Up, Down, Sideways... Thoughts on 2024.
While I reserve about 30% of my portfolio for swing and day trades, my IRA and trust funds are at point where I need a longer term outlook. I came across an article from GS which resonated with me and said "investors should own growth stocks with high returns on capital that typically outperform given stable economic growth and interest rates."
Goldman Sachs' base case for next year is that the S&P will end 2024 at 4,700 — a 3% increase from where the index stands today. But between then and now, they see seven major trends influencing the market's moves.
- Economic growth will persist in the new year, and GDP will rise 2.1%. While that's good news for investors, they suspect that this growth has already been priced into the market.
- Goldman believes that sales growth will follow GDP growth, and earnings growth will follow sales growth. This domino effect means he thinks EPS will rise to $237 per share in 2024 and $250 per share in 2025.
However, elevated costs, including "resilient input cost growth, rising interest expense, and higher effective tax rates will allow only minimal margin expansion in 2024."
- Goldman Sachs says the Fed won't be hiking rates any more, and will cut them beginning in the fourth quarter of next year. Meanwhile, the firm view is that real 10-year Treasury yields will hit 2.3% by the end of 2024. Combined, GS wrote that this means the equal-weight S&P 500's P/E will be roughly unchanged throughout the year ahead, ending 2024 at 14x.
- With so much of the S&P 500's success or failure depending on just seven stocks, it's understandable that investors would be worried about the market's concentration. Thankfully, GS wrote that "equity valuations appear less stretched in absolute and relative terms after adjusting for record high market concentration."
"The valuation premium of the aggregate vs. equal-weight S&P 500 equals 27%, well above the historical average but below the Tech Bubble peak of 111% in 1999," he added. "This [list] should support the outperformance of stocks with "quality" attributes such as high profitability, strong balance sheets, stable sales and earnings growth, and low historical drawdown risk."
Here is the full list of 50 stocks formatted into a table:
| Company | Ticker | Market Cap | Altman Z-Score | P/E Ratio | 2024 EPS Growth | Dividend Yield | ROE | Quality Score |
|---|---|---|---|---|---|---|---|---|
| Alphabet | GOOGL | $1,687B | 11.0 | 21x | 17% | 0.0% | 26% | 94 |
| Charter Communications | CHTR | $60.1B | 0.7 | 11x | 18% | 0.0% | 48% | 84 |
| T-Mobile US | TMUS | $170.3B | 1.3 | 15x | 38% | 1.8% | 15% | 77 |
| Comcast | CMCSA | $170.2B | 1.6 | 10x | 9% | 2.7% | 19% | 74 |
| Meta Platforms | META | $858.1B | 8.8 | 20x | 21% | 0.0% | 29% | 74 |
| Zoetis | ZTS | $80.0B | 7.7 | 30x | 11% | 0.8% | 49% | 92 |
| IDEXX Laboratories | IDXX | $38.4B | 16.5 | 43x | 10% | 0.0% | 86% | 89 |
| UnitedHealth Group | UNH | $494.4B | 3.6 | 20x | 12% | 1.4% | 27% | 88 |
| ResMed | RMD | $21.8B | 7.2 | 20x | 14% | 1.3% | 23% | 88 |
| STERIS | STE | $19.7B | 3.6 | 22x | 10% | 1.0% | 9% | 87 |
| Mettler-Toledo | MTD | $22.7B | 9.2 | 27x | 0% | 0.0% | NM | 82 |
| Elevance Health | ANTM | $128.1B | 2.7 | 16x | 10% | 1.2% | 17% | 86 |
| O'Reilly Automotive | ORLY | $57.1B | 3.9 | 23x | 11% | 0.0% | NM | 99 |
| Tractor Supply | TSCO | $21.8B | 5.2 | 20x | 4% | 2.0% | 55% | 92 |
| Home Depot | HD | $306.3B | 7.0 | 20x | 3% | 2.7% | NM | 92 |
| Pool Corp | POOL | $13.5B | 6.5 | 25x | 8% | 1.3% | 41% | 81 |
| LKQ Corp | LKQ | $12.1B | 3.2 | 11x | 10% | 2.7% | 17% | 79 |
| Fastenal | FAST | $34.6B | 20.9 | 29x | 6% | 2.3% | 34% | 93 |
| Paychex | PAYX | $42.3B | 5.0 | 24x | 8% | 3.1% | 47% | 92 |
| Cintas Corp | CTAS | $55.6B | 10.6 | 37x | 11% | 1.0% | 37% | 91 |
| Rollins | ROL | $19.0B | 12.6 | 40x | 12% | 1.5% | 33% | 90 |
| Church & Dwight | CHD | $22.7B | 5.0 | 27x | 8% | 1.2% | 23% | 94 |
| Monster Beverage | MNST | $56.8B | 27.8 | 31x | 16% | 0.0% | 20% | 84 |
| PepsiCo | PEP | $228.5B | 3.9 | 21x | 8% | 3.0% | 60% | 83 |
| Accenture | ACN | $205.1B | 7.6 | 26x | 6% | 1.6% | 31% | 94 |
| Cadence Design Systems | CDNS | $72.7B | 21.7 | 46x | 15% | 0.0% | 35% | 94 |
| Synopsys | SNPS | $81.1B | 14.2 | 42x | 13% | 0.0% | 20% | 90 |
| Monolithic Power Systems | MPWR | $25.8B | 41.2 | 42x | 10% | 0.7% | 25% | 86 |
| Tyler Technologies | TYL | $17.3B | 6.6 | 48x | 14% | 0.0% | 6% | 85 |
| Amphenol Corp | APH | $53.5B | 6.1 | 28x | 9% | 1.0% | 26% | 83 |
| EPAM Systems | EPAM | $14.9B | 12.9 | 24x | 3% | 0.0% | 17% | 82 |
| ANSYS | ANSS | $25.9B | 10.9 | 32x | 12% | 0.0% | 10% | 81 |
| CDW | CDW | $28.7B | 3.6 | 21x | 7% | 1.2% | 72% | 80 |
| Broadcom | AVGO | $402.2B | 6.2 | 21x | 10% | 1.9% | 64% | 77 |
| Fair Isaac Corp | FICO | $25.7B | 12.1 | 43x | 21% | 0.0% | NM | 76 |
| Akamai | AKAM | $16.9B | 3.5 | 17x | 11% | 0.0% | 14% | 75 |
| Cognizant | CTSH | $34.8B | 6.7 | 15x | 5% | 1.7% | 18% | 75 |
| Arista Networks | ANET | $66.6B | 20.6 | 30x | 10% | 0.0% | 34% | 73 |
| Microsoft | MSFT | $2,739.5B | 10.4 | 32x | 8% | 0.8% | 39% | 73 |
| Marathon Petroleum | MPC | $55.9B | 3.5 | 9x | -30% | 2.3% | 43% | 63 |
| EOG Resources | EOG | $72.1B | 4.8 | 9x | 14% | 3.0% | 30% | 59 |
| Intercontinental Exchange | ICE | $63.6B | NM | 19x | 4% | 1.5% | 11% | 88 |
| MSCI | MSCI | $41.1B | NM | 36x | 11% | 1.1% | NM | 85 |
| Charles Schwab | SCHW | $100.3B | NM | 15x | 21% | 1.8% | 24% | 75 |
| Raymond James | RJF | $21.7B | NM | 11x | 15% | 1.6% | 18% | 74 |
| Globe Life | GL | $11.1B | NM | 10x | 8% | 0.8% | 21% | 73 |
| Truist Financial | TFC | $32.1B | NM | 9x | -9% | 6.6% | 11% | 73 |
| Sherwin-Williams | SHW | $69.0B | 3.9 | 24x | 9% | 0.9% | 72% | 90 |
| American Tower Corp | AMT | $91.9B | NM | 42x | 22% | 3.2% | 32% | 81 |
| American Water Works | AWK | $25.6B | NM | 26x | 7% | 2.2% | 10% | 86 |
Based on this, I'm going to make a portfolio of 10 stocks. The one's I have selected are:
| Stock | Ticker | Allocation |
|---|---|---|
| Alphabet | GOOGL | 13% |
| Microsoft | MSFT | 13% |
| UnitedHealth | UNH | 13% |
| Accenture | ACN | 12% |
| O’Reilly Automotive | ORLY | 10% |
| Zoetis | ZTS | 10% |
| STERIS | STE | 8% |
| Charles Schwab | SCHW | 7% |
| Sherwin-Williams | SHW | 7% |
| Cadence | CDNS | 7% |
This list is hardened for interest rate uncertainty, growth prospects, and possible downward economic pressure. I will provide a review every quarter or so to show gains/losses as well as any additions. I'm going to establish entries based on 3 distributions each before next year and will set entries based on market & individual stocks' current technical analysis & momentum.
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