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Stock newsletter writers don’t pop up much on CNBC, but that doesn’t mean you should ignore these unsung market heroes. Many are great analysts with solid long-term records.
So, each year around this time I ask some respected newsletter editors for their favorite stocks for the upcoming year and their views on which direction they expect the U.S. market to go. Here’s what the editors of three highly ranked publications have to say about 2024:
1. Cabot Turnaround Letter
Strategy: Editor Bruce Kaser looks for cheap, out-of-favor turnaround companies.
2024 Outlook: Despite a slowdown in consumer and government spending, Kaser says 3% U.S. GDP growth is possible as interest rates fall, spurring demand for big ticket items that require debt to buy — such as cars and houses. “The economy just remains remarkably resilient. The people who have been predicting recession have been dead wrong for two years now,” he says.
Kaser thinks pricey “Magnificent Seven” stocks, including Microsoft
MSFT,
Nvidia
NVDA,
and Tesla
TSLA,
may take a breather, after accounting for much of their 2023 gains. But the rest of the market looks reasonabe and could advance 10% over the next 12 months. Kaser says value stocks — mainly in energy, financials and industrials — will outperform. Falling interest rates will help financials, and all three of these sectors do well when growth is solid.
Favorite stocks: Kaser specializes in turnarounds — out-of-favor stocks with rebound potential. One is Goodyear Tire & Rubber
GT,
under pressure from activist investor Elliott Investment Management to make changes to reflate the stock. The activist shop has replaced Goodyear’s CEO and wants the company to cut costs and divest its chemicals business, the Dunlop brand, and a construction and mining truck tire division. “They are shooting for all of this to happen by the end of 2025,” Kaser says. He sees the stock rising to $24.50 a share.
Next, he singles out retailer Kohls
KSS,
which Kaser describes as a broken company left behind by time, trends and technology. Kaser thinks relatively new CEO Tom Kingsbury has the right skills to fix these issues and turn things around. Kingsbury brings retail management experience he built at May Department Stores and then at Burlington Stores
BURL,
where he was CEO. “He is making progress, but turnarounds take time,” says Kaser. At least shareholders get paid to wait: Kohls recently sported a 7% dividend yield.
Kaser also favors consumer staples giant Newell Brands
NWL,
Former CFO Chris Peterson may shape things up as the new CEO by trimming the thicket of ho-hum products the company accumulated in acquisitions over the years. Peterson brings experience from top retailers including Ralph Lauren
RL,
and Procter and Gamble
PG,
2. Investment Quality Trends
Strategy: Editor Kelley Wright tracks 285 high-quality companies to identify when their stocks look cheap — falling in price enough so dividend yield hit the shares’ historical, repetitive highs. Yields rise when stocks fall, so they can be a measure of value.
2024 Outlook: Wright is skeptical of the U.S. stock market because valuations look high. “It’s scary because you can only stretch a rubber band so far,” he says. “The market might have pulled some 2024 performance into this year.”
He’s also wary of the Fed. “I have never seen a soft landing. The Fed tends to overshoot by staying loose for too long and then tight too long.” A U.S. recession is possible, he adds, but the stock market could wind up finishing the year with 8%-10% gains — aided by typical election year strength.
Favorite stocks: Wright sees value in the beaten-down energy sector. Here he likes BP
BP,
which historically looks undervalued when the stock falls enough to push its yield up to 1.4%. “The current yield is 4.75% which is ridiculously high for them,” Wright says. BP pays out just 18% of its trailing earnings, far below Wright’s 50% cutoff. So the dividend looks safe. Says Wright: “As long as oil
CL00,
is $60 a barrel or higher, BP can meet its revenue goals. It is a great growth and income play.”
Next, Wright singles out Westamerica Bancorp
WABC,
This California-based bank looks cheap when its stock falls enough to push its yield up to 3.15%. It’s there now. Westamerica’s customers are mostly businesses who park cash balances at the bank and get very little interest in return. Westamerica makes loans, but a large part of its portfolio is in debt securities. Wright says: “It is a super stable bank. There is a lot of upside with this bank.”
Wright also singles out CH Robinson Worldwide
CHRW,
It is an “asset-light shipper” because it owns no trucks or planes, he says. “They are an air traffic controller for shipping,” Wright adds. The repetitive high yield signaling value in the stock is 2.9%, and it’s there now. “If we get any kind of growth next year they have a heck of a lot of upside,” Wright says.
3. The Prudent Speculator
Strategy: Editor John Buckingham looks for cheap companies with sound financial strength. Dividends are a plus.
2024 Outlook: Buckingham expects growth, but he does not rule out a moderate U.S. recession. “The economy will muddle along. It will be supportive of the average stock next year given that the average stock is reasonably priced,” he says. Like Kaser, he does not expect much from the Magnificent Seven. Says Buckingham: “The average stock will do much better.”
Favorite stocks: Buckingham expects value stocks to outperform: “Value relative to growth has seldom been this attractive.” Buckingham singles out lithium producer Albemarle
ALB,
Its stock has been cut in half from highs last February. The culprit is a sharp decline in the price of lithium, which is used to make EV batteries. Lithium is down because EV sales growth has slowed and China’s economy is weak. Buyers also ordered too much during the supply chain crisis, which pulled forward demand.
All of these issues may already be priced into Albemarle stock. “There is a limited supply of lithium, and there will be continued growth in demand for EVs,” says Buckingham. “Albemarle has great assets in Australia, China and the U.S.” His target price for the stock is $284 a share.
To round out the energy bet, Buckingham favors oil and natural gas producer Devon Energy
DVN,
“’Dinosaur juice’ will continue to be in demand because the transition to EVs will take time,” he says, referring to fossil fuels. Energy stocks are out of favor now, and Devon shares are down more than most of its peers — off more 20% this year even though it is a low-cost producer. Underinvestment in oil field development over the past several years should support oil prices by limiting supply growth.
Buckingham also singles out Bristol-Myers Squibb
BMY,
Big pharma has been weak, because of concerns about government price controls and patent expirations. Bristol-Myers has a trailing p/e of seven, compared to a historical average of 19. The price controls will take a long time to roll out, and could be rolled back depending on the 2024 U.S. election outcome. Bristol-Myers has a rich pipeline of drugs in development. Says Buckingham: “We will see an expansion of the multiple even though earnings are not likely to expand soon. A p/e of seven is way too low.”
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned MSFT, NVDA, TSLA and BMY. Brush has suggested MSFT, NVDA, TSLA, NWL, DVN and BMY in his stock newsletter, Brush Up on Stocks. Brush is also editor of the Cabot Cannabis Investor. Follow him on X @mbrushstocks
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