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Many high-quality S&P 500 shares are effectively off their highs proper now. So there are loads of alternatives for long-term traders like myself.
Right here, I’m going to focus on two S&P shares I consider are value contemplating in the intervening time. I feel that in two years, these two shares are more likely to be buying and selling at a lot greater ranges than they’re at present.
Double-digit positive factors?
Let’s begin with ‘Magnificent 7’ inventory Microsoft (NASDAQ: MSFT). It’s at present buying and selling for round $381, about 19% beneath its all-time excessive of $468.
Whereas this firm is without doubt one of the largest on the planet, it nonetheless has loads of development potential. It’s one of many world’s most dominant gamers in cloud computing, and this business is forecast to develop by greater than 10% a 12 months over the subsequent decade.
Microsoft can also be a number one participant in synthetic intelligence (AI), video gaming, and enterprise productiveness software program. And these industries have loads of development potential too, particularly in AI.
For the 12 months ending 30 June (FY26), analysts anticipate earnings per share (EPS) to be round $14.90, up 14% 12 months on 12 months. Let’s say that the corporate can develop its earnings at 10% a 12 months over the next two years.
That may take EPS to round $18 by FY28. Stick an earnings a number of of 27 on this (roughly the price-to-earnings ratio proper now) and we now have a worth goal of $486.
That equates to a achieve of about 28% from right here. If the inventory was to get there within the subsequent two years, it will translate to a return of about 13% a 12 months (14% when dividends are included) – not unhealthy for a large-cap inventory.
After all, my forecasts right here may very well be manner off the mark. If the worldwide financial system weakens considerably within the subsequent two years, cloud spending might drop sharply and Microsoft’s earnings development might stall.
I’m optimistic concerning the long-term development story although. I simply purchased some extra Microsoft shares for my very own portfolio.
Monumental potential
One other S&P 500 inventory I consider has potential to carry out effectively over the subsequent two years is Palo Alto Networks (NASDAQ: PANW). It’s the biggest participant within the cybersecurity business.
The cybersecurity market appears to be like set for big development within the years forward, and this firm is effectively positioned to learn. Not too long ago, it has been pivoting to a ‘platformisation’ mannequin the place it may possibly supply complete safety to its clients by way of a number of completely different platforms (as an alternative of offering particular person options).
This pivot has slowed development within the brief time period. However in the long term, it ought to help it. At the moment, analysts anticipate income and earnings development of 15% and 14% respectively for the 12 months ending 31 July. If the corporate can proceed to develop at that tempo (and it could not as cybersecurity is a aggressive business and the corporate is up in opposition to the likes of CrowdStrike and Fortinet), its share worth might rise considerably.
It’s value noting that the typical analyst worth goal for Palo Alto Networks is at present $211. That’s about 26% above the present share worth.
That’s the 12-month worth goal nevertheless. If international markets recuperate over the subsequent two years, and the corporate sees robust income and earnings development, the share worth may very well be even greater in 2027.
