2023 has evolved from a good year in the stock market to an amazing year.
Since Nov. 1, the S&P 500 is up 12.5% compared to a 9.2% gain from the end of 2022 to Oct. 31.
Cognex (CGNX 2.06%), Rocket Lab USA (RKLB 3.29%), and Trimble (TRMB 1.59%) have all participated in the end-of-year rally. But they are all down over 45% from their three-year highs.
Here's why each growth stock has more room to run in 2024.
Image source: Getty Images.
Cognex's end markets will get better
Lee Samaha (Cognex): It's been a challenging year for the machine vision company. All of its three primary end markets have been challenged.
Consumer electronics (where its machine vision technology is used in monitoring the manufacturing of panels on displays -- Apple is a customer) has suffered from the slowdown in consumer spending on discretionary items. Its automotive markets (excluding electric vehicles, or EVs, and EV batteries) also came under pressure as automakers pare back production in response to sluggish sales. Finally, its logistics (e-commerce warehousing) market came under severe pressure due to slowing spending on e-commerce warehousing after a few years of torrid growth.
It all adds up to a miserable year, and Wall Street analysts expect Cognex's sales to decline 17.5% in 2023. Still, volatility is part and parcel of investing in a growth stock, and Cognex's growth will likely bounce back sooner rather than later.
The interest rate cycle will turn, and consumer electronics companies can't delay investing in new products indefinitely. Cognex's EV-related sales continue to grow strongly, and lower interest rates will encourage more auto investment overall. Meanwhile, Honeywell International's Intelligrated (warehouse automation machinery) business reported double-digit order growth in the third quarter -- a good early sign of a recovery for Cognex's logistics market.
It may look not good now, but this is often the best time to pick up a growth stock, and I think Cognex has plenty of potential to surprise on the upside in 2024.
Rocket Lab can gain altitude in the coming year
Scott Levine (Rocket Lab): While Rocket Lab stock had been on a strong upward trajectory for most of 2023, the company suffered a setback on Sept. 19, when it failed to deliver a payload on its Electron rocket. Afraid, perhaps, that the mission failure was a harbinger of future missteps, investors clicked the sell button and grounded the stock. Those who are more patient and forward-looking, however, can take advantage of the stock's recent pullback.
After extensive examination of the flight on Sept. 19, Rocket Lab identified the cause of the failure, and it has implemented measures to mitigate the risk of a similar type of event happening again. Unfortunately, those who singularly focus on the failed mission likely haven't recognized the impressive streak of successes -- 20 consecutive orbital missions and 37 Electron missions -- that the company has enjoyed. In fact, Rocket Lab is one of the leaders among space stocks as it's the second most frequently launched rocket in the United States.
Eschewing the current skepticism, growth investors could see Rocket Lab rocket higher in 2024 as demand for its services remains strong despite September's setback. Management recently reported that the company's backlog as of the end of the third quarter 2023 is $582 million, a 9% quarter-over-quarter increase. Additionally, the company sees strong revenue growth in the near future. Management projects first-quarter 2024 sales of $95 million to $105 million. Should the company achieve the midpoint of this guidance, it will represent year-over-year revenue growth of 82%. With shares trading 36% lower than their 52-week high, now seems like a great time for investors to take flight with Rocket Lab.
Trimble is managing its slowdown well, and the future is bright
Daniel Foelber (Trimble): Trimble's secular value proposition is compelling. Providing hardware and software solutions to support a swath of industries and enhance productivity, quality, safety, transparency, and environmental sustainability is an idea everyone can get behind. Especially when the business has become less dependent on hardware sales and more focused on recurring revenue streams.
However, Trimble is cyclical. Its growth has slowed and its margins are down. And management's commentary has been cautiously optimistic. For example, in its recent quarter, Trimble was able to lower operating expenses and help preserve its earnings. But it signaled challenges ahead for Q4 2023 and the beginning of 2024.
Despite these headwinds, Trimble stock has roared 28% higher since Nov. 1 -- largely as a result of a broader stock market rally and optimism that 2024's lower interest rates will help accelerate a rebound in cyclical and interest rate sensitive stocks.
In this vein, Trimble may have received its 2024 rebound sooner than expected. However, the company remains an excellent way to play exciting multidecade trends, including the Industrial Internet of Things and automation.
Trimble is also a good value, trading at a forward price-to-earnings (P/E) ratio of under 20 compared to a five-year median P/E of 33.2, and a forward price-to-sales (P/S) ratio around 3.4 compared to a five-year median P/S of 3.7. The company may need time for its results to recover, but over the next three to five years, it should prove to be a worthwhile investment.
