Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much higher over the next two years.

Edward Sheldon, CFA ❯

Based in London, Edward is a CFA-qualified investment analyst/writer who has clients all over the world. Before launching his own investment writing business in 2017, he spent 15 years working in private wealth management and institutional asset management. Edward takes an active approach to investing, managing his own individual stock portfolio. He likes to invest in high-quality companies that are poised to benefit from powerful long-term trends, and capable of generating market-beating returns. You can find more of his views, along with his portfolio holdings, at topshelfinvestments.substack.com

Published 13 April, 8:19 am BST

| More on: MSFTPANW

Many high-quality S&P 500 stocks are well off their highs right now. So there are a lot of opportunities for long-term investors like myself.

Here, I’m going to highlight two S&P stocks I believe are worth considering at the moment. I think that in two years, these two stocks are likely to be trading at much higher levels than they are today.

Double-digit gains?

Let’s start with ‘Magnificent 7’ stock Microsoft (NASDAQ: MSFT). It’s currently trading for around $381, about 19% below its all-time high of $468.

While this company is one of the largest in the world, it still has plenty of growth potential. It’s one of the world’s most dominant players in cloud computing, and this industry is forecast to grow by more than 10% a year over the next decade.

Microsoft is also a leading player in artificial intelligence (AI), video gaming, and business productivity software. And these industries have a lot of growth potential too, especially in AI.

For the year ending 30 June (FY26), analysts expect earnings per share (EPS) to be around $14.90, up 14% year on year. Let’s say that the company can grow its earnings at 10% a year over the following two years.

That would take EPS to around $18 by FY28. Stick an earnings multiple of 27 on this (roughly the price-to-earnings ratio right now) and we have a price target of $486.

That equates to a gain of about 28% from here. If the stock was to get there in the next two years, it would translate to a return of about 13% a year (14% when dividends are included) – not bad for a large-cap stock.

Of course, my forecasts here could be way off the mark. If the global economy weakens significantly in the next two years, cloud spending could drop sharply and Microsoft’s earnings growth could stall.

I’m optimistic about the long-term growth story though. I just bought some more Microsoft shares for my own portfolio.

Enormous potential

Another S&P 500 stock I believe has potential to perform well over the next two years is Palo Alto Networks (NASDAQ: PANW). It’s the largest player in the cybersecurity industry.

The cybersecurity market looks set for huge growth in the years ahead, and this company is well positioned to benefit. Recently, it has been pivoting to a ‘platformisation’ model where it can offer comprehensive protection to its customers via several different platforms (instead of providing individual solutions).

This pivot has slowed growth in the short term. But in the long run, it should support it. Currently, analysts expect revenue and earnings growth of 15% and 14% respectively for the year ending 31 July. If the company can continue to grow at that pace (and it may not as cybersecurity is a competitive industry and the company is up against the likes of CrowdStrike and Fortinet), its share price could rise significantly.

It’s worth noting that the average analyst price target for Palo Alto Networks is currently $211. That’s about 26% above the current share price.

That’s the 12-month price target however. If global markets recover over the next two years, and the company sees strong revenue and earnings growth, the share price could be even higher in 2027.