To The Moon

Even before 2023 comes to an end, investors have already begun looking for stock winners beyond this year's "Magnificent Seven & FAANG".

Good news is that there will be a broader selection to choose from in 2024.

According to Aaron Dunn, co-head at Eaton Vance’s value equity team, “Stock picking in 2023, other than riding the momentum of the big companies, has been really challenging for everybody.

Think back to the banks’ runs debacle in March 2023, resulting in 3 US regional banks being shuttered comes to mind, not to mention the unflinching inflation, that finally relaxes from late Q2 2023 onwards.

According to the portfolio manager, two major developments will create the growth opportunities:

• The Fed is likely done with raising interest rates.

• Companies that have built up inventories through 2021 & 2022 are done getting rid of them, a concept known as "de-stocking."

The 2 factors should clean the plate / table for everything to perform much better come 2024.

As a result, investors may find growth opportunities in below four sectors, says he.

(1) Real estate.

The $Real Estate Select Sector SPDR Fund(XLRE)$ has seen a flat performance in 2023.

The interest rate sensitive sector took the brunt of the hit from mortgage rate spikes as housing transactions plummeted.

What would help real estate related stocks includes:

• An end to the Federal Reserve's hiking cycle.

• A decline (possibly) in rates in 2024.

Falling home sales are attributed mainly to:

• An uptick in homebuyers backing out of deals.

• Sellers opting to stay in their homes, avoiding higher mortgage rates.

• Lastly, rising building costs have squeezed new supply coming onto the market.

With high financing rates, construction activity is going to slow [for] multifamilies; resulting in demand remaining strong, amidst a weak supply.

On the flipped-side, the above dynamics could be a boon to the rental market.

This is where things get interesting for rental housing :

• $Invitation Homes Inc.(INVH)$ that offers updated homes for rental.

• Mid-America Apartment Communities ($MAA) — that invests in apartments across America.

(2) Basic materials.

Right at the heart of the de-stocking trends are Basic Materials companies.

This is due to the materials they produce — ranging from chemicals to tin and timber — are being used all sorts of products.

Again why Aaron Dunn likes about them is because:

• They've already gone through de-stocking.

• And are towards [the] back end of that process.

One stock to watch for is $FMC Corp(FMC)$, a developer of insecticides and herbicides for agriculture use.

• “’It’s really traditionally a very high-quality business.

• It is trading at a substantial discount to what it has in the past.

• The stock is -60% YTD decline.

“From a value perspective, I think over the next 3 years that FMC is going to do extremely well,” Mr Dunn added.

(3) Healthcare

Funding in the healthcare space took a hit in 2023, amid an elevated interest rates.

Heading into 2024, “pick and shovel” companies, that help healthcare firms by adding new equipment and building capacity, are well positioned.

One stock to consider is $Thermo Fisher Scientific(TMO)$.

• It is a provider of everything from medical equipment to software and analytical tools for the pharmaceutical and biotech industries.

• Aaron Dunn is convinced that funding in the healthcare space will return.

• Thermo Fisher Scientific is the most diversified and better-run companies in the Healthcare space.

• Not to mention, a leader in its own rights.

Another stock his team likes Zoetis (ZTS), an animal healthcare company.

• Zoetis is slated to bring to market two innovative products.

• One is pain management for felines.

• The other is pain management for canines.

• These are new and novel treatment methods to the animal kingdom market.

Suffice to say, animal healthcare is an oft less discussed but equally profitable industry for animals.

One that deserves a second look in.

(4) Semiconductors

When it comes to semiconductor, it is inevitable that Magnificent 7 stock - Nvidia will popped up.

Why would this stock not roll off everyone’s lips; after gaining a massive +226.69% YTD.

Actually, there are opportunities among traditional players in the memory and personal computing space, which experienced inventory corrections in 2023.

One semiconductor stock that fits the bill is $Texas Instruments(TXN)$.

• It has sort of industrial type semiconductors, analog semiconductors.

• It has undergone a lot of de-stocking and [its] underlying demand could actually be quite strong.

Texas Instrument - 2023 YTD performance

• Texas Instruments is down about -4.9% YTD.

• It bottomed on 30 Oct 2023 at $140.50 per share.

• In one calendar month, it has gained +10.47% ($14.71).

• The stock is part of VanEck Semiconductor ETF ($SMH), which is up +60.03% YTD.

My viewpoints:

• This post, is a timely reminder that there are a lot of good US companies with strong fundamentals out there.

• It also highlighted the availability of ETFs and funds that could equally bring rewarding results to one’s investment; not to mention injecting diversity to one’s portfolio.

• In the process of due diligence on any stock, ETF or funds, please remember to verify its trading volume too.

• According to Investors’ Business Daily (IBD), it is best to avoid thinly traded stocks.

• IBD considers a stock that trades fewer than 400,000 shares per day, based on a 50-day average.

• This is because there are inherent risks associated with thinly traded stock.

• Do you think the few stocks, ETF mentioned above are worth a look?

• Do you think it is too early to start looking out for 2024 investible stocks, ETFs or funds?

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