Four potential areas of growth in 2024
Investors looking for winning stocks after this year’s “Magnificent Seven” may have a wider selection to choose from in 2024.
“Stock picking this year — other than riding the momentum of big companies — has been a real challenge for everyone,” Aaron Dunn, co-head of the value equity team at Eaton Vance, Morgan Stanley Investment Management, told Yahoo Finance.
He added: “My expectations are that the markets will begin to expand further in 2024.”
The portfolio manager says there are two key developments that will create growth opportunities. First of all, the Fed is likely done raising interest rates. Second, companies that built inventories during 2021 and 2022 will have finished shedding them, a concept known as “destocking.”
“We came out of that, which should clean the slate or the table so that everything will do better next year,” Dunn said.
As a result, he says investors may find growth opportunities in the following four sectors:
The S&P 500 Real Estate ETF (XLRE) has been flat for the year. The interest rate-sensitive sector bore the brunt of the crisis Hit from Mortgage rates rise as housing transactions decline.
An end to the Fed’s hiking cycle, or the possibility of lower interest rates in 2024, would help real estate-related stocks.
A rise in homebuyers backing out of deals as well as sellers choosing to stay in their homes to avoid higher mortgage rates has put pressure on transactions, he said. At the same time, rising construction costs may put pressure on new supply coming to the market.
“Especially with financing rates where they are, construction is going to slow down (for) multifamily. So demand remains strong and supply weakens.”
These dynamics could be a boon for the rental market.
“From my perspective, the demand for rental housing, whether it’s Invitation Homes (INVH) or MidAmerica Communities (MAA), is actually very interesting,” he said.
Invitation Homes offers updated homes for rent and MidAmerica Communities invests in apartments throughout the United States.
Basic materials companies are at the heart of inventory shrink trends, because the materials they produce — from chemicals to tin and lumber — go into all kinds of products.
“What I like is that they’ve already gone through the process of unloading inventory, and they’re getting close to the back end of that process,” Dunn said.
One stock to watch is FMC Corporation (FMC), a developer of pesticides and herbicides for agricultural use.
“It’s actually a very high-quality trade, and it’s trading at a significant discount to what it has been in the past,” Dunn said, referring to the stock’s 60% year-to-date decline.
“From a value perspective, I think FMC will do very well over the next three years,” he added.
Healthcare financing has taken a hit this year amid rising interest rates. Dan believes that “pick and shovel” companies, which help healthcare companies by adding new equipment and building capacity, are well positioned through 2024.
One name to consider is Thermo Fisher Scientific (TMO), a company that provides everything from medical equipment to software and analytical tools to the pharmaceutical and biotechnology industries.
“We think financing in health care will come back,” Dunn said. “Thermo in our view is the most diversified but also one of the best managed companies in this space and probably the leader in this space.”
Another stock his team likes is Zoetis (ZTS), an animal healthcare company.
“In our opinion, there are two products coming. One is pain management for cats, and the other is pain management for canines. They are new, new treatments on the market,” Dan said.
Most investors equate the space with the “Magnificent Seven’s” top performer Nvidia (NVDA), whose stock is up 229% year to date. However, Dan and his team are focusing on opportunities among traditional players in the memory and personal computing space, which this year have seen stock corrections.
“A name like Texas Instruments ( TXN ), which has some kind of industrial-grade semiconductors, analog semiconductors, has gone through a lot of inventory drawdowns and fundamental demand could be very strong on the other side of this.” He said.
Texas Instruments shares are down about 7% year to date. The stock is part of the VanEck Semiconductor ETF (SMH), which is up 61% since the beginning of the year.
Ince Ferry is Yahoo Finance’s chief business correspondent. Follow her on Twitter at @ines_ferre.
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