We're on the verge of a bull market now, but it hasn't happened in a straight line. Consider that as the bear market emerged in 2022, investors began to invest more heavily in safer stocks. And as they became more confident in 2023, they moved back into growth stocks.
While the S&P 500 has been rallying this year -- up 23% as we enter the last week of December -- many stocks that moved up in 2022 are moving down in 2023. The S&P 500 Pure Value index has gained just 5% in 2023, but the Nasdaq-100 tech index is up 52%.
In bull markets, growth stocks tend to rise. Here are five top picks to consider now: Amazon (AMZN 3.43%), Global-e Online (GLBE 2.44%), On Holding (ONON 2.66%), Toast (TOST 3.42%), and Roku (ROKU -10.29%).
1. Amazon: New opportunities in AI
Yes, Amazon is still a growth stock, continually finding new ways to generate higher sales along with completely new businesses to complement its already broad slate.
Much of the current emphasis is on artificial intelligence (AI), which informs a lot of its operations and holds tremendous opportunities. It's heavily investing in generative AI for Amazon Web Services (AWS), which allows developers to easily code and create full content and marketing campaigns with a few prompts. These are groundbreaking services that could eventually become huge growth drivers as they're adopted.
Amazon is back to double-digit sales growth, which was a comfortable 13% over last year in the 2023 third quarter heading into the big holiday season. It's also back to serious profits, with operating income more than quadrupling in the third quarter and net income more than tripling from $2.9 billion to $9.9 billion.
It would be a mistake to assume that Amazon's growth is over. It's growing its advertising business and healthcare segment, and it's sticking to its "day one" philosophy that makes innovation an integral part of its culture. Amazon stock still sits below its highs from 2021, but it could break through in 2024.
2. Global-e: What every e-commerce retailer needs
Global-e operates a cross-border solutions platform for e-commerce retailers, both large and small. Top-tier clients like Walt Disney and LVMH are already on board, and it keeps adding more, including Guess? watches and Tory Burch in the third quarter. It's an essential service for any e-commerce retailer that wants to go global and generate new sales avenues, with the potential for growth far outweighing the costs of adding it.
It also has a partnership with Shopify, which recently launched its platform as a white-label service under the banner of Shopify Markets Pro. That itself is a potentially massive growth driver.
Global-e has been posting robust growth since becoming a public company in 2021, and it's finally starting to slow down, but sales still increased 27% year over year in the third quarter. Now, it looks like the tide is starting to turn with inflation and interest rates, which should lead to a rebound in retail sales. E-commerce is growing faster than overall retail sales, and Global-e is well-positioned to benefit from these trends.
3. On Holding: A top premium activewear stock
On makes premium sneakers and athleisure clothes, and it's been standing strong against inflation. Its core clientele are affluent and resilient and are spending on activewear despite the macro economy. On has been reporting solid double-digit sales growth and it's just getting started.
In the 2023 third quarter, sales increased 47% over last year, and that was a slowdown. Direct-to-consumer sales increased 55%, representing the strength of the brand. And On is also profitable, with net income up 184% from last year.
On is still a relative unknown in much of the world, but it has become extremely popular where it has a brand presence. It's developing its business globally and is just touching the tip of the iceberg in its long-term opportunity. It's likely to continue the rollout in 2024, gaining loyal fans and customers, and it should benefit from the reversing inflationary trends.
4. Toast: A better solution for restaurants
Toast makes software that helps restaurants run better. It offers a full suite of software and hardware solutions that automate and simplify everything from payment processing to digital ordering, and it's quickly adding clients and increasing sales.
Its annualized run rate, which it uses as its top-line metric, increased 40% over last year in the 2023 third quarter. Moreover, the company added 6,500 new restaurants in the quarter to 99,000 as more customers see the benefits of working on its platform.
It's still young and growing and in its not-yet-profitable phase, but it's making progress. Its net loss of $31 million was an improvement from $98 million last year, and Toast generated $37 million in free cash flow after an outflow of $80 million last year. As it scales, that should keep improving. As companies begin to expand their budgets again, 2024 could be the year that Toast becomes profitable.
5. Roku: A different kind of streaming stock
Roku was a pandemic darling that disappointed investors after growth slowed and net profits disappeared. But it has many features that help it stand out in a crowded streaming industry. Its hardware segment is the top streaming operating system in the U.S. even up against giants like Amazon, and its advertising business is attracting more dollars as viewers switch to streaming.
After some mediocre performance, Roku had an excellent 2023 third quarter. Revenue increased 20% over last year, with platform revenue, or the ad business, up 18%, and the hardware segment up 33%. Active accounts were up 16% over last year, and viewing hours increased 22%. Those are crucial numbers because they inform how advertisers spend their dollars, and as more people view more content, more ad dollars get pumped into Roku's system.
Profitability has been a problem for Roku over the past few years, but it has demonstrated that it can be profitable at scale. It's guiding for positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2024 and expects to improve from there. With a recovering economy, Roku stock could surge in the coming year.
