As we reset our financial compass for another cycle around the sun, it’s an opportune moment for investors to mull over their past decisions and refocus their investment strategies. Those aiming to inject fresh funds into their investment accounts are on the hunt for robust companies poised for success in 2024 and beyond.
Opportunities sometimes unfold right under our noses. At times, overlooked stocks can suddenly materialize as irresistible bargains. Here’s why Netflix (NASDAQ: NFLX), International Business Machines (NYSE: IBM), Brookfield Infrastructure (NYSE: BIPC) (NYSE: BIP), Vertex Pharmaceuticals (NASDAQ: VRTX), and Starbucks (NASDAQ: SBUX) stand out as the five superior stocks to buy this month.
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Netflix: An Enticing Channel for Investors
Demitri Kalogeropoulos (Netflix): Netflix investors enjoyed favorable returns in 2023, but the coming year spells even brighter prospects. The streaming video behemoth is poised to resume double-digit revenue growth in Q4, likely marking a third consecutive quarter of accelerated sales gains.
Netflix is set to reveal its Q4 results on Jan. 23, with most Wall Street analysts anticipating positive news. Management projected an 11% sales uptick to $8.6 billion in mid-October. This figure is expected to be bolstered by an expanding global membership base and a progressive surge in average spending.
Market analysts are optimistic about the burgeoning advertising business, which is poised to evolve into a significant revenue stream over time. This new offering has promptly enhanced Netflix’s pricing competitiveness against its peers. Moreover, with competitors such as Walt Disney raising their membership fees, Netflix, as the industry’s largest player, enjoys a conspicuous advantage with its focus on profitability in 2024.
The evolving financial metrics, such as cash flow and operating profit margin, will be key indicators in late January. Both metrics are on an upward trajectory, with management elevating their short-term forecasts following Netflix’s robust third-quarter report. Shareholders stand to reap escalating returns if the operating profit margin continues its approach to 20% of sales while the company generates ample cash flow in 2024.
IBM: Riding the AI Wave
Anders Bylund (IBM): Artificial intelligence (AI) has been the dominant topic of conversation among investors for over a year now. Many AI experts have witnessed their stock prices soar as investors seek leading investment prospects in this scorching sector.
Surprisingly, IBM has yet to catch the AI train.
Over the past year, IBM’s stock has only appreciated by 14%. This return pales in comparison to AI favorites such as triple-digit gains for Nvidia and doubled returns for C3.ai. More notably, IBM trailed behind broad market indexes, with the tech-laden Nasdaq Composite ascending by 50% and the more generic S&P 500 tracker adding 23% in the same period.
IBM’s stock presents an attractive bargain, carrying a valuation at deep-discount levels of 21 times earnings, 12 times free cash flows, and 2.4 times sales. In contrast, Nvidia and C3.ai have soared to stratospheric valuations. For instance, comparing the three in terms of price-to-sales ratios over the past year reveals IBM as the flat blue line at the bottom.
Why am I irked by IBM’s undervaluation and moderate price gains in the era of AI? The company embarked on a strategic shift more than a decade ago by divesting slow and unprofitable operations to concentrate on key markets, with AI as a primary target sector.
IBM has devoted extensive resources to researching and commercializing AI technologies for decades. Recall the historic moment when IBM’s Deep Blue system defeated the human world champion in chess in 1997. IBM has a long, illustrious track record of groundbreaking AI achievements in the consumer realm.
The AI sector is rife with potential winners, but few offer bargain-bin stock prices and generous dividend policies. IBM boasts both these advantages, coupled with an unparalleled legacy of AI excellence.
As the AI frenzy evolves, I eagerly anticipate seeing IBM’s Watson.AI platform for business-oriented AI services carve a niche for itself. Investing in shares at this modest price level should prove to be a shrewd move in the long run.
Brookfield Infrastructure: A Steadfast Dividend Dynamo
Neha Chamaria (Brookfield Infrastructure): Brookfield Infrastructure possesses a diverse portfolio of infrastructure assets encompassing utilities, transportation (rail and toll roads), midstream energy, and data infrastructure. The common thread connecting them all is their indispensable nature in powering an economy.
Positioning for Success: Top Stock Picks for 2024
A Resilient Bet: Brookfield Infrastructure
Amid economic uncertainties, the stability of Brookfield Infrastructure’s assets offers investors a rare haven. Boasting an income generation of nearly 90%, underpinned by long-term agreements or regulated contracts, the company’s resilience is a standout attribute. Despite a lackluster performance in 2023, the company has displayed robust growth, with funds from operations per unit climbing by 8.5% year over year.
Brookfield Infrastructure’s strategic acquisitions, such as Triton International, have fortified its cash-flow profile, positioning it for a promising 2024. With an annual dividend growth goal of 5% to 9%, shareholders can anticipate a dividend raise of at least 5%. In addition, a high dividend yield of 4.5% further sweetens the deal, especially against the backdrop of anticipated interest rate cuts by the Federal Reserve.
A Bright Outlook: Vertex Pharma
Vertex Pharmaceuticals is poised to continue its impressive performance from 2023 into 2024. The company anticipates positive announcements from six late-stage clinical studies, with a strong focus on a game-changing vanzacaftor triple-drug combo aimed at treating cystic fibrosis. The potential once-daily dosing offers a significant edge over its current leading CF drug, Trikafta, propelling its anticipated success in the market. Moreover, its phase 2 study results for VX-548 in treating painful diabetic peripheral neuropathy are highly promising, setting the stage for the drug’s potential success in acute pain treatment. With an FDA decision on Casgevy for treating transfusion-dependent beta thalassemia looming on the horizon, Vertex’s innovative pipeline positions it for market-beating gains in the upcoming year.
Revitalized Growth Potential: Starbucks
While Starbucks stock has faltered in recent years, fundamental transformations within the company suggest an upturn in its fortunes. Record revenue and earnings in fiscal 2023, coupled with the company’s guidance for significant revenue and earnings growth in fiscal 2024, present a compelling investment case. Starbucks’ shift toward digital engagement, exemplified by its Starbucks app and rewards program, is revolutionizing its growth strategy, driving same-store growth and higher sales per transaction. The wide disparity in rewards members per store between the U.S. and China indicates the potential for continued exponential growth in China, further underscoring Starbucks’ bullish outlook in the long term. Embracing the pickup concept in urban areas, the company’s pivot toward convenience-oriented stores is a strategic masterstroke that sets it apart from the competition.
Starbucks: A Latte Promise for Investors
The Wake-Up Call for Starbucks Investors
Starbucks, touted as a stock that has languished for too long, is expected to soar once the market wakes up to the company’s master plan. Currently offering a 2.5% dividend yield, there could be potential for substantial growth in the stock.
Investing in Netflix: Consider the Alternatives
Prior to buying stock in Netflix, investors might want to consider viable alternatives. The Motley Fool’s Stock Advisor analyst team has identified the 10 best stocks for investors to buy now, and Netflix wasn’t among them. The selected 10 stocks are predicted to yield substantial returns in the coming years. The Stock Advisor service provides investors with a comprehensive blueprint for success, offering guidance on portfolio building and two new stock picks each month. Moreover, the Stock Advisor service has outperformed the S&P 500 threefold since 2002.
*Stock Advisor returns as of December 18, 2023