Buy the biggest winners of 2023
Do gains lead to more gains? In 2023, several of the so-called “Magnificent Seven” tech names captured Wall Street’s attention and continued to climb higher.
But while technology and artificial intelligence (AI) were certainly the dominant themes, 2023 wasn’t all about the Magnificent Seven. Believe it or not, some of the biggest winners in the large-cap sector this year weren’t technology companies.
So, with a little research, you can discover surprising diversity among the top large-cap gainers for 2023. Of course, if you use traditional metrics like trailing price-to-earnings (P/E), you may not find strong value in these stock picks. and price-to-sales (P/S) ratio.
At the same time, some companies with solid growth and/or ongoing turnaround stories may have strong value propositions. So if last year’s best-performing stocks can show follow-up in 2024, these big winners may be worth owning in the coming quarters.
NVIDIA (NASDAQ:NVDA)
It’s little wonder that NVIDIA stock outperformed all popular large-cap stocks in 2023. Amazingly, NVDA stock soared 239% in just 12 months.
In fact, the stock price tripled, not doubled. This is even more surprising considering that NVIDIA stock was cut in half in 2022.
Few people predicted that generative AI would be a top motif in 2023. Many companies offer generative AI applications, such as OpenAI with its ChatGPT program.
But NVIDIA stock was the perfect choice because its processors and accelerators were ideal for managing power-intensive generative AI applications. So now that NVIDIA’s GAAP-measured 12-month P/E ratio has risen to 65, is it too late to jump on the 2024 bandwagon?
This is not necessarily the case, as the demand for generative AI hardware has not died out. If you want to ride the trend until the end, NVDA stock is an expensive proposition, but it offers undeniable momentum, so owning a few shares probably isn’t the worst idea in the world.
Meta Platform (NASDAQ:META)
CEO Mark Zuckerberg’s efforts to generate massive revenue from virtual reality (VR) hardware and metaverse apps aren’t happening in 2023. However, Meta Platforms still generated significant revenue as its Facebook, Instagram, WhatsApp, Reels, and Threads apps maintained significant scale. User base all year round.
As it turns out, META stock is down 64% in 2022 but up 194% in 2023. So, despite the failure of his Metaverse investments so far, it could be said that Zuckerberg is having the last laugh.
Meta Platforms’ trailing 12-month P/E ratio is around 31, which is clearly higher than the median P/E ratio for its sector of 17. But before you give up on shares of Meta Platforms based on its valuation, consider its dominance in social media.
One study found that Instagram outperformed TikTok based on views of branded video content. The study also found that Reels videos longer than 90 seconds had “twice the median number of views for videos on TikTok.”
This is actionable data for advertisers and investors alike. If Meta Platform can avoid excessive capital outflows for Zuckerberg’s metaverse dream, META stock could deliver another year of outsized returns.
Royal Caribbean Cruises (NYSE:RCL)
Here is a club that is far from the Magnificent Seven club. However, Royal Caribbean Cruises stock quietly returned 162% to shareholders in 2023.
Of course, this is more of a comeback story than a market darling like NVIDIA. Smooth sailing for RCL stock in 2024 is not guaranteed, but a small stock position may be warranted for risk-tolerant traders.
With the COVID-19 crisis largely in the rearview mirror and the Federal Reserve very likely to implement a rate cut this year, the stage could be set for Royal Caribbean Cruises to hit the road at full speed. Additionally, Royal Caribbean Cruises’ financials aren’t bad, as it posted profitable EPS beats in the second and third quarters of 2023.
So while Royal Caribbean Cruises stock is an odd pick, it’s not a completely irrational stock. America’s “shop ’til you drop” trend despite high inflation is likely to continue into the new year, with Royal Caribbean Cruises set to continue sailing for the next 12 months.
Builders First Source (NYSE:BLDR)
My final “momo” (momentum) follow-up pick for 2024 is a name you’ve never heard of before: Builders FirstSource. In summary, the company supplies building and construction materials and specializes primarily in wood-related products.
BLDR stock price rose 157% last year, despite little reporting on this in the financial press. Nonetheless, Builders FirstSource appears to offer decent value, as its trailing P/E ratio is around 14.
The company’s quarterly EPS performance has been stellar, and it is currently favored by analysts at Wedbush, Barclays (NYSE:BCS), and Deutsche Bank (NYSE:DB). In particular, Deutsche Bank analyst Joe Ahlersmeyer said BLDR stock is the best way for investors to gain exposure to the U.S. homebuilding market.
Ahlersmeyer’s $200 price target for Builders FirstSource stock doesn’t seem unreasonable, but it depends on several factors. Some key considerations include whether homebuilding will be resilient in 2024 and whether the Federal Reserve will cut interest rates as expected to create a favorable homebuilding environment.
If you think the answer to these questions is yes, you might want to try a decent-sized stock position in Builders FirstSource. If you’ve already purchased the aforementioned tech stocks, NVIDIA and Meta Platform, you can add an element of diversification to your portfolio. You could then round out your holdings with Royal Caribbean Cruises stock to get a four-pack of promising companies for 2024.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
