Top investment firm TD Cowen has officially announced its 2024 stock picks, which cover consumer staples, large cap tech, and biopharma. Wall Street is quite positive on Cowen’s top recommendations.
Experts predict that e-commerce giant Amazon will continue to dominate the cloud market and see its margins expand, propelling it to the top spot.
Biogen, another struggling biotech, is on the list because, according to Cowen’s forecasts, the company’s new Alzheimer’s and ataxia treatments will propel a growth return.
Constellation Brands, an importer of beer, completes the roster by capitalizing on its position as market leader in the rapidly expanding Mexican import market.
Let’s analyze why each stock stands out as a top pick for the year ahead.
Amazon: Cloud and Cost Cuts Drive Margin Upside
Amazon (NASDAQ: AMZN) plans to increase its profit margin by decreasing costs throughout its e-commerce businesses and capitalizing on its AWS cloud sector, which has a high margin. In 2024, according to Cowen analyst John Blackledge, operating income could reach $58 billion, a 25% rise from consensus projections, thanks to margins that might improve to 9.1%.
The retail division of the e-commerce behemoth has had its profits eroded over the previous two years due to inflation and currency fluctuations. Despite previous losses exceeding $38 billion, Blackledge anticipates that Amazon’s core operations outside of AWS will earn a profit in 2024, with an estimate of approximately $4 billion.
With the majority of customers expected to finish their cloud optimization projects by late 2023, according to Cowen’s own survey data, AWS cloud leadership continues to be a significant tailwind. As a result, next year’s revenue growth can accelerate beyond 30%.
All 42 of the most recent analyst ratings for Amazon shares were Buy, proving that Wall Street agrees with Cowen’s optimistic prediction.
Additionally, at only 2.1 times 2023 sales, shares are trading at the most attractive value in years. Substantial potential may be ahead for Amazon if the company is successful in driving margins higher in the face of stabilizing macro conditions.
Biogen: New Drug Launches Position Biotech for Rebound
Biogen (NASDAQ: BIIB), a struggling major biotech, has seen its sales fall for four years in a row due to problems with its medication pipeline and the controversy surrounding its therapy for Alzheimer’s disease.
The recent releases of Leqembi and Skyclarys are anticipated to propel a return to growth beginning in 2024, according to Cowen analyst Phil Nadeau. So, there is hope, after all.
One of the first novel medicines to address the enormous unmet demand in Alzheimer’s disease, Leqembi was licensed earlier this year.
Although the launch has been sluggish at first, Cowen sees this as a significant indicator that Biogen can sell novel central nervous system medicines. Plus, thanks to being first to market, the company’s model predicts that Leqembi sales would reach blockbuster level, surpassing $1 billion by 2025.
Also, the recently authorized medication Skyclarys is now part of the company’s arsenal thanks to the acquisition of ataxia-focused biotech Reata.
Cowen is hopeful that beginning in 2025, Skyclarys can contribute several hundred million in high-margin sales, which would help rekindle Biogen’s growth engine, even though commercialization is only getting began.
Following a 20% decline in Biogen shares over the previous three months due to negative sentiment, the stock appears to be attractively priced for investors prepared to look beyond short-term volatility.
At just 11x 2023 EPS forecasts, the risk/reward looks intriguing due to the emergence of additional catalysts.
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Constellation Brands: Leveraging Leadership in High-Growth Beer Segment
The Mexican imported beer brands are the gem in the crown of brewing behemoth Constellation Brands‘ diversified portfolio, which includes beer, wine, and spirits.
Amidst the secular trend toward premiumization in the alcohol business, the company’s Modelo and Corona continue to consolidate U.S. market dominance.
According to Vivien Azer, an analyst at Cowen, Constellation is the leading growth story in American beer due to its industry-leading beer margins and effective scaling of high-end Mexican imports.
In the last five years, the Modelo brand family’s dollar share has been steadily rising, with the most recent growth being 160 basis points per month.
Constellation should maintain a strong advantage in momentum due to multiple intersecting factors. Compared to domestic brewers, the importer’s beer offers are heavily preferred by younger consumers who are legally drinking.
The potential market for Mexican style lagers has been increased by positive demographic developments among Hispanics. With the increasing demand for luxury drinks, Constellation appears set to maintain its strong position.
After dividends, Constellation stock still has a positive total return of 8%, even if it has behind the S&P 500 somewhat so far this year.
Constellation has a significant opportunity to leverage on its dominant position in an appealing niche market, as Mexican imports continue to account for less than one-third of the entire U.S. beer market volume.