The increasing role of artificial intelligence (AI) in boosting corporate profits is not exclusive to Big Tech, according to market experts. Nevertheless, identifying stocks that still offer potential gains at reasonable prices has become a significant challenge amidst the ongoing rally.
The Invesco S&P 500 Equal Weight exchange-traded fund provides a noteworthy example, with gains of just over 7% this year. The high valuations are driven by the expectation of companies harnessing AI to drive future earnings growth. Over the next two years, FactSet forecasts an annual growth rate of approximately 4.3% for the ETF’s aggregate sales, as the economy continues to expand. Additionally, the Federal Reserve’s stance on interest rates further supports this positive trend.
Analysts predict a 10.5% increase in earnings per share (EPS) over the next two years, primarily due to expanding operating profit margins. This growth is anticipated, in part, because firms are expected to limit their rise in operating expenses by leveraging AI to optimize sales opportunities rather than hiring new personnel.
In a bid to identify potential opportunities, strategists at Evercore conducted a comprehensive screening of the Russell 3000 stocks. Their search criteria included stocks trading below their five-year average multiples of 2024 expected EPS, exhibiting anticipated bottom-line growth, making AI references during earnings calls, and having market values exceeding $3 billion.
Among the stocks identified through this screening are prominent names such as JPMorgan Chase, T-Mobile US, Boston Properties, and Emerson Electric. These companies present enticing investment prospects due to their current valuation and growth potential.
Dominos Pizza is yet another stock that stands out in this regard. Its current price-to-earnings ratio of 25 times earnings falls below its five-year average of 28 times. Analysts predict a substantial EPS growth of nearly 9% for the company in 2024, with an anticipated EPS of $15.70.
In conclusion, as investors seek to reap the benefits of AI, bargains can still be found if one knows where to look. By identifying stocks with attractive valuations, growth potential, and a strategic focus on AI integration, investors can position themselves for profitable outcomes in the ever-evolving market landscape.
Expected Sales Growth for Domino’s
Domino’s, one of the leading players in the fast-food industry, is projected to experience a robust sales growth of nearly 7%, reaching a staggering $4.8 billion. This surge in revenue can be attributed to the company’s plans of expanding its store locations. Additionally, same-store sales are expected to witness a slight increase due to the implementation of higher prices.
Embracing Digital Sales and Artificial Intelligence
To bolster its growth initiatives, Domino’s is banking on digital sales. The company uses Uber Eats and its dedicated application to drive customer purchases. Here, the integration of artificial intelligence (AI) assumes paramount importance. During Domino’s October earnings call, it was revealed that AI is leveraged to personalize the user experience on food-ordering apps. By providing tailored experiences to customers, Domino’s aims to foster loyalty and retain a strong customer base. The application of AI also contributes to streamlining operations, leading to enhanced efficiency for the company.
Eaton: Powering Energy-Efficiency with AI
Eaton, a prominent manufacturing company with a market value of $95 billion, specializes in producing energy-efficient solutions for various industries. The stock currently trades at approximately 23 times earnings, slightly below its five-year average. Reliable analysts predict that Eaton’s earnings per share (EPS) will witness an 11% growth rate, amounting to $9.95 by 2024.
Driving Growth through Sales Expansion
The anticipated growth in EPS can be attributed to a combination of factors. Firstly, Eaton expects its sales figures to climb steadily. Moreover, the company’s end markets are likely to experience continuous expansion as customers increasingly adopt AI-powered equipment. This trend presents a tremendous opportunity for Eaton to capitalize on the rising demand for its products.
Streamlined Operations and Reduced Expenses
In preparation for the influx of demand, Eaton is aligning its operations efficiently. Interestingly, the company foresees minimal salary expenses increments. According to Wall Street analysts, general and administrative expenses are projected to decline by several hundred million dollars, reaching $576 million for the next year. This optimization in expenses is set to boost operating profit margins significantly.
In conclusion, both Domino’s and Eaton exhibit promising growth prospects. Through digital sales and AI implementation, Domino’s aims to ensure customer loyalty and optimize operational efficiency. On the other hand, Eaton expects to meet growing market demand by leveraging AI-powered solutions while streamlining its operations and reducing expenses.