After a rough 2022, stocks took a strong turn upward in 2023, sparked by the slowing pace of rate hikes, declining inflation and a resilient job market: a trio of good omens that could portend the elusive but highly desired "soft landing" for the U.S. economy.
With that backdrop, and with the Federal Reserve now projecting as many as three interest rate cuts in 2024, stocks have been given the green light to run, and all three major U.S. stock market indexes are sitting on healthy gains as the last days of December approach.
The coming year will inevitably bring many surprises for investors – some of them bad. But there are good reasons to be optimistic about each of the following stocks over the next 12 months and beyond. Here are the 10 best stocks to buy for 2024:
Alphabet Inc. (ticker: GOOGL). At the time of writing, Google parent Alphabet is one of just five publicly traded companies with a valuation of more than $1 trillion. It's a proven Big Tech powerhouse offering not only its dominant search engine, but also smart devices, Pixel smartphones, YouTube and a suite of Google-branded services including Google Cloud and the Google Play store, among many others.
JPMorgan recently named Alphabet a "top stock" for 2024, citing improving ad growth, higher margins following successful cost cuts, and, of course, artificial intelligence.
While OpenAI's ChatGPT has stolen the spotlight as the most visible consumer-facing AI chatbot, Google recently released Gemini as the company's competitor to GPT-4. While the company has been investing heavily in AI for years, the AI race has put more urgency behind its development at Alphabet. Gemini can handle input and output in the form of not just text, but also code, audio, image and video.
At just over 21 times forward earnings, GOOGL trades at about a 22% discount to Apple Inc.'s (AAPL) forward price-to-earnings ratio of 27, yet has grown revenue and earnings far faster than Apple in the last five years – a trend analysts expect to continue in the near future.
Discover Financial Services (DFS). As the prospect of a soft landing looks more and more likely, companies like Discover should be primed to benefit if the economy avoids a recession. As a credit card issuer, DFS is a fraction of the size of industry heavyweights like Visa Inc. (V), Mastercard Inc. (MA) and American Express Co. (AXP). In contrast to most issuers, Discover also loans money to consumers instead of just taking a cut of every transaction. That means the health of the American consumer is paramount to DFS' success, and thankfully the American consumer is strong.
Bank of America Corp. (BAC) CEO Brian Moynihan, speaking on Dec. 19, said: "Everything's kind of normalized for the American consumer and how they're spending money. They are in very good shape." Moynihan has the benefit of insights from the largest consumer bank in the U.S., and that assessment is a good omen, as DFS seems priced for a recession at just nine times forward earnings. Investors will also get the comfort of a 2.4% dividend, which Discover uses less than 20% of its earnings to pay, leaving plenty of room for future increases. There's reason to expect them, too: In April 2023, DFS announced a 16.7% increase in its quarterly dividend, marking the 13th straight year of increases in its quarterly payout.
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