Just months after setting a 2024 target for the S&P 500 Index, Goldman Sachs Group strategists have boosted their forecast for a second time, reflecting Wall Street’s optimistic outlook for earnings. “Increased profit estimates are the driver of the revision,” a team led by David Kostin wrote in a note to clients last week. The 12-month forward earnings expectations are at a record high for the US stock index after forecasts bottomed out a year ago. Kostin now sees the S&P 500 gaining to 5,200 by the end of this year, implying a 3.9% rise from Friday’s close, raising his forecast from the 5,100 level he predicted in mid-December. Goldman’s 5,200 price target for the S&P 500 in 2024 is now among the highest on Wall Street, joining the ranks of bulls including Tom Lee of Fundstrat Global Advisors and Oppenheimer Asset Management chief strategist John Stoltzfus, who both hold a similar year-end outlook. Wall Street peers like those at Bank of America have signaled their willingness to potentially raise their year-end targets as well on the idea that investors aren’t optimistic enough. The median S&P 500 target by nearly a dozen equity strategists tracked by Bloomberg currently sits at 4,950 through mid-January. Even Morgan Stanley’s Michael Wilson — among the most prominent bearish voices on Wall Street — is now expecting gains in the US equity market to broaden into less loved corners than the big tech companies that have dominated the rally so far. His 2024 target remains 4,500, implying a roughly 10% drop.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Alphabet (GOOG-US) The stock has underperformed on a YTD basis given GOOG’s recent missteps in launching its Gen AI product while competitors like MSFT and META are gaining traction and appear to be on the right path. Despite these issues, GOOG posted strong Q4/23 results. Nevertheless, the stock trades at a forward P/E multiple of 17.5x, a discount to its historical long-term average of 21x, largely reflecting uncertainties around growth and positioning of search in a Gen AI environment. While we believe GOOG is facing some headwinds in the near term, we will continue to own the stock as we expect the company to get back on track and close the gap with its peers. Owned in Core and US Portfolios.

(-) Apple (AAPL) stock price is down over 10% from the start of the year underperforming the S&P 500 due to several reasons. These include slowing iPhone sales in China, the $2 billion fine levied by the European Commission regarding its App Store rules for music-streaming providers, a possible ruling against GOOG being the default search engine in the Safari browser, disappointing forecasts for the March quarter, and lastly a lack of clarity about the company’s AI strategy. I suspect these issues are largely reflected in the stock price with the forward P/E multiple compressing to 24x currently vs. 27x at the start of the year. The current headwinds facing the company are mostly transitory in our estimation, and we would continue to own the stock and be buyers for long-term-oriented investors. We expect AAPL to articulate its AI strategy in June, which could provide a boost to the company’s services business and possibly also help sales for the next iPhone upgrade cycle. Owned in Core, ESG+, Cash Flow and US Portfolios.

(+) Constellation Software (CSU-T) Yet another strong quarter from CSU with EBITDA and margins coming in ahead of consensus expectations. Organic growth was 4% Y/Y, in line with RBCCM and above its 2.4% 10-year average growth. Aiding in organic growth was the performance of Altera, which saw organic growth of 4% vs -6% last quarter. RBCCM notes that Altera is another example of CSU’s ability to stabilize struggling software businesses. CSU deployed $442mm in capital on acquisitions this quarter and has entered into agreements to deploy another $654mm in Q1 to date. The pace of deployment continues to be very strong, so much so, RBCCM took up their 2024 and 2025 capital deployment estimates up by 14% and 25%, respectively. On the back of the solid quarter RBCCM took its target price up by 10%, while Veritas increased its intrinsic value by 24%. CSU continues to prove it is the capital compounding machine we have always believed it to be and why it deserves to be a core holding in total return portfolios. Owned in Core Portfolio.

(-) Costco Wholesale Corporation (COST-US) reported a mixed FQ2/24 quarter with a revenue miss and EPS beat. The share price is up over 60% over the past 52 weeks, outperforming the S&P 500 owing to the special dividend, high membership-renewal rates, and steady sales growth. As a result, the stock trades at a forward P/E multiple of 45x, a premium to its historical long-term average of 30x. Furthermore, the fact that COST did not announce a much-anticipated membership fee hike was a disappointment. Owned in Core, ESG+ and US Portfolios.

(+) CrowdStrike (CRWD-US) The security software company forecast another year of sharp revenue growth and posted fourth-quarter earnings that beat analysts' estimates. CrowdStrike stock soared on the news. Owned on Opportunity Portfolio.

(+) Deckers Outdoor (DECK-US) Shares jumped after news that they will be added to the benchmark S&P500 as part of the latest quarterly rebalancing. Super Micro will replace home appliances maker Whirlpool and Deckers will take the place of regional bank Zions Bancorp. It operates through the following segments: UGG Brand, HOKA Brand, Teva Brand, Sanuk Brand, Other Brands, and Direct-to-Consumer. Owned in US Portfolio.

(+) Palantir (PLTR-US) announced that the Army Contracting Command - Aberdeen Proving Ground (ACC-APG) has awarded Palantir USG a prime agreement for the development and delivery of the Tactical Intelligence Targeting Access Node (TITAN) ground station system, the Army's next-generation deep-sensing capability. The agreement, valued at $178.4M, covers the development of 10 TITAN prototypes, including five Advanced and five Basic variants, as well as the integration of new technologies and the transition to fielding. Shares rallied on the news. Owned in Opportunity Portfolio.

(+) Super Micro Computer (SMCI-US) Shares surged this week after the artificial intelligence server maker was selected late Friday to join the S&P 500 later in March. The gains push its year-to-date ascent to almost 300% and its 12-month increase to nearly 1,050%, amid booming interest in stocks that benefit from AI adoption. We trimmed shares on the news. Owned in Opportunity Portfolio.

Weekend Reading

The mystery of the garage Garages play an outsized role in any history of innovation. Steve Jobs and Wozniak started Apple in Jobs’ parents’ garage in Los Altos, California. Jeff Bezos started Amazon out of his Bellevue, Washington garage, selling books online. Larry Page and Sergey Brin started Google, about a decade after Apple, in Susan Wojcicki’s garage in Menlo Park, California. This isn’t a modern phenomenon. Hewlett Packard, one of the original garage startups, was founded in 1939, and started by making an audio oscillator. STRANGE LOOP CANON

Why small developers are getting squeezed out of the housing market The cities of our dreams were not built by institutions, but by industrious, proud, maverick developers who came in all shapes and sizes. Neighborhoods felt neighborhoodly because the mom and pops who built and owned the buildings lived close by. NOAH OPINION

How To Get Started With ChatGPT This is the newest, biggest thing that will make your life easier. WRONG TREE

Aggregator’s AI Risk The Internet was not just the final state of the printing press world, but in fact the start of a new order. STRATECHERY

Using Machine Learning Models to Uncover Historical US Recession Risk Given investors’ question throughout last year of whether the US would achieve a soft landing, FactSet used machine learning to analyze the risk on a historical basis. FACTSET

The positive auction In 2023, Seth Godin developed a new idea that transforms an old way of doing commerce. In an efficient auction, the price paid will represent the highest utility among the bidders, with no one feeling remorse–including the seller–because the “market has spoken.” SETH GODIN

RBC plans cost cutting to turn around struggling City National Bank Royal Bank of Canada is rejigging its strategy in the United States after a year of underperformance at Los Angeles-based City National Bank. GLOBE & MAIL

Coffee Controversy 'Just tell the honest truth!': Ramit Sethi slams Kevin O'Leary for repeating the tired trope of creating wealth by skipping coffee, says 'frugality' isn't the key to riches. YAHOO

Life sciences M&A shows new signs of life Having peaked in 2021 and plummeted as the pandemic ended, deal value revived in 2023, with pharma companies pursuing growth and medtech companies chasing profitability. These trends promise to continue in 2024. MCKINSEY

Who Is ‘Mr 100’, the Mysterious Bitcoin Whale That Now Holds $3 Billion? A shadowy figure has amassed 54,164 BTC, stirring curiosity in the crypto community as the market heats up. DECRYPT

JP Morgan Guide to Retirement 2024 JP MORGAN

Nuclear getting the push it needs The nuclear industry is experiencing a rebirth amid the global energy transition, a time of economic and energy security uncertainty and a generational shift of preferences. However, medium-term challenges still persist as the industry navigates significant capital costs and construction difficulties. We highlight some opportunities for exposure in this space. THE NEWTON GROUP