4 Top Stock Picks for 2024
These selections from investment experts span the worlds of software apps, medical devices, REITs and utilities.
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Every year for the past few decades, MoneyShow has reached out to their most respected, time-tested analysts, strategists, and newsletter editors to get their favorite stock, ETF, and other investments for the coming 12 months.
The annual MoneyShow Top Picks report is the result of this project. The 2024 edition includes 91 recommendations from 53 contributors. We hope you enjoy this sampling. You can access the complete report once it's released HERE.
Douglas Gerlach Investor Advisory Service
Top Picks 2024: ResMed
ResMed RMD is the market leader in continuous positive airway pressure (CPAP) machines, which improve the quality of sleep for apnea patients. Sleep apnea is much more than annoying, loud snoring. It is the fundamental inability to get enough oxygen during sleep. ResMed sells machines and facemasks to treat it, along with software solutions to track patients' biometric data, writes Doug Gerlach, editor of Investor Advisory Service.
Sleep apnea correlates with both weight and age. Its prevalence in the underlying population has increased, along with awareness of the condition. ResMed has enjoyed a steadily growing market throughout its history, and investors have often paid sky-high valuations for its seemingly bulletproof growth profile. The P/E has often been in the 40s, a level normally reserved for hypergrowth companies, not consistent, low-double-digit growers.
In 2021, competitor Philips Respironics was forced to recall its CPAP devices due to the risk of insulation coming loose and entering patients' lungs. Philips' time out of the market has driven demand for ResMed's devices. There has been a small negative effect on mask sales, but the overall impact has been positive for ResMed.
Sentiment has turned much more negative recently. For starters, competitor Philips is on a long road to returning to the market and might need to discount its products to win back market share. This would potentially be negative for ResMed's unit sales and its gross margins.
Meanwhile, investors are suddenly looking for losers in what they imagine will be a slimmer future, thanks to a new generation of weight loss drugs such as Ozempic and Wegovy. This concern feels a little fanciful and may present an opportunity to "buy low" when the popular narrative creates a window of opportunity.
Efforts to grow outside of the core CPAP machine and mask market have been only moderately successful. ResMed acquired a small stable of software and data analysis companies to track patient outcomes and treat sleep disorders more holistically.
Segment growth tends to hover in the high-single digits, which is respectable but hardly looks like the up-and-coming growth engine that the company probably envisioned. Relatively cheap wearable devices have come to perform some of the functions that ResMed planned to provide.
Still, the growth bona fides are solid. Gross margins hover around 55%. Revenue has grown in the mid- to high-teens, mostly organic, along with earnings leverage. Free cash flow is fairly solid, although the balance sheet has recently accumulated notable increases in inventory and accounts receivable which have analysts asking pointed questions about earnings quality.
We model 12% EPS growth, a big discount compared to published consensus estimates of 20%. Our growth rate could produce earnings of $10.86 in five years. Attaching a capped high P/E of 30, the upside price is $326, or a 16.1% annualized rate of total return through 2028.
Michael Cintolo Cabot Growth Investor
Top Picks 2024: Duolingo
DuolingoDUOL has a great, unique growth story that is only getting bigger, and the consistent string of better-than-expected results has the stock hitting all-time highs, writes Mike Cintolo, editor of Cabot Growth Investor.
To review, Duolingo is far and away the top-grossing education app out there, with a fun, game-like system that has goals and rewards along the way. There are more people learning certain languages on the app, in fact, than there are native speakers of those languages.
The firm also uses a "freemium" model, with many using the app for free (it has a total of 83.1 million monthly active users, up 47% from a year ago), with ads bringing in some revenue for the firm. However, the driver here is subscriptions, with more and more users choosing to pay up for added features.
Paid subscribers (5.8 million total, up 60% from a year ago) are growing nicely, with subscription revenue up 47% from the year before. The firm also does a small business in selling virtual goods on the app, as well as providing an English Learning Test for many institutions and academies.
Growth here has been both rapid and consistent, and with so many free users on the platform, converting a few percent of them will keep the arrow pointed up for a long time to come. That's the main story. But we think a big part of the excitement in the fourth quarter of 2023 came from Duolingo's launch of music and math courses on its app, which obviously opens up entire new revenue opportunities.
To be clear, management doesn't expect material contributions from those areas for a while as it tests what works. But given the success it has proven to have in languages, Wall Street is discounting the company succeeding in those (and maybe other) new areas down the road.
As for the stock, it started to really get off its duff in March. But the next few months were very choppy, with three separate 20% corrections. The Q3 report brought a massive breakout to all-time highs though. We think shares can do very well assuming the market shakes off its bearish vibes from the past two years.
Roger Conrad Conrad's Utility Investor
Top Picks 2024: Dominion Energy
In late 2022, Dominion EnergyD announced a "top-to-bottom" strategic review. Management's objective: To tackle three headwinds that were rapidly approaching hurricane force. The results of its efforts are now bearing fruit, writes Roger Conrad, editor of Conrad's Utility Investor.
Most important was ensuring the cost of its Coastal Virginia Offshore Wind (CVOW) project wouldn't balloon as it has for other now-cancelled US projects. Second, the utility had to reach an accommodation with a restive Republican majority in the state legislature that was determined to roll back Democrats' signature renewable energy law it was already complying with. And third, management had to cut parent-level and floating-rate debt with interest rates soaring.
Investors have consistently assumed the worst outcome from the review, and the stock price halved before hitting bottom in early October. But it's now increasingly clear results will be considerably more benign than expected, if not outright bullish.
The company took an expected earnings hit from the utility regulation compromise reached with Virginia lawmakers. But the deal also ensures the path of investment, with the company reaching a favorable settlement in its first rate review under the Republicans' net law. And the state voted for divided government and therefore regulatory stability in November.
Dominion has now locked in 92% of CVOW construction costs, while cutting the cost of the project to $77 per megawatt hour from previous guidance of $80 to $90. And in the coming weeks, management is expected to announce a financial partner in the project on favorable terms.
Proceeds from a successful CVOW partial ownership sale -- combined with $3.5 billion realized from the now-closed sale of the Cove Point LNG export facility and $14 billion for divesting natural gas distribution utilities to EnbridgeENB -- will boost earnings by 50 cents per share from annual interest savings alone. That's enough to leave Dominion's dividend intact, with a long-term growth rate of at least 4% to 6%.
Adam Johnson Bullseye Brief
Top Picks 2024: Alexandria Real Estate Equities
Alexandria Real Estate EquitiesARE is the largest and longest-tenured owner/developer of specialized AAA commercial space focused exclusively on meeting the unique needs of the life sciences sector. For investors, this translates into a compelling combination of high cash flow, stable dividend income, and consistent earnings growth, advises Adam Johnson, editor of Bullseye Brief.
From fully-wired, high-tech workspaces to customized laboratories housing billions of cutting-edge equipment across corporate campuses, Alexandria owns 74M square feet (SF) in North America and has 6M additional SF under development. Future commitments already in planning total another 17M SF and provide significant runway for growth.
The company's uniquely focused business model ensures a high-quality tenant base, resulting in higher occupancy, longer leases, stronger cash flow, and industry-leading capital appreciation. Notably, as of late 2023, occupancy was 96% and lease renewals were being signed at 6% increases, both of which provided ample support for the 4.5% dividend yield.
Ironically, shares recently traded at a 25% discount to long-term valuation on the assumption all commercial real estate is doomed by higher rates and work-from-home demographics. I disagree, and I think the current valuation anomaly will correct as stability returns to the market.
Buying Alexandria now provides a rare opportunity to acquire an investment-grade company at a near-distressed valuation.