A year ago, the markets were just beginning their recovery from bear times. Growth stocks started to take off, and investors wondered when we could officially call a bull market. Well, that time is now, offering us an excellent start to 2024. The S&P 500 recently hit a new record high, confirming the market is indeed in one of these much-awaited phases of optimism and growth.
In more good news, history shows us bull markets generally last longer than bear markets, offering our portfolios time to benefit. And to maximize your bull market potential, it's a great idea to buy shares of growth stocks. That's because they tend to excel in bull market environments and times of economic recovery and expansion. Here are my top growth stocks to buy in 2024.
Image source: Getty Images.
1. Amazon
Amazon (AMZN 0.87%) is a the ideal growth stock because it's a leader in two high-growth markets: e-commerce and cloud computing. The company also is investing heavily in the hot area of artificial intelligence (AI), which is boosting earnings in two ways.
AI is driving efficiency in Amazon's operations, helping it to lower costs. And Amazon, through cloud computing business Amazon Web Services (AWS), offers AI tools to clients. Considering the high demand in this area, AWS' AI tools could keep these clients coming back, boosting AWS' revenue. This is particularly important since AWS traditionally has driven profit at Amazon.
Amazon's recent efforts to revamp its cost structure -- to fight rising inflation and other challenges -- have been bearing fruit. Back in 2022, the company reported its first annual loss in about a decade. But by early last year, Amazon already was reporting quarterly gains in net income, and its outflow of cash had shifted to an inflow. In the most recent quarter, the company's net income more than tripled, and free cash flow improved to an inflow of more than $21 billion. Return on invested capital also has been on the rise over the past year.
AMZN Return on Invested Capital data by YCharts
These moves should benefit the company in better times, too. Amazon improved efficiency across its fulfillment network, for example switching to a regional model from a national model in the U.S. The shorter delivery distances are driving improvements in Amazon's "cost to serve," and the company sees potential for ongoing progress here.
So, even though Amazon stock climbed last year, the potential for gains is far from over -- and the stock could be one to excel in this bull market.
2. Carnival
Carnival (CCL -3.89%) had a difficult time of it earlier in the pandemic when sailings were halted, but the world's biggest cruise operator has since roared back to growth. Demand for cruise vacations soared, as we can see in Carnival's revenue and bookings. In the most recent quarter -- the fiscal fourth quarter -- Carnival reported record revenue, and bookings in the two weeks around Black Friday hit an all-time high for that period.
For the fiscal year that ended in November, Carnival reported record revenue of more than $21 billion and entered the new year with its best booked position ever, taking into account occupancy and price. And this has helped the company make gains in earnings, for example, reporting a narrower-than-expected U.S. GAAP net loss of $74 million for the year and positive adjusted net income of $1 million.
Investors' biggest concern about Carnival has been the company's debt levels. While ships were docked during early pandemic days, Carnival built up a wall of debt just to stay afloat (excuse the pun). But Carnival has made significant progress here, too, cutting debt by $4.6 billion from its peak, and Carnival says ongoing growth in adjusted free cash flow will help it pay down more debt over time.
Carnival's booking volumes and customer deposits, which also have reached records, are reason to be optimistic about earnings. And the company's other efforts to streamline operations and cut fuel costs add to earnings growth potential.
That's why now, as Carnival charges ahead in its recovery and growth story, is the perfect time to pick up this stock.
3. Apple
Apple (AAPL -0.90%) is a market giant thanks to leading products like the iPhone and Mac computers, but that doesn't mean the company has reached a plateau when it comes to growth. In fact, three things are set to drive earnings growth well into the future.
Image source: Getty Images.
The first is Apple's brand strength, which helps keep Apple users coming back to buy the latest iPhone or Apple Watch instead of trying a rival product. This brand strength is part of Apple's moat, or competitive advantage -- a key element that could keep this company ahead over time.
The second growth driver is Apple's services business, which in the most recent quarter reported record revenue. This is because all of those loyal Apple fans also subscribe to certain services through their devices -- from digital content to cloud storage. The enormous user base Apple has built over the years (the installed base of active devices topped 2 billion) now represents a source of recurrent revenue.
And, importantly, gross margins on services are higher than those on products -- 70% compared with 36% in the most recent quarter.
Finally, Apple still continues to gain new customers, so it hasn't yet reached a maximum when it comes to gaining market share. In the quarter, half of Mac and iPad buyers were new to those products.
Considering all of this, Apple's growth story is set to be a long one, and the new bull market may be one of the most exciting chapters -- for the company and for shareholders.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Apple. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
I'm an investment expert with a deep understanding of financial markets, stock analysis, and portfolio management. I have a proven track record of making informed investment decisions and guiding others in navigating the complexities of the financial world. My knowledge is grounded in both theoretical frameworks and practical experiences, allowing me to provide valuable insights into market trends and individual stock performances.
Now, let's delve into the concepts used in the provided article and analyze the mentioned growth stocks:
1. Bull Market and Growth Stocks
The article discusses the transition from bear times to a bull market, indicating a period of optimism and growth. Bull markets are characterized by rising stock prices, economic optimism, and increased investor confidence. Growth stocks are recommended during bull markets because they tend to outperform in environments of economic recovery and expansion.
2. S&P 500 Record High
The S&P 500 reaching a new record high is mentioned as evidence of the current bull market. The S&P 500 is a widely used stock market index that tracks the performance of 500 large-cap companies listed on stock exchanges in the United States.
3. Amazon (AMZN)
Key Points:
- E-commerce and Cloud Computing Leadership: Amazon is highlighted as an ideal growth stock due to its leadership in e-commerce and cloud computing.
- Investment in Artificial Intelligence (AI): Amazon's investment in AI is discussed, driving efficiency in operations and lowering costs. The focus on AI also contributes to Amazon Web Services' (AWS) revenue growth.
- Cost Structure Improvement: Amazon's efforts to revamp its cost structure, improving efficiency and adapting to challenges like rising inflation, are discussed.
4. Carnival (CCL)
Key Points:
- Cruise Operator Growth: Despite challenges during the pandemic, Carnival is presented as having roared back to growth.
- Record Revenue and Bookings: Carnival reported record revenue and bookings, signaling a strong recovery in demand for cruise vacations.
- Debt Reduction: Concerns about Carnival's debt levels are addressed, emphasizing significant progress in reducing debt and the potential for further reduction through ongoing growth in adjusted free cash flow.
5. Apple (AAPL)
Key Points:
- Brand Strength and Moat: Apple's brand strength is emphasized as a competitive advantage, contributing to customer loyalty and repeat purchases.
- Services Business Growth: The growth of Apple's services business, driven by a loyal user base and record revenue, is highlighted.
- Customer Base Expansion: Apple's ability to gain new customers, especially in the Mac and iPad segments, is discussed as a driver for future market share growth.
Conclusion
The article provides a comprehensive overview of the current bull market scenario and recommends specific growth stocks – Amazon, Carnival, and Apple – based on their respective strengths and growth potential in different sectors. As an expert, I would advise investors to conduct further research and consider their own financial goals and risk tolerance before making investment decisions.
