Barron’s names its top Wall Street stock picks for 2024

The stockmarket is ending the year with a flourish – and so are Barron’s favourites for 2023. Here’s a handful of top picks for the year ahead.

Barron’s is bullish about a number of big performers for 2024.

Every December for the past 14 years, Barron’s has selected stocks that are good bets to outperform the market over the next 12 months.

The 2023 group – which included Delta Air Lines and Comcast, among others – topped the market, returning 31 per cent on average including reinvested dividends, against 24.5 per cent for the S&P 500.

The 2022 group beat the index by 10 percentage points, while we were slightly behind the market in 2021.

To beat the market this year, you probably needed to have some exposure to the Magnificent Seven – Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, and Meta Platforms. And we did.

We included Amazon and Alphabet, which were trading cheaply a year ago, and they powered our list for 2023.

But our picks, as is typical, had a value bias. The biggest winner was home builder Toll Brothers, which more than doubled, helping to offset our big loser, the aluminium miner Alcoa, which returned negative 29 per cent.

Our picks for this year:

Alibaba

After dropping 18 per cent in 2023, Alibaba’s US-listed shares trade at just eight times projected earnings in its fiscal year ending in March. With that decline, the stock, at a recent $US72, is back where it stood following its 2014 initial public offering, despite a tenfold rise in revenue and a fivefold increase in earnings. Its market cap is less than 15 per cent of its closest American peer, Amazon.

The company sits on a small mountain of cash, equal to a third of its market value of $US184bn. Adding in its core Chinese e-commerce unit, its cloud computing and logistics businesses, and a stake in Ant Financial, the sum of the company’s parts comes to about $US130 a share, nearly double the current price, according to analysts at China Merchants Securities in Hong Kong.

ALPHABET (GOOGLE)

Alphabet could be the best bet among the Magnificent Seven stocks that led the market higher in 2023

It’s expected to grow as fast as Microsoft, with earnings forecast to be up 15 per cent in 2024, three times as quickly as Apple’s 5 per cent growth. Yet its stock trades for just 20 times earnings, a discount to both Microsoft and Apple’s 30 times, despite gaining 50 per cent this year.

Investors have been worried about slowing growth in Alphabet’s cloud computing division, the threat that artificial intelligence poses to its search business, and antitrust scrutiny. Those issues look manageable.

BARRICK GOLD

Gold mining stocks haven’t been able to keep up with gold prices – but this may be the year that changes for Barrick Gold.

Gold miners are thought of as leveraged plays on the metal, yet Barrick shares are up just 3 per cent this year while gold is up more than 10 per cent to around $US2036 an ounce. Blame higher costs and lower-than-expected gold production.

Barrick has several things going for it. The company has some of the world’s best mines in spots like Nevada and the Dominican Republic, and it’s the top gold producer in Africa.

BERKSHIRE HATHAWAY

The recent death of Berkshire vice-chairman Charlie Munger at 99 highlights the key-man risk at Berkshire, with the incomparable Warren Buffett now 93. Buffett is impossible to replace but he has positioned Berkshire to succeed without him, and the stock should do just fine with him still at the helm in 2024.

The case for Berkshire starts with what CEO Buffett calls a “Fort Knox” balance sheet, with over $US150bn in cash, or about 20 per cent of the company’s market value. Earnings are growing too, with Berkshire’s after-tax operating profits up nearly 20 per cent so far in 2023. They could hit $US40bn this year, powered by higher interest income on Berkshire’s cash and strong insurance underwriting results, helped by a turnaround at Geico.

The stock looks reasonably priced, valued at 1.4 times estimated year-end 2023 book value and about 18 times next year’s projected earnings. The Class B shares, at $US356, trade at a 2 per cent discount to the Class A stock and look like the better bet.

“Berkshire shares are attractive in an uncertain macro environment,” wrote UBS analyst Brian Meredith in a recent note. He puts intrinsic value at about $US600,000 per Class A share and carries a price target of $US620,000, versus a recent $US545,000.

BIONTECH

BioNTech, like all Covid-19 vaccine makers, got crunched in 2023. But it has so much cash that it would have appealed to Warren Buffett’s mentor, famed value manager Benjamin Graham.

Covid vaccine players, including BioNTech, its partner Pfizer, and competitor Moderna, have slumped amid growing doubts about demand for the jabs. Those concerns were confirmed after Pfizer cut its guidance for Covid-related sales. BioNTech stock is now trading around $US104, down from a peak of $US447 in 2021.

PEPSICO

The “Ozempic effect” and flagging investor interest in traditional consumer staples have weighed on PepsiCo stock this year. But the impact of weight-loss drugs on PepsiCo’s snack food and beverage franchise will likely be minimal.

Though named for a soft drink, Pepsi has a best-in-class snack-food franchise in Frito-Lay, maker of Doritos, Cheetos, and Lay’s potato chips. Frito-Lay generates more than half the company’s profits, making Pepsi less dependent on sugary soda than Coca-Cola.

Fears that weight-loss drugs will curb snacking caused PepsiCo stock, at $US168, to drop 7 per cent in 2023 The stock trades for 20.6 times next year’s projected earnings, below its five-year average. It also yields 3 per cent and has raised its dividend for 51 straight years, including a 10 per cent increase this past summer.

This is an edited version of a longer list that first appeared in Barron’s.