Right around this time last year, InvestorPlace analyst Luke Lango made 10 big predictions for the stock market. His boldest included forecasting that 2023 would be one of the best years for stocks in history.
Nine of the 10 predictions came true!
That’s because Luke recognized that the Federal Reserve has an outsized role in how stocks are valued. During the “free money” era of 2020-2022, assets with near-zero values like NFTs and “meme” stocks skyrocketed. Everyone seemed to have cash to spare, and a large chunk went into worthless assets. As the Fed tightened its policy in late 2022, these moonshots came falling back to Earth.
Luke’s 10 predictions were made under the assumption that the Fed would stop tightening in 2023. And he was right.
As we look into 2024, a new era of the stock market will begin: The return to normalcy.
And that means earnings will take center stage.
It’s that simple. Strong firms that generate lots of distributable cash flows will see their values rise this year. And weak ones that burn cash will get punished. That’s what “normal” stock markets look like, and that’s what the writers and analysts at InvestorPlace.com, our free news site, expect for 2024.
There will always be periods of rampant speculation that make people forget this. Dutch tulips in the 1600s could be worth as much as an entire house, and so could NFTs in 2020. But 2024 is shaping up to be a year when the Fed steps back, giving investors the opportunity to take a hard look at their holdings and reward the ones with the strongest outlooks.
Charging Up
Nowhere is this clearer than at solid-state battery developer QuantumScape (NYSE:QS). The 14-year-old startup went public in 2020 and has survived so far thanks to the $1.5 billion it raised during the years of loose monetary policy.
But easy money is coming to an end. As Dana Blankenhorn writes in a recent InvestorPlace.com article, patience is wearing thin for QuantumScape and its rapid cash burn.
The San Jose company said it was close to production last year. Then CEO Jagdeep Singh said improvements would be needed first… But promises won’t work anymore.
The problem is, we’ve heard this all before. QuantumScape burned through $350 million in cash over the last year without delivering a product. Full production could still be years away… If QuantumScape can’t get something into production this year, perhaps it never will. That’s the way science works. Some paths lead to dead ends.
We’re already seeing these effects. This week, options prices of QuantumScape surged as traders placed bets on both sides. Implied volatility – a measure of options pricing – now sits three times higher than it did just a month ago.
Of course, QuantumScape is a tricky investment because no one knows whether the company’s earnings will skyrocket or go nowhere. Blankenhorn gives QuantumScape a 50-50 shot of success, calling it “a speculation, not an investment.”
But other companies have far more predictable outlooks and are much surer bets…
5 A-Rated Stocks to Buy
Louis Navellier, another InvestorPlace analyst, has been perfecting his system since the 1970s, a time when “quant” investing was still mostly a theory. Since then, he’s developed a powerful Portfolio Grader system that many readers will be familiar with. By taking thousands of data points and combining it with years of stock market knowledge, he’s produced a quantitative system that separates promising companies from the duds.
His system is now flagging a handful of high-quality firms with rising earnings momentum and positive revisions. These are some of the most powerful predictors of future stock movements, and investors should expect these companies to do particularly well in 2024.
Our writers at InvestorPlace.com also agree. This week, they highlight many of Louis’ top-ranked stocks to buy.
Amazon (AMZN)
A recent spate of earnings upgrades now puts Amazon (NASDAQ:AMZN) as a solid A-grade stock, up from an F grade as recently as last March.
Not only is the tech giant riding a massive wave of cloud computing demand, but CEO Andy Jassy has refocused the company away from the low-return business of physical stores to the high-return one of generative AI.
That’s put Amazon solidly on Terel Miles’ list of “3 AI Stocks to Make You the Millionaire Next Door”:
The company recently announced a strategic collaboration with generative AI startup, Anthropic. This included an investment of up to $4 billion, leveraging AWS Tranium and Inferentia Chips to build, train, and deploy advanced foundational models… This makes Amazon one of the best millionaire-maker AI stocks to buy for 2024.
Analysts now believe that Amazon will earn $3.61 per share in fiscal 2024, up from initial estimates of $2.40 made last year. The average earnings revision is up 5% in the past 30 days, a highly bullish signal. Though the Fed’s “easy money” years might be behind it, Amazon is making up the difference by focusing on the high-return worlds of cloud computing and AI to drive earnings growth.
AppLovin (APP)
In December, Yiannis Zourmpanos noted for InvestorPlace.com that mobile app software firm AppLovin (NASDAQ:APP) was delivering key support for its value growth:
In Q3 2023, revenue grew by [21% year-over-year], and adjusted EBITDA soared with a significant 63% sequential rise. The growth figures exceeded the company’s high-end guidance, affirming the success of AXON 2, its AI-based advertising technology
Essentially, AppLovin has seen significant demand for its software platform revenue, which has allowed management to reduce spending on marketing its less lucrative in-app services. Analysts now expect AppLovin to deliver $1.60 earnings per share (EPS), a 2X upward revision since the start of 2023.
These improving figures have not escaped Louis’ Portfolio Grader. AppLovin now scores a solid A in his system, up from an F a year ago. Analysts expect to see 31% revenue growth and 267% earnings growth when the Silicon Valley-based firm next reports in mid-February.
Salesforce (CRM)
Salesforce (NYSE:CRM) was upgraded to an A rating in December after a series of earnings revisions. Wall Street analysts now expect the customer relationship management software firm to generate $9.56 EPS in fiscal 2024, a figure that has been steadily revised upward from $7 last year.
Salesforce’s growth has been so strong that Alex Sirois now names Salesforce as one of his top AI stocks ripe to be one of the next Magnificent 7.
“I think there are two primary reasons for investors to consider Salesforce at the moment,” Sirois writes. “First of all, the company is doing well on a fundamental basis. During the most recent quarter, the company’s earnings per share exceeded expectations on revenues that increased by 11.5%. Further, Salesforce has invested in AI and includes services such as Salesforce Einstein and Einstein GPT.”
That’s because Salesforce is a leader in productivity-enhancing AI. Customers can now use Einstein to summarize emails and draft responses. And as artificial intelligence continues to improve, investors can expect Salesforce to become an indispensable tool in empowering its customers to do more.
Trex (TREX)
Luke predicts that 2024 will be a year of a housing rebound. As he writes in Innovation Investor, lower mortgage rates in 2024 could unlock a surge of demand, and housing technology disruptors like Opendoor Technologies (NASDAQ:OPEN) and Zillow Group (NASDAQ:Z) could soar.
Investors looking for a more conservative stock might also consider Trex (NYSE:TREX), a stable firm that has earned positive income in 24 of its 27 years as a public company. (In 2009, the firm lost $8 million.)
Trex has managed to build a lasting competitive advantage by dominating the industry for high-end wood alternatives. The Winchester, Virginia-based firm has contracts with both Lowe’s (NYSE:LOW) and Home Depot (NYSE:HD) and now holds a 50% market share in composites.
A housing recovery now suggests that Trex could surprise even the most bullish of estimates. Last week, Portfolio Grader upgraded the firm from a B to an A on strong earnings growth and accelerating revenue growth. And if the housing market recovers as quickly as Luke expects, even Wall Street’s expectations for an 18% rise in Trex’s EPS will prove too low.
Boston Scientific (BSX)
Finally, Josh Enomoto picks Boston Scientific (NYSE:BSX) this week as a top trailblazer in AI. Despite valuation concerns, Josh says the medical device developer could have a strong 2024 as its image analysis technologies mature:
It’s easily one of the relevant stock picks for 2024 just on its own without getting into the AI component. Analysts assign shares as a consensus strong buy with a $62.76 average price target. The high-side target clocks in at $77.
One of the more exciting arenas for digital intelligence centers on the broader medical field. For BSX specifically, it utilizes AI for medical image analyses. In addition, the company is leveraging the innovation for other functionalities within medtech, thus enhancing patient care. According to one report, the global AI healthcare market could expand at a CAGR of 40.2% to hit $173.55 billion by 2029.
Louis’ grading system also gives Boston Scientific a strong B grade for its earnings growth, positive earnings momentum, and rapid operating margin growth. Analysts believe the Massachusetts-based firm will see earnings per share rise 15% this year, and another 12% in fiscal 2024 – a remarkable achievement for a historically stable grower.
Predicting Earnings
So far, I’ve only talked about BIG PICTURE earnings increases. We know that housing companies will see earnings rise in 2024 as housing demand picks up. And we know that a pivot toward AI productivity tools will benefit Salesforce and other AI-forward firms. These sectors are riding multiyear megatrends.
But what if you could predict earnings to a finer degree? Rather than saying “Salesforce earnings will go up,” what if we knew exactly where these figures would land?
Obviously, this information would be a game-changer. Anyone knowing precise earnings figures could score 10%… 20%… 30% gains in a day during earnings season. And they would know long before earnings day to sell out of a sinking stock.
Fortunately, we now have a tool for this (and it doesn’t involve insider trading). To help you learn more, Louis is hosting an event on Tuesday, January 9, at 8 p.m. Eastern (sign up here), where they’ll reveal a remarkable advance in predictive market power. It’s a $5.4 million AI program that can help you predict earnings with remarkable accuracy and capture gains 30X bigger than average. Reserve your spot for that event by going here.
On the date of publication, Thomas Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.