Best Stocks to Invest in 2024

We believe Albemarle shares are undervalued, as we consider lithium prices to be at cyclically low levels. Demand from electric vehicle (EV) sales and utility-scale batteries is on the rise. However, the rapid influx of new, higher-cost, lower-quality supply from China and Africa has shifted the lithium market from undersupply to oversupply, resulting in prices plummeting over 85% from their all-time highs in late 2022. Currently, lithium prices are below the marginal cost of production, prompting supply reductions. We anticipate that average prices in 2025 will exceed current lows as demand increases and the market stabilizes. Furthermore, unit production costs are expected to decline as Albemarle expands its capacity and implements overhead cost reductions. Consequently, we project that Albemarle's unit profits will increase in 2025 compared to our expectations for the fourth quarter of 2024. Albemarle's competitive advantage lies in its cost-effective lithium production, derived from its unique geological resources. Lithium constitutes the company's largest segment, accounting for nearly 90% of its profits. The primary driver of lithium demand is electric vehicle batteries, which represented approximately 50% of demand in 2023. As EVs are projected to rise to 40% of global auto sales by 2030, up from 12% in 2023, we forecast that they will comprise nearly 70% of total lithium demand by 2030, positioning lithium as a key beneficiary of increasing EV adoption. As one of the lowest-cost lithium producers worldwide, Albemarle stands to gain from the growing adoption of EVs, which will drive higher lithium prices and enhance profits. Additionally, with increasing lithium demand from utility-scale batteries for energy storage systems, we predict that lithium demand will nearly triple from 2023 levels by 2030, reaching 2.5 million metric tons. Supply is expected to struggle to keep up with this demand, resulting in lithium prices remaining above the estimated marginal cost of production, which we project to be $20,000 per metric ton. We foresee that while lithium prices will remain volatile, they will average around our $20,000 marginal cost estimate over the next decade, leading to robust profits for Albemarle.

We consider the shares of narrow-moat Bath & Body Works to be attractive, currently trading at approximately a 45% discount to our fair value estimate of $69. The company possesses a strong competitive advantage in the substantial addressable markets it serves. Its robust brand intangible asset is reinforced by its leading position in the bath and shower, as well as the candle and air freshener sectors, which has been enhanced by a swift adaptation to consumer trends. The narrow moat is reflected in the 37% average return on invested capital, excluding goodwill, that we anticipate the business will generate over the next decade, significantly exceeding our 8% weighted average cost of capital estimate. While we project limited growth in its North American footprint (with nearly 1,900 owned stores), we expect that product innovation and productivity improvements from new store formats will drive both top- and bottom-line growth over time. Additionally, advancements in omnichannel strategies (such as buy online/pick up in store) are expected to remain a key component, while updates to loyalty programs will enhance conversion rates and profit potential. A strategic emphasis on international growth is likely to benefit both physical and digital channels, enabling high-single-digit average international sales growth over the next decade, which will help Bath & Body Works strengthen its brand intangible asset on a global scale. We project that these opportunities will result in average sales growth of 3%-4% in the long term, aligning with global growth forecasts (according to Euromonitor) for the bath and shower and soap industries, thereby facilitating incremental market share gains for Bath & Body Works beyond its already dominant position.

Baxter remains on our Best Ideas list, with shares currently trading at a significant discount to our valuation. In recent quarters, demand for many of its products has been improving due to increased medical utilization. Additionally, new product launches, such as the Novum IQ pump platform, are expected to further enhance demand in the near future. Baxter also presents a margin improvement opportunity, as inflationary pressures in its supply chain are subsiding, and important new group purchasing organization contracts are set to take effect in 2025, which should positively impact its product pricing. Overall, we anticipate that profits will grow at a relatively rapid pace in the near term before stabilizing at a more normalized growth rate in the high single to low double digits over the long term. While we acknowledge the near-term market concerns related to Baxter's capital equipment business and the recent hurricane that disrupted production at a key IV solutions facility, we believe there is a substantial margin of safety built into the shares.

Budweiser APAC is the leading beer brewer by sales value in China, holding approximately 40% of the premium segment market share. The company benefits from a comprehensive nationwide distribution network and a diverse portfolio of international premium beer brands, supported by the substantial resources of its parent company, Anheuser-Busch InBev. Budweiser APAC has also shown proficiency in digitalizing its channel management, which we believe gives it a competitive advantage over its peers and is crucial for seizing premiumization opportunities as volume growth stabilizes. We anticipate that the long-term premiumization trend in China's beer market will persist, despite current sluggish consumer sentiment, due to a favorable competitive environment and the shared objectives of major brewers in pursuing long-term price growth.

Domino's Pizza Enterprises is a high-quality company with substantial growth potential. We project a 20% compound annual growth rate in earnings over the next five years, driven by the global expansion of its store network. While Domino's sales growth has experienced volatility, the share price often reflects short-term trading conditions rather than its long-term prospects. The near-term outlook remains uncertain and depends on enhancing store economics. Nevertheless, we believe the market is undervaluing Domino's significant and intact long-term growth potential. We anticipate the network will reach nearly 6,000 stores by fiscal 2034, up from approximately 3,800 as of June 2024, which is below management's long-term target of 7,100 stores.

Endeavour shares are currently trading at an attractive valuation with a fully franked yield. We believe the market is underestimating the company's defensive long-term earnings outlook, especially as consumers reduce nonessential spending. However, fiscal stimulus is expected to enhance household budgets in fiscal 2025. We project that underlying Australian liquor retail sales will increase by mid-single digits following minimal growth in fiscal 2024. In the long term, liquor demand remains resilient, supported by inflation and population growth. We anticipate that the ongoing trend of premiumization will offset declines in per capita liquor consumption. As the largest liquor retailer in Australia, with well-known brands like Dan Murphy’s and BWS, Endeavour's liquor sales are expected to grow in line with market trends. Additionally, we believe that concerns regarding regulatory risks associated with the group's gaming operations are overstated and already reflected in the current share price.

Humana remains on our Best Ideas list, reflecting the significant discount at which its shares are trading relative to our fair value estimate, its strong competitive position in Medicare Advantage, and its potential for substantial long-term profit growth. The company's outlook for 2024 indicates severely reduced profits due to mispriced Medicare Advantage plans that may not adequately cover the rising medical utilization expected in 2024. Additionally, initial star ratings for 2025 marketing and 2026 bonus payments have declined significantly. Although the company is contesting these star ratings in court, this situation introduces uncertainty regarding Humana's intermediate-term profit trajectory, leading many investors to sell their shares. While these investors may be acting out of fear, we believe that those with a long-term investment perspective should take advantage of Humana's discounted shares, which represent a rare opportunity to invest in a high-quality firm at an attractive valuation within the managed care sector.

Wide-moat HII, a former subsidiary of Northrop Grumman, is the largest military shipbuilder in the US. While the company benefits from extraordinarily long planning horizons and budget visibility, small shifts in the timing of major programs can lead to lumpy quarterly results, which we believe have impacted the stock. Nevertheless, HII's strong ties to the US Department of Defense, its status as the sole provider of nuclear aircraft carriers and turbine-powered amphibious landing ships, and its position as one of only two producers of nuclear submarines for the US Navy position the company for recurring profits well into the future. The long-cycle shipbuilding business does not yield the highest margins in the defense contracting industry. However, it exemplifies the conditions that provide a durable competitive advantage and significant visibility into revenue and profitability for decades. The large shipbuilding sector offers extensive planning horizons and budget visibility, although minor timing shifts in major programs, such as aircraft carriers, can result in uneven quarterly results. We anticipate some potential fluctuations later this decade, contingent on upcoming revisions to US Navy budgets. The timing of work on two America-class amphibious assault ships expected to commence around 2027 may or may not offset the decline in work on the third Ford-class aircraft carrier, the Enterprise. This concern is more operational than financial and should not impact the company, provided it maintains sufficient visibility into similar work at each of its two shipyards as projects near completion. HII's products take years to build and are typically produced in small quantities. The potential for margin gains as the company progresses down the learning curve is limited, especially since the government negotiates the price of each ship, affecting the available profit. This close relationship between the buyer and the company distinguishes HII from other defense contractors, as it is highly insulated from macroeconomic or market risks. In 2022, HII generated only $50 million in revenue from commercial customers out of nearly $11 billion in total revenue. Additionally, the Defense Department has a vested interest in maintaining multiple shipyards in operation and ensuring their financial viability. This policy results in a balanced distribution of work between HII and General Dynamics, mitigating risk and distributing rewards. While the firm may experience uneven revenue and profits in certain quarters and years due to the multiyear production cycles of its large products, we believe long-term investors will be rewarded, particularly with the anticipated growth in submarine and destroyer revenue.

We believe the market has a short-sighted perspective on IDP Education, influenced by recent declines in volumes and regulatory uncertainties. While we acknowledge that the short-term outlook appears weak and forecast a decline in IDP’s earnings for fiscal 2025, we anticipate that the company will continue to gain market share as the industry favors quality operators like IDP. We see significant long-term value, as the caps on foreign students are temporary and address short-term cyclical issues. The pricing outlook is also positive in the near term, with IDP negotiating better terms and universities planning to increase tuition fees due to an undersupply. We expect IDP to benefit from the long-term macroeconomic factors that support the international education sector.

Kering, the second-largest luxury group by revenue, is currently trading at 16 times consensus earnings, which we believe are nearing trough levels, indicating a potential 90% upside to our fair value estimate. While the momentum of Kering's flagship brand, Gucci, is slowing, the brand's strong recognition, substantial marketing resources, control over over 90% of its distribution, and access to top managerial and creative talent position Gucci to sustain its pricing and desirability over the long term.

Moderna's shares have experienced significant volatility, with investors initially overly optimistic in 2021 regarding the company's technological potential, followed by a more pessimistic outlook on its growth post-coronavirus. While we maintain modest expectations for sales of the firm's COVID vaccine due to the substantial demand driven by the pandemic in 2021 and 2022, we believe that Moderna's pipeline of mRNA-based vaccines and treatments is progressing rapidly across various therapeutic areas. Despite a decline in sales during 2023-2024 in anticipation of new product launches, we remain confident in the long-term sales trajectory of the firm's diversified pipeline. We see strong validation of Moderna's technology in respiratory virus vaccines (with an RSV vaccine set to launch in 2024 and a COVID/flu combination vaccine expected in 2025), oncology (with a potential melanoma launch by 2027), and rare diseases (where accelerated approvals could occur by 2027).

Nike, the sole sportswear company with a significant competitive advantage, is currently trading at approximately a 30% discount to our fair value estimate. While the outlook for the remainder of fiscal 2025 appears challenging due to weak demand for apparel, we expect to see higher gross margins in the coming years driven by price increases and investments in product development, supply chain enhancements, and digital capabilities. Additionally, we foresee controlled operating costs contributing to improved operating margins. Furthermore, we anticipate double-digit sales growth in Greater China following fiscal 2025 as the market continues to expand. Recently, Nike has experienced a change in CEO, which has been positively received by employees, partners, and investors alike.

Polaris' shares are currently trading at nearly a 50% discount to our fair value estimate of $110 per share. The company's strong brands, innovative products, and Lean manufacturing practices contribute to its wide economic moat. We believe Polaris will continue to leverage its research and development, high-quality standards, and operational excellence to drive demand. Historically, the company has generated exceptional returns on invested capital, including goodwill, and we anticipate it will achieve a 22% return on invested capital (ROIC) by 2033, significantly exceeding our 10% weighted average cost of capital assumption. Recently, the stock has faced pressure due to challenges related to slowing consumer conversion and cautious dealer behavior, which we view as temporary issues. Consequently, the company has revised its 2024 outlook following its third-quarter results, now projecting a sales decline of 20% (down from a previous estimate of 17%-20%) and adjusted earnings per share of $3.25 (revised from $3.50-$4.00). Our forecast aligns with this, anticipating a 21% sales decline and earnings per share of $3.25. Once dealer inventory is optimized—expected to decrease by 15%-20% during 2024—wholesale shipments should better align with consumer demand. We are optimistic that long-term demand driven by new product launches will support shipment growth and profit improvements beyond 2024. From 2025 to 2033, we project the company will achieve an average sales growth rate of 3.3% and double-digit growth in earnings per share.

Prudential is a long-term savings and insurance company primarily operating in Asian markets. The company's share price is currently depressed due to uncertainties surrounding its earnings and dividends, which have been exacerbated by divestments and a rapid turnover of chief executives. However, we believe that the strategic plan in place will yield financial benefits, allowing the company to reinstate its dividend.

Ramsay is experiencing strong patient revenue growth; however, inflationary pressures, reduced government support, and increased investment in digital initiatives are impacting group profitability. Despite these challenges, we anticipate long-term margin expansion as Ramsay reduces its reliance on agency employees, normalizes case mix and volumes for nonsurgical services, improves capacity utilization, and realizes efficiencies from digital investments. Notably, labor shortages are beginning to ease, and Ramsay is actively investing in recruitment and training. The company has also negotiated higher reimbursement rates to address cost inflation and has improved its balance sheet by divesting its stake in Ramsay Sime Darby. For further details, please refer to our Ramsay Stock Pitch published in December 2023.

No-moat Realty Income is currently trading at a significant discount to our $75 fair value estimate. We believe the decline in share price since August 2022 is primarily due to rising interest rates. Our analysis indicates that Realty Income is the most sensitive REIT we cover, exhibiting the highest negative correlation with interest rates. As "The Monthly Dividend Company," it attracts many investors when interest rates are low; however, these investors may shift to risk-free Treasuries as rates increase. Moreover, the company maintains relatively low annual rent escalators, which means it depends on executing billions in acquisitions each year to drive growth. The rise in interest rates has narrowed the spread between the company's acquisition cap rates and the weighted average cost of capital used for funding these acquisitions, potentially hindering growth. Nevertheless, Realty Income has increased its acquisition volume over the past several years and continues to acquire at a positive spread over its cost of capital. In 2023, it completed $9.5 billion in acquisitions at an average cap rate of 7.1%, significantly above the average interest rate of around 5% on the debt issued for these transactions. The company’s $9.3 billion acquisition of Spirit Realty, finalized in January 2024, is expected to enhance shareholder value. We believe management will continue to identify opportunities that boost funds from operations, supporting ongoing dividend growth for shareholders. The recent selloff driven by rising interest rates offers investors an appealing entry point, especially if the Federal Reserve signals any rate cuts in 2024.

We believe the market has not fully recognized Roche's robust drug portfolio and its industry-leading diagnostics, which together create sustainable competitive advantages. The challenges posed by declining COVID diagnostic revenue and competition from generics and biosimilars for older drugs are diminishing as we approach 2025, allowing the strength of the firm's portfolio of market-leading drugs to come to the forefront. We also see that the firm's research and development expenditures are becoming more efficient, and recent acquisitions in obesity and immunology have significant multi-billion-dollar sales potential. As a leader in biotech and diagnostics, this Swiss healthcare giant is uniquely positioned to advance global healthcare towards a safer, more personalized, and cost-effective future. The synergy between its diagnostics and drug development teams provides Roche with a distinctive in-house perspective on personalized medicine. Furthermore, Roche's biologics represent three-quarters of its pharmaceutical sales; while biosimilar competitors have encountered development challenges, Roche's innovative pipeline may render these products less relevant upon their launch.

Rogers has experienced a significant decline alongside other Canadian telecom stocks, primarily due to concerns over potential increased regulation following the appearance of CEOs before Parliament. However, we believe that any new regulations are unlikely to be overly harsh, as the current market conditions do not justify such measures. The competitive landscape remains intense, pricing has remained stable, and companies have not enjoyed substantial financial gains, yet they continue to invest heavily in enhancing Canadian networks. Rogers is still generating considerable free cash flow and stands to benefit from additional synergies resulting from its merger with Shaw. Furthermore, it has emerged as the leading wireless carrier in terms of new customer acquisitions. While Rogers may not experience explosive growth, the prevailing pessimism surrounding the company appears to be excessive. All three major players in the market seem undervalued, but we feel most confident in Rogers' position.

RWE's transition from a coal-heavy company to a leader in renewable energy showcases a strong strategy and execution that remain undervalued in the market, even with a clear exit from coal following its agreement with the German government. The acquisition of ConEd's clean energy business positioned RWE as the fourth-largest renewable energy player in the US, a highly attractive market following the implementation of the Inflation Reduction Act. RWE enjoys significant exposure to European power prices and clean spark spreads, attributed to its substantial share of liberalized renewable energy and combined-cycle gas turbine plants. Furthermore, the company typically capitalizes on commodity price volatility through its trading operations.

Narrow-moat-rated STMicroelectronics is one of our top picks in the technology sector, with a fair value estimate of $44/EUR 40 that provides an attractive margin of safety for long-term, patient investors. We are optimistic about the long-term secular tailwinds in the automotive market, as ST is poised to benefit from increased chip content per vehicle, particularly in electric vehicles. The company has also experienced significant gross margin expansion in recent years. However, we acknowledge near-term risks associated with ST. There are warning signs in the broader EV market, including excess inventory, competitive pricing among original equipment manufacturers, and potentially slower growth than anticipated. Despite these risks, we believe they are already reflected in current market prices, and we see potential rewards for investors willing to endure the current cyclical downturn in the semiconductor sector. In the long term, we are not overly concerned about the expansion of trailing-edge chip manufacturing equipment and capacity in China, as domestic chipmakers may attempt to displace companies like ST over time. We believe ST’s diverse product portfolio and high customer switching costs will help the firm maintain its relevance in the Chinese market and likely in most other global markets as well. Additionally, we are not particularly worried about the growth of the silicon carbide-based semiconductor market, as we expect ST to remain a market leader with strong revenue growth in this area throughout the rest of the decade.

Tencent's business is characterized by enduring competitive advantages, a proven track record of success, and a strong financial position. WeChat, with its extensive user base of 1.3 billion in China, still presents significant opportunities for enhanced advertising monetization, especially through its additional services like video accounts and WeChat search. With anticipated growth and margin improvements in its gaming, financial technology, and cloud segments, Tencent is well-positioned to achieve a comfortable mid-teens compound annual growth rate in earnings over the next five years. Importantly, the company's valuation remains highly attractive. Furthermore, Tencent shows a strong commitment to returning value to shareholders, distributing approximately 80% of its earnings through a mix of around 30% in dividends and 50% in share buybacks, highlighting its focus on shareholder value.

Shares of wide-moat Estée Lauder have declined by 49% over the past 12 months, primarily due to weak demand in China and investor skepticism regarding the firm's profit recovery strategy. We believe the shares, currently trading at a 54% discount to our fair value estimate of $162, offer compelling value and recommend them to investors seeking exposure to the attractive beauty care market. Although the challenging consumer environment in China has created short-term obstacles for Estée and its beauty peers in regaining market growth, we maintain that the premiumization trends and Estée Lauder's competitive position remain strong. We believe the current challenges in China are manageable as the company leverages its strong brands, solid channel relationships, and various research and manufacturing initiatives in Asia to enhance its positioning and long-term growth prospects. While we anticipate a low-single-digit sales decline in fiscal 2025 due to ongoing issues in China, we expect revenue growth to accelerate in subsequent years, averaging 6%, driven by Estée's focus on structurally attractive premium skincare. We project that the operating margin will rebound to 17% by fiscal 2034, supported by an improved channel mix (moving away from heavy promotions in department stores), manufacturing efficiency gains, and cost-cutting measures.

Kraft Heinz, currently trading at approximately a 45% discount to our $56 fair value estimate and offering a 5% annual dividend yield, should be considered by investors. We believe market skepticism primarily revolves around concerns about the company's ability to avoid significant and lasting volume declines in the face of ongoing cost pressures, reduced consumer spending, and increased competition, including more aggressive promotions from other brand operators and private-label products following recent price increases. However, we contend that these concerns are unfounded. The company has shifted away from previous management's focus on short-term profitability and cash flow. Since mid-2019, Kraft Heinz has strategically pursued sustainable efficiencies, increased brand investment in marketing and product innovation to align with peer sales growth rates, improved its category management and e-commerce capabilities, and utilized its scale to adapt more effectively to changing market dynamics. We believe the company is dedicated to maintaining this strategic direction. We anticipate that these efforts will allow Kraft Heinz to achieve low-single-digit annual sales growth while sustaining operating margins in the low 20s.

We favor Wharf REIC due to its premier retail properties, Harbour City and Times Square, which are the largest retail assets in their respective regions. We anticipate that the company will gain from the resurgence of tourism in Hong Kong. Additionally, Wharf REIC stands to benefit from the trend of luxury retail consolidation, as luxury brands are downsizing their presence in other parts of the city while increasing their space in prime shopping destinations like Harbour City.

We consider Yum China to be a long-term beneficiary of demographic changes in China. There is considerable potential for increased fast-food penetration, primarily fueled by enduring trends such as longer working hours for urban consumers, a significant rise in disposable income, and decreasing family sizes. We believe that investors are undervaluing the company's long-term growth potential and the opportunities for margin improvement as Yum China increasingly transitions towards a franchising model in the long run.

We are convinced that Just Eat Takeaway stands as the premier food delivery company in Europe. It is well-shielded against potential downturns and holds promising prospects should it choose to expand its delivery services more vigorously into other sectors. We support the company's latest move to heavily invest in its in-house delivery system and anticipate that this strategy will drive profit growth at rates surpassing consensus estimates, particularly within the UK market. We foresee that achieving such profit growth in the coming years could lead to a substantial revaluation of its stock.Currently trading well within the 5-star range, the company's shares seem undervalued based on both discounted cash flow analysis and relative valuation metrics, offering patient investors a significant opportunity with a robust safety margin.