $4.48 jumped 17.9% annually, topping estimates by 2.2%.
Plus, the company announced a fresh $25 billion share buyback plan, underscoring Adobe’s unwavering commitment to return capital to its shareholders.
For Q2, management expects total revenue to range between $5.25 billion and $5.30 billion, while non-GAAP EPS is anticipated between $4.35 and $4.40. Analysts tracking Adobe expect the company’s profit to reach $14.55 per share in fiscal 2024, up 13.7% year over year, and grow another 12.8% to $16.41 per share in fiscal 2025.
Adobe stock has a consensus “Moderate Buy” rating. Out of the 31 analysts covering the stock, 22 recommend a “Strong Buy,” one advises a “Moderate Buy,” six suggest “Hold,” and the remaining two give a “Strong Sell” rating.
The average analyst price target for the stock is $626.31, indicating a potential upside of 28.1% from current price levels. However, the Street-high price target of $730 suggests that the stock could rally as much as 49.3%.
Nasdaq-100 Stock #2: ON Semiconductor
Arizona-headquartered ON Semiconductor Corporation (ON) provides integrated semiconductor products with diverse functions like power switching, signal conditioning, circuit protection, amplification, and voltage regulation. With a market cap of around $30.5 billion, ON's innovative power technologies are pivotal in advancing automotive electrification, facilitating lighter electric vehicles (EVs), rapid charging systems, and sustainable energy solutions for solar, industrial power, and storage.
Like Adobe, ON stock has tumbled 15.9% on a YTD basis, compared to the broader market’s single-digit gains during the same period.
Priced at 18.14 times forward earnings, the stock trades at a discount to the semiconductor industry median and its own five-year average.
On April 29, the company’s shares jumped nearly 4.1% after it reported its Q1 earnings results, which edged past Wall Street’s predictions. While its revenue of $1.9 billion marginally beat analysts’ estimates, its non-GAAP EPS of $1.08 topped forecasts by 3.9%.
Moreover, in the past 12 months, ON has allocated nearly 100% of its free cash flow to shareholders through stock buybacks. And with efficiency a crucial component of addressing global energy needs, ON is poised to further enhance its market share through cutting-edge power and sensing technologies.
For Q2, management foresees revenue between $1.7 billion and $1.8 billion, while gross margin is projected to range between 44.1% and 46.1%. Also, non-GAAP EPS is anticipated between $0.86 and $0.98.
Analysts tracking ON expect the company’s profit to reach $3.86 per share in fiscal 2024, and grow 26.2% to $4.87 per share in fiscal 2025.
ON stock has a consensus “Moderate Buy” rating. Out of the 28 analysts offering recommendations for the stock, 16 recommend a “Strong Buy,” one advises a “Moderate Buy,” 10 suggest a “Hold,” and the remaining one analyst gives a “Strong Sell” rating.
The average analyst price target of $83.87 indicates a modest potential upside of 18.7% from the current price levels. However, the Street-high price target of $104 suggests a notable 47.2% upside potential.
Nasdaq-100 Stock #3: Zscaler
San Jose-based Zscaler, Inc. (ZS) is a cloud security company that offers a unique platform worldwide that enables its customers to fully realize the potential of digital transformation. The company’s clientele spans various industries, such as airlines, transportation, consumer goods, financial services, healthcare, manufacturing, technology, and telecommunications. Its market cap currently stands at $26.5 billion.
Shares of Zscaler have plunged 22.8% on a YTD basis.
In terms of valuation, the stock is trading at 16.51 times sales, lower than its own five-year average of 30.22x.
In its fiscal Q2 earnings report released on Feb. 29, Zscaler’s revenue increased 35.5% year over year to $525 million, surpassing Wall Street’s projections by 3.6%. Its adjusted net income per share rose a whopping 105.4% to $0.76, beating analysts' expectations by 31%. Its free cash flow margin reached a record 19% for the quarter.
Zscaler’s customer base has grown to 7,700 and includes 40% of Fortune 500 companies. Further, around 2,820 customers spent at least $100,000 annually on the Zscaler platform, an increase of 21% year over year. The number of customers spending over $1 million or more also grew by 31.5% in Q2.
The company anticipates revenue to range between $534 million and $536 million in Q3, while non-GAAP income from operations is projected to be between $98 million and $100 million. In addition, non-GAAP EPS is expected to range between $0.64 and $0.65.
Zscaler stock has a consensus “Strong Buy” rating overall. Out of the 36 analysts offering recommendations for the stock, 28 recommend a “Strong Buy,” one advises a “Moderate Buy,” and the remaining seven give a “Hold” rating.
The average analyst price target of $254.06 indicates a potential upside of 48.9% from the current price levels, while the Street-high price target of $310 suggests an impressive 81.6% upside potential.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
