The general consensus was anticipation of a recession in 2023 and that equity markets would struggle as bonds rallied. Picking the best stocks to start the New Year can take time and effort, especially when analysts are divided about the outlook. At the start of 2023, our top selections experienced some turbulence. However, as the year progressed and investors gravitated towards stocks with solid fundamentals, the returns from these stocks were quite rewarding.
My Top 10 picks for 2023 crushed performance of the S&P 500
In 2024, many investors expect inflation data and economic demand to soften, potentially heightening recession fears. Despite conflicting outlooks for 2024, I believe a sound investment strategy offers the potential for continued gains. For investors optimistic about the future, should we enter a contractionary period filled with market turmoil, consider identifying high-quality stocks with strong fundamentals based on valuation, growth, profitability, momentum, and EPS Revisions.
My Top 10 picks for 2024 have also been outperforming the S&P 500 in 2023
On November 1st, the Fed signaled a likely end to its hiking cycle, prompting a rally with the major indexes up double-digits. Through the last trading day of the year, my Top 10 Stocks for 2023 crushed performance of the S&P 500, +66.86% vs. the S&P 500 +24.2%. So, to kick off the new year, I have ten fresh stock picks for 2024.
Will there be a recession in 2024?
The U.S. economy was resilient throughout 2023 and avoided a technical recession. Stable labor markets and the Fed pausing rate hikes have created some optimism for the new year as the markets experienced a turnaround from the crushing blows of 2022. While some analysts anticipate a softer landing, inflation, elevated interest rates, slowing GDP growth, and potential economic and cyclical shifts in the first half of 2024 pose risks that could result in a recession.
Mortgage, credit card, and auto loan delinquency rates have risen. The 10-year and two-year Treasury yield curve has continued to be inverted since 2022, a historically strong recession indicator, as Fed projections indicate that growth will slow down to 1.4% in 2024. Although U.S. GDP grew 5.2% in Q3 amid rising inflation and interest rates, it remains to be seen if 2024 will avoid a recession. The key is focusing on stocks best equipped to withstand market volatility. Quant Strong Buy-rated stocks in varied sectors and industries offer diversification that can help minimize risk, maximize returns, and weather unexpected volatility in the coming New Year.
A Rotation Out Of the Magnificent 7?
During 2023, seven stocks, known as the Magnificent 7, drove the performance of the S&P 500. Among the most prominent technological names, the Magnificent 7 are the largest market cap stocks in the S&P 500. Driven by high-end software and hardware, cloud computing, a reversion from poor stock performance in 2022, and the AI boom, these seven megatech names led the charge in 2023.
In 2022, the performance narrative for the Magnificent 7 was completely different from the performance that transpired in 2023. Post-pandemic, these stocks experienced a sharp sell-off. Investors, fearing a severe recession, liquidated significant positions to generate cash. However, in 2023, with clearer insights into inflation and unfolding global conflicts, and following a year with $12 trillion in wealth wiped out and Big Tech accounting for over $4 trillion in market cap losses, investors sought safety, leading to increased inflows into mega tech stocks.
The Magnificent seven appear highly overvalued compared to the total index
Looking at the trailing and forward P/E value of the Magnificent 7 compared to the rest of the market, I view these Big Tech constituents as highly overvalued. The overvalued state for the largest market cap stocks bodes well for a potential rotation, as investors typically seek stocks with solid growth and fair valuations in a declining rate environment. A rotation into fundamentally strong stocks with strong momentum is why Seeking Alpha’s Quant system has identified ten stocks for 2024.
Top Consumer Discretionary Stocks
The consumer discretionary sector offers an array of industries, so using top Quant picks, I’ve selected four stocks ranking among the top in their industry. The consumer discretionary sector’s (XLY) performance for 2023 was strong despite some economic slowing and inflation prompting many consumers to budget. In 2023, XLY was a top-performing sector, +39% behind Tech (XLK), +55%, and Communications (XLC) sectors, +52% for the year. Although periods of downturn and recession can negatively impact stocks, the much-anticipated recession of 2023 was averted. With economists’ outlook for 2024 mixed and recession fears back on the table, I screened for 10 top Quant-rated stocks, and the picks below may offer upside opportunities for the new year.
1. Abercrombie & Fitch Co. (ANF)
Market Capitalization: $4.54B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 1 out of 533
Quant Industry Ranking (as of 12/29/23): 1 out of 41
Record sales, a strong management team, and rebranding have led the turnaround for all-American retailer Abercrombie & Fitch Co. (ANF). Rallying +293% over the last year, ANF has consecutively crushed earnings, delivering top-line total net sales of $935M in Q2, up 16% from last year, and Q3 net sales of $1.06, up 20%. Meeting the needs of its customers through digital transformation and embracing the online and e-commerce experience, ANF is showcasing the company's ability to accelerate sales growth and profitability.
ANF Stock is focused on growth for the future
Abercrombie’s Q3 EPS of $1.83 beat by $0.65, and it continues to expand margins. In addition to its brand diversification and international footprint, ANF’s Quant ratings are exceptional, so much so that it was introduced to the Alpha Picks portfolio on October 2, 2023, and has returned +55% and doubled its market cap. Despite its run-up, the stock continues to trade at a discount, highlighted by a forward P/E ratio of 15.87x versus the sector median of 17.88x. Abercrombie’s trailing PEG ratio is a -92.88% difference to the sector, and increasing free cash flow, a strong balance sheet, and positive momentum into 2024 are a few of the many factors into why Abercrombie & Fitch is currently the top-ranked stock in its sector and industry.
2. Modine Manufacturing Company (MOD)
Market Capitalization: $3.17B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 5 out of 533
Quant Industry Ranking (as of 12/29/23): 1 out of 35
Modine Manufacturing (MOD)’s legacy as a top player in auto parts and equipment and capitalizing on heating, ventilation, and air conditioning (HVAC) features are significant drivers of their business. Leveraging tech advancements and improvised energy efficiency to aid the rising awareness and sustainability contributes to why MOD is currently #1 Quant-ranked in its industry.
MOD Stock consecutively beats earnings
Although EVs have lost some of their buzz, MOD has benefitted from the electric vehicle trend and possesses one of the largest markets in the U.S. and Europe. Offering commercial electric vehicle parts, refrigeration, and original equipment manufacturer (OEM) parts, MOD’s investment in developing EV-focused segments has aided its expanding margins and stock price. MOD is +195% over the last year and surged past earnings expectations with Q3 EPS of $0.89 beating by $0.23, and revenue of $620.50M beating by $4.33M. Adjusted EBITDA of $81.2 saw an increase of 59% from the previous year, and the EBITDA margin was +13.1% from Q3 of 2022. These results prompted four analysts to revise estimates up over the last 90 days for an A+ Revisions Grade. Although the stock is trading near its 52-week high and comes at a relative premium given its D+ Valuation grade, MOD’s trailing P/E ratio of 15.68x is a 14% difference to the sector, and its’ trailing PEG of 0.23x versus the sector’s 0.56x is more than a 58% difference. With bullish momentum, tremendous growth, and profitability, consider MOD for a portfolio, although some prudence is needed if entering at the current price point.
3. M/I Homes, Inc. (MHO)
Market Capitalization: $3.87B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 4 out of 533
Quant Industry Ranking (as of 12/29/23): 1 out of 23
Despite volatility in a rapidly changing real estate market as many homebuilders experience declines, M/I Homes, Inc. (MHO) has soared. Engaging in the construction and sale of single-family homes in the U.S., MHO has rallied +198% over the last year and is trading near its 52-week high of $140.73. Despite the stock’s surge, MHO’s B+ Valuation Grade highlights its discounted price, and when you couple it with the inventory shortages and demand for housing, buying MHO at its current level can be very attractive.
MHO stock trades at an attractive discount
MHO’s forward P/E ratio of 7.93x and forward EV/EBIT trade more than a -55% difference to the sector. Through innovation and demographic trends, MHO has capitalized by creating a Smart Series affordable home that appeals to Millennials and has an average selling price of $481,000. This price point has generated higher margins and better return on investment for MHO while attempting to solve the home affordability problem. Boasting record revenues, MHO’s third quarter generated $1.05B, a 3% increase, and EPS of $4.82, beat by $0.55. In a strong financial position, MHO maintains a backlog of inventory, continues to write new contracts, and is buying back shares of its stock. Highlighted by President & CEO Robert Schottenstein, MHO logged “one of the best [quarters] in company history, highlighted by record revenue, record income, a 50% increase in new contracts, and very strong margins and returns.” Embracing technology, innovation, and looking toward the future, MHO is not the only quant Strong Buy-rated stock on cloud nine.
4. GigaCloud Technology Inc. (GCT)
Market Capitalization: $737.32M
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 1 out of 533
Quant Industry Ranking (as of 12/29/23): 1 out of 6
GigaCloud Technology Inc. (GCT), a leading business-to-business market provider, combines technology and years of marketplace industry experience to connect manufacturers (primarily in Asia) with resellers worldwide. Delivering large parcels and e-commerce around the world, according to Nasdaq.com, GCT is one of the best stocks to buy now in terms of quality, with the highest return on capital.
GigaCloud Technology has exceptional Quant Ratings & Factor Grades
Factor Grades rate investment characteristics on a sector-relative basis, and GCT showcases some of the best. In addition to SA’s Quant Ratings, Wall Street and Seeking Alpha Analysts agree that GCT is a buy. Q3 adjusted EBITDA saw a 150% increase, marking the third consecutive quarter of record profitability. GCT has fueled its growth to meet consumer demands through strategic partnerships, acquisitions, and product diversification. Completing its acquisition of Noble House for $85M in cash, GigaCloud will add over 8,000 SKUs and a strong supply chain system to add depth to its already diverse product offerings and business. GigaCloud’s Q3 EPS of $0.59 beat by $0.24, and revenue of $178.17M beat by nearly 40% year-over-year. Building on its current fulfillment and logistics capabilities, Gigacloud is up 226% over the last year. At an extreme discount, GCT’s trailing PEG is a 99% difference from the sector, and a forward P/E of 9.16x versus the sector’s 17.88x indicates the stock is ripe for addition to a portfolio. Consider this discounted stock ready for growth, along with my next picks, an energy and industrial stock.
5. Dorian LPG Ltd. (LPG)
Market Capitalization: $1.80B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 1 out of 234
Quant Industry Ranking (as of 12/29/23): 1 out of 55
One of the top-performing energy stocks of 2023, Dorian LPG Ltd. (LPG), together with its subsidiaries, owns and operates 25 Very Large Gas Carriers ((VLGCs)), used for oil and gas storage and transportation. Despite geopolitical and trade tensions around the globe, Dorian’s modern fleet, tech-advanced vessels, and focus on environmental regulations and energy transition have helped LPG grow.
Despite missing Q2 earnings, analysts are revising estimates up as global seaborne volumes have seen increases, and overarchingly, Dorian experienced a strong quarter with record EBITDA, allowing the Board to declare another $1 per share dividend.
“The strength of our balance sheet with net debt to total capitalization of about 30% and attractive financing conditions enabled us to return about $650 million to shareholders since our IPO while also pursuing a conservative fleet renewal policy and continuing to invest in fleet operational efficiencies and decarbonization initiatives,” said John Hadjipateras, Dorian President & CEO.
Dorian has a solid outlook, possessing a strong free cash flow balance and capitalizing on its second-best TCE utilization of 96.5%, which yielded an adjusted $62,818. LPG trades at a discount, highlighted by a B overall Valuation Grade and some “game-changing” factors.
LPG Stock trades at an attractive valuation
Jefferies increased its price target from $37 to $50 and upgraded the stock from Hold to Buy, citing that the latest Panama Canal restrictions could change the outlook for spot and charter rates, with LPG benefitting from a “game-changer in an already tight VLGC market."
6. Rolls-Royce Holdings, plc (OTCPK:RYCEY)
Market Capitalization: $31.74B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 6 out of 657
Quant Industry Ranking (as of 12/29/23): 1 out of 59
Major conflicts in 2023 prompted investors to seek safe haven, and as they continue into 2024 along with talks of recession, defensive stocks were among some of the top gainers in Q4 of 2023.
In November, I wrote about Rolls-Royce Holdings plc (OTCPK:RYCEY) in an article titled Top Defensive Stocks for Turbulent Times. RYCEY is versatile and offers innovation as an operator of industrial technology. This former parent company of luxury car manufacturer Rolls-Royce is an aero-engine manufacturer that operates four segments: Civil Aerospace, Defense, Power Systems, and New Markets. RYCEY’s fundamentals and a legacy of products and services since 1884 have enabled it to thrive despite the turbulent times.
Rolls-Royce Rallies High
Rolls-Royce’s trailing P/E GAAP ratio is 15.16x compared to the sector median’s 23.32x, and its forward PEG ratio is more than a 73% difference to the sector despite the stock trading near its 52-week high.
Up 227% to end the year, RYCEY hit a four-year high, forecasting a return on capital of 18%. CEO Tufan Erginbilgic said during a conference call, “We’re looking to recreate a new Rolls-Royce which is high performing, competitive, resilient, and a growing company. We’ll unlock our full potential as we translate engineering excellence into strong financial performance.”
Defense is RYCEY’s second-largest segment, with consistent government and defense contracts revenue. Increasing orders, margin improvements led by civil and defense, and strong financials have resulted in the Defense division being up 87% for the first half of the year, with 1.4x book to bill and a tremendous order backlog to support the company’s future growth.
Defend your portfolio with Rolls-Royce in the new year, which offers a defensive investment amid global turbulence.
Top Financial Stock
Notwithstanding the 2023 banking crisis, financials tend to benefit most from elevated rates and high inflation, so I’ve selected a top financial for 2024.
7. Intesa Sanpaolo S.p.A. (OTCPK:ISNPY)
Market Capitalization: $53.34B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 4 out of 695
Quant Industry Ranking (as of 12/29/23): 1 out of 67
One of the largest Eurozone banking groups, Intesa Sanpaolo (OTCPK:ISNPY), is an Italy-based financial company offering various financial products and services through six segments, including wealth management and insurance. Currently, ISNPY is Quant-Ranked the #1 Diversified Bank Stock in its industry and is trading at a steep discount, showcased by its A+ Valuation Grade, which includes a PEG ratio that’s an 85% difference to the sector.
Although the stock has experienced some volatility, its fundamentals are excellent, and overall performance has maintained its Strong Buy Quant rating for most of 2023, going into 2024. ISNPY is +30% through year-end with solid momentum and crushed Q3 earnings.
EPS of $0.76 beat by $0.15 and revenue of $6.83B beat by +36% year-over-year. INSPY's Q3 delivered the best net income, best-ever operating income, and best operating margin in 16 years, resulting in improved guidance. During the Q3 Earnings Call, CEO Carlo Messina stated:
“Looking ahead, 2024 and 2025 net income will be higher than in 2023. Our dividend yield is the highest in Europe at 11.5%. In the first nine-months, we accrued cash dividends of €4.3 billion and completed the €1.7 billion buyback. In a few weeks, we will pay an interim dividend of €2.6 billion, that means a dividend per share of €0.144 almost doubling the interim dividend of last year.”
Focused on client relationships and service excellence, ISNPY strives to strengthen its presence globally, improve customer service and satisfaction, and innovate through technology.
Technology and Communications Stocks
Technology and communication stocks have led the pack in 2023. Given that Big Techs have led performance, I’m offering one Mega-tech and two under-the-radar tech stocks for a potential rotation out of the sector, with Quant Strong-Buy ratings worth considering for a portfolio.
8. Meta Platforms, Inc. (META)
Market Capitalization: $920.83B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 1 out of 245
Quant Industry Ranking (as of 12/29/23): 1 out of 60
Meta Platforms Inc. (META) is a popular communications and innovative company that allows people to connect and share with friends. Significantly focused on AI and virtual reality, META develops products that allow users to connect and share with friends. Strong fundamentals, growth, tremendous profitability, and continued technological advancements allow it to rally. Up 194% over the last year, its strong user base, monetization of Instagram and WhatsApp, and e-commerce integration have been growth drivers. META has beaten earnings consecutively, with the latest Q3 EPS of $4.39, beating by $0.79, and revenue of $34.15B, beating by +23% year-over-year.
Although the stock is trading at a premium with a ‘D’ Valuation Grade, its forward PEG of 1.25x compared to the sector's 1.56x is a -19.90% difference to the sector. Given its significant cash from operations of over $66B, tremendous growth, and profitability grades, consider this stock for a portfolio as it continues to innovate, facilitate e-commerce activities, and invest heavily in AI.
9. Celestica Inc. (CLS)
Market Capitalization: $3.52B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 4 out of 552
Quant Industry Ranking (as of 12/29/23): 1 out of 18
A leader in global supply chain solutions, Celestica Inc. (CLS) is a top electronic manufacturing services (EMS) company focused on technology and capitalizing on AI trends. Trading at an extreme discount, CLS’ Valuation Grade is an A-, showcasing stellar underlying metrics that include a forward P/E ratio of 15.66x versus the sector median of 29.33x, and forward PEG of 0.67x, a 69% difference to the sector.
A multinational electronics manufacturer with diversified services, CLS is currently ranked #1 in its industry given its range of diversified offerings focused on advanced technologies, supply chain optimization, being at the forefront of tech advancements in its industry, and having a global presence. With the ability to adapt to industry trends and maintain a strong network and relationship, CLS has increased margins and consecutively crushed earnings, with Q3 EPS of $ 0.65 that beat by $0.05 and revenue of $2.04B beating by $52.78M. Although the stock is trading near its 52-week high, CLS’ ability to maintain supply chain flexibility and resilience and adapt to industry trends while managing costs contributes to its bullish momentum. Consider this stock for a 2024 portfolio, along with my last pick,
10. AppLovin Corporation (APP)
Market Capitalization: $13.69B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 12/29/23): 7 out of 552
Quant Industry Ranking (as of 12/29/23): 1 out of 191
Gamers love AppLovin Corporation (APP), which has a diverse gaming portfolio focused on application software so that app developers and mobile gamers can enhance their marketing for business growth. Focused on the user experience within apps to attract and retain users and developers, AppLovin offers end-to-end software solutions, leveraging AI for data-driven marketing decisions. Unique tools that allow developers to increase user engagement for revenue generation and the stock’s portfolio of free games and applications coupled with an aggressive acquisition strategy have led to its +$880M cash from operations.
AppLovin has experienced tremendous growth, including a stellar one-year price performance, significantly outperforming the sector median peers quarterly. Although the APP is currently trading at a relative premium, its all-important forward PEG ratio of 0.64x versus the sector’s 2.17x is a -70% difference to the sector. AppLovin continues to gain market share, as showcased by consecutive earnings beats. In addition to 14 analysts revising estimates up over the last 90 days, APP’s Q3 EPS of 0.30 beat by $0.03, and revenue of $864.26M beat by $21.20% year-over-year. APPLovin has repurchased $1.2B in Class A common stock through Q3, paid down $250M in term loans, and continues to improve its balance sheet. Focused on the user experience and global expansion, AppLovin is a stock to love, along with each of the Quant Strong Buy-rated stocks for 2024.
Celebrate 2024 with 10 Top Quant-Rated Stocks
Analysts’ and economists’ outlooks about what 2024 will bring are mixed. Will the Fed continue its rate hikes? Will there be a Fed-forced recession, slowing growth, and how will equities fare into the New Year? While past performance is no guarantee of the future, Seeking Alpha’s portfolio of Top 10 Stocks for 2023 delivered incredible results, Up ~67% compared to the S&P 500’s +24.2%, a testament to our Quant Ratings. Stocks with tremendous fundamentals should benefit in the long term. Each of my 2024 recommended stocks offers the potential for double-digit positive performance and has delivered incredible results amid the headwinds in 2023.
Although this year, the markets were carried by seven of the biggest names in technology, Top Technology stocks are attractive, but we could see a rotation into smaller companies. Although many of my top picks are trading near 52-week highs, momentum investing has proven successful over time, given persistent market trends and behaviors that reinforce the trend. For the new year, consider stocks with robust fundamentals that have proven to deliver results amid macro and geopolitical headwinds. Most of my picks offer tremendous valuations, growth, profitability, and rising earnings revisions. We have many stocks with strong buy recommendations, and you can filter them using Stock Screens to suit your specific investment objectives. Alternatively, Alpha Picks might be ideal if you're interested in two monthly stock picks of the top 'strong buy' quant stocks. Seeking Alpha’s quant ratings and investment research tools help to ensure you are furnished with the best resources to make informed investment decisions while taking the emotion out of investing. Happy Investing!
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
I am Steven Cress, Head of Quantitative Strategies at Seeking Alpha. I manage the quant ratings and factor grades on stocks and ETFs in Seeking Alpha Premium. I also lead Alpha Picks, which selects the two most attractive stocks to buy each month and also determines when to sell them.
