Barron's 10 Favorite Stocks for 2024
Will Barron's perform in 2024 as in 2022 and 2023?
As 2024 unfolds, Barron's unveils its list of the top 10 stocks set to make waves in the coming year. Thisselection spans various industries. Throughout this article, we dissect the metrics behind each pick, providing investors with a succinct yet comprehensive analysis to guide their navigation. Enjoy!
2022 and 2023 top picks
Let’s see what the list from previous years were.
The list of 2022 included Amazon, AT&T, Berkshire Hathaway, General Motors, Hertz, IBM, Johnson & Johnson, Nordstrom, Shell and Visa. This list returned -1.7% vs -12.1% for the S&P500.
The list of 2023 included Alcoa, Alphabet, Amazon, Bank of America, Berkshire Hathaway, Comcast, Delta Air Lines, Medtronic, Madison Square Garden Sports and Toll Brothers. Currently, as the year comes to an end, the list is returning 29.6% vs 23.8% for the S&P500.
The list itself
Let’s begin with the list itself before digging in
Alibaba BABA 0.00%↑
Alphabet GOOG 0.00%↑
Barrick Gold $ABX
Berkshire Hathaway $BRK.B
BioNTech BNTX 0.00%↑
Chevron CVX 0.00%↑
Hertz HTZ 0.00%↑
MSG Sports MSGS 0.00%↑
Pepisco PEP 0.00%↑
U-Haul UHAL 0.00%↑
Alibaba
Their explanation
Alibaba is one of the cheapest tech-oriented companies in the world. The stock is back where it stood following its 2014 public offering, despite a tenfold rise in revenue and a fivefold increase in earnings.
The metrics
Expected growth: 9.3%
Net profit margin: 13.1%
ROE / ROCE / ROIC: 10.7% / 11.3% / 9.9%
PE24: 10.8x
FCF Yield: 15.0%
Dividend: none
My opinion
If Alibaba is indeed one of the cheapest stock in the industry, some specific risks must be considered especially the regulatory concerns in China. So the risk / reward ratio is maybe not for all the investors.
Alphabet
Their explanation
Alphabet is expected to grow as fast as Microsoft, with earning forecast to be up 15% in 2024. Yet, its stock trades at a discount.
The metrics
Expected growth: 10.1%
Net profit margin: 23.9%
ROE / ROCE / ROIC: 29.1% / 27.7% / 32.3%
PE24: 21.2x
FCF Yield: 5.3%
Dividend: none
My opinion
A great quality stock. The discount however can be justified vs Microsoft by the revenue mix and origin, a third place in the cloud market and delays in AI development. Its is a huge FCF machine though.
Barrick Gold
Their explanation
The company owns some of the world’s best mines, and it is the top gold producer in Africa. It aims to boost its mine output by 30% by end of the decade.
The metrics
Expected growth: 5.1%
Net profit margin: 11.7%
ROE / ROCE / ROIC: 6.4% / 8.3% / 6.2%
PE24: 16.5x
FCF Yield: 5.7%
Dividend: 2.22%
My opinion
The company is definitively not cheap considering the fundamentals. It is a tactical buy if the price of gold increases.
Berkshire Hathaway
Their explanation
After-tax operating profit are up nearly 20% so far in 2023. They could hit $40 billion this year, powered by higher interest income on Berkshire’s $150 billion in cash and strong insurance underwriting results.
The metrics
Expected growth: 7.5%
Net profit margin: 18.4%
ROE / ROCE / ROIC: -
PE24: 21.9x
FCF Yield: -
Dividend: none
My opinion
The stock was already in Barron’s selection in 2022 and 2023. If you like Warren Buffet, you may like the stock. The dependency to Apple’s stock performance is huge especially after a year at +49% for Apple. The huge cash reserve can provide performance in case of market consolidation. But in this case, why buying it right now? Anyway, this can be an interesting long term buy.
BioNTech
Their explanation
BioNTech is expected to remain profitable in 2024, and the company’s oncology-focused pipeline could prove more promising than some investors believe. And it has more than $18 billion in cash - nearly 75% of its current market value
The metrics
Expected growth: -8.1% (they will have to find new revenue sources after COVID)
Net profit margin: 25.1%
ROE / ROCE / ROIC: 3.2% / 4.4% / 3.0%
PE24: 41.9x
FCF Yield: 15.4%
Dividend: none
My opinion
The company is FCF positive and has a huge war chest - $17B for a $22B cap. Buying BioNTech is therefore a reasonable bet if you like biotechnology companies. If they manage to develop new drugs using their technology, this can be huge - and it is not fully priced in. But, this kind of bet should be done by specialists of the sector. If you are not, this can be seen like gambling!
Chevron
Their explanation
The stock looks inexpensive, trading at 10.7x projected 2024 earnings and yields 4.2% based on the company’s plan to boost its dividend by 8% in January.
The metrics
Expected growth: -7.7% (2022 was a good year)
Net profit margin: 12.7%
ROE / ROCE / ROIC: 16.1% / 15.6% / 9.3%
PE24: 11.2x
FCF Yield: 8.1%
Dividend: 3.99%
My opinion
A good choice if you like big energy stocks. Stock performance of this kind of companies is very linked to crude oil price.
Hertz
Their explanation
Hertz trades cheaply at 8.6x projected 2024 earnings, while its market value of $3.1 billion is less than half of the somewhat larger Avis.
The metrics
Expected growth: 5.4%
Net profit margin: 10.1%
ROE / ROCE / ROIC: 22.6% / 13.4% / 9.1%
PE24: 9.4x
FCF Yield: -13.3%
Dividend: none
My opinion
Yes Hertz is cheap but has a negative FCF and debt is really high $15 billion or 15x EBIDTA. Surely the worst stock in this list as at the moment, risks are ultra high. Maybe they have insider information, but looking at the metrics, it seems dangerous.
MSG Sports
Their explanation
According to Sportico estimates, the Knicks and Rangers are worth $7.4 billion and $2.45 billion respectively. But the company’s current value is just $4.2 billion + $300 million of debt.
The metrics
Expected growth: 3.1%
Net profit margin: 4.8%
ROIC: -2.1%
PE24: 87.2x
FCF Yield: 1.2%
Dividend: none
My opinion
It is cheap looking at assets (based on a Sportico estimates), but not cheap looking at results and growth.
Pepsico
Their explanation
Though named for a soft drink, Pepsi has a best-in-class snack-food franchise in Frito-Lay, which generates more than half of the company’s profits. It rarely pays to bet against the American eater
The metrics
Expected growth: 5.4%
Net profit margin: 11.1%
ROE / ROCE / ROIC: 67.8% / 24.4% / 16.3%
PE24: 20.9x
FCF Yield: 3.4%
Dividend: 2.95%
My opinion
Very nice quality consumer staples company. This is a slow long-term compounder that can fit in any long-term porfolio
U-Haul
Their explanation
Given U-Haul’s dominant position in the do-it-yourself moving business, the nonvoting stock looks inexpensive. Even with earnings expected to slip, shares are valued at about 14.1x earnings, while the long-term outlook looks strong.
The metrics
Expected growth: -2.7%
Net profit margin: 15.7%
ROE / ROCE / ROIC: 15.8% / 9.8% / 7.4%
PE24: 18.7x
FCF Yield: 3.8%
Dividend: none
My opinion
Not as inexpensive as they say, but not the worst. I don’t see a catalyst in 2024.
Overview on the picks for 2024
I have to say, I am not a fan of this list. A lot of value stocks - they are probably betting on value stocks as the FED rate might fall. But most of these value stocks are complete bets.
They did good picks for 2022 and 2023. Time will tell if this is the same for 2024. On my side, the two stocks I am interested in are Alphabet and Pepsico.