Growth stocks are normally considered to be companies that aren’t necessarily mature, and that focus their resources on business development rather than rewarding shareholders with dividends. However, we also consider growth stocks to be those companies that are expected to outperform the market over a given time period.
So, what stocks could outperform in 2024? Here are some of my ideas.
Nvidia
One of the best performing stocks of 2023, Nvidia (NASDAQ: NVDA), could be set to outperform the market in 2024. The so-called Magnificent Seven pulled the S&P 500 up last year, and Nvidia was the best performing of the lot.
It’s also the only Magnificent Seven stock with a price/earnings-to-growth (PEG) ratio below one. The PEG ratio is an earnings metric adjusted for growth.
In turn, this infers that it’s the only undervalued stock of the seven. Given its PEG ratio of 0.92, and it’s dominant position as an enabler of the AI revolution, I believe the stock could push much higher.
Of course, some investors may be concerned that this ‘dominant enabler position’ could be eroded by peers, but as it stands, Nvidia is far ahead of the rest in serving the AI space.
AppLovin
AppLovin helps its clients maximise advertising revenue through the use of its software. The company operates in a growing industry and has experienced impressive revenue growth over the past 12 months.
It certainly looks cheap at the moment, however, with a PEG ratio of just 0.62. This may reflect some concerns about a slowdown in digital marketing in 2024 with economic growth pulling back. Nonetheless, it looks excellent value, and could surge.
Rolls-Royce
Like the two stocks above, Rolls-Royce also had a very strong 2023, tripling in value. And there could be another strong year ahead, supported by resilient demand for air travel, and a strong order book in its power systems and defence segments.
What’s more, the stock trades with a PEG ratio of 0.55, inferring it could be significantly undervalued. It’s still susceptible to demand shocks within civil aviation, as the pandemic showed, but the fundamentals are very strong.
Lloyds
Lloyds may not seem like a growth stock. However, this UK-focused banking institution has been held back due to investors’ concerns about a worst-case scenario for credit defaults.
So, why could it surge in 2024? Well, the threat of a slew of defaults remains, but it’s fallen greatly. And that’s reflected in the positive momentum we’ve seen leading into 2024. Still trading with a PEG ratio of 0.5, it appears greatly undervalued according to its expected earnings growth.
Intesa Sanpaolo
Intesa Sanpaolo is one of Europe’s largest banking groups. The Italian bank has seen some volatility in 2023 amid uncertainty surrounding the Italian government’s windfall tax.
However, looking forward, it’s a highly attractive investment opportunity. Analysts are expecting earnings to grow at 31% over the medium term. In turn, this contributes to a PEG ratio of 0.22, making it one of the cheapest banks I’ve come across.
