With peak inflation likely in the rearview mirror for the time being and interest rates expected to come down, 2024 could be a great year to invest in growth stocks. However, some investors may be hesitant to keep their foot on the gas after a rip-roaring 2023 saw many growth stocks surge to new heights.
Electric vehicle maker Rivian Automotive (RIVN 6.10%), materials company Hexcel (HXL -0.03%), and energy storage specialist Fluence Energy (FLNC 2.06%) somewhat missed out on the rally by underperforming the Nasdaq Composite in 2023. But all three have what it takes to grow for years to come. Three Motley Fool contributors offer their insight on why these three stocks are worth buying in January.
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Rivian is approaching a tipping point
Daniel Foelber (Rivian): Rivian stock soared 40% in December off little more than a change in sentiment (its Q3 results were released in early November). But it's only one week into 2024, and Rivian has already given up some of those gains. Rivian's price is down 29.5% over the last year despite recent strong performance in the market.
Part of the reason for Rivian stock's poor start to 2024 was the release of its production and delivery figures for all of 2023. Rivian beat expectations, but the results were far from the blowout some investors may have priced in based on the December run-up.
Zoom out, however, and Rivian continues to deliver on promises and has a strong balance sheet -- unique characteristics for such a young company. For Rivian to soar in 2024 and beyond, the company must reduce its cash burn, sustain its production growth (preferably around 50% per year), and chart a path toward profitability.
The good news is that Rivian has been reducing its operating losses even as it produces more vehicles and invests in its long-term growth -- which is a sign that its cost structure is improving. Cash reserves are down over 56% from their high, but the company still has nearly $8 billion in cash on the balance sheet.
RIVN Cash and Equivalents (Quarterly) data by YCharts.
There aren't many companies with the dry powder to pursue such an aggressive growth strategy. But Rivian is in that rare category, largely thanks to successful capital raises and its initial public offering.
Rivian will remain a speculative investment opportunity until it reaches consistent profitability. The company could end up being a great value for patient investors, but there's also the risk that Rivian will have to raise more cash by diluting its stock or taking on expensive debt.
Some investors may prefer to wait for the company to mature before smashing the buy button. But risk-tolerant investors are getting the chance to buy Rivian at under a 5 price-to-sales ratio -- not bad for a high-growth company in an exciting industry.
Increasing airplane production and composite content augur well for Hexcel
Lee Samaha (Hexcel): Boeing, Airbus, and other airplane manufacturers are looking for any way to ramp production and deliver on multiyear backlogs. It isn't easy; Boeing is set to miss its target for 737 MAX production in 2023 due to a manufacturing quality issue. Still, there's no doubt airplane manufacturers need to increase output.
That's great news for a supplier like Hexcel. The company's advanced composite materials have strength and weight advantages over conventional materials like aluminum. They are an integral part of the future of the aerospace industry -- at least, that's how Boeing CEO Dave Calhoun sees it.
It's not just that Hexcel has a growth opportunity from the increased number of airplanes being produced. The reality is that newer planes tend to contain more composite content. As such, the company's total addressable market tends to increase with every new plane developed.
It's a compelling growth story, and Hexcel's management has been investing in expanding its operational capacity and reopening production lines in anticipation of long-term growth. Wall Street analysts expect Hexcel to report double-digit revenue growth in 2024, with more than 30% growth in earnings as margins expand in line with increased production. With a multiyear growth opportunity ahead of it, Hexcel is an exciting way to play in the ongoing recovery of air travel.
A strong end to 2023 has Fluence Energy well positioned for 2024
Scott Levine (Fluence Energy): A leading energy storage stock, Fluence charged up investors' excitement last month when it reported an electric fourth-quarter 2023 performance. Since the company announced its Q4 2023 financial results before the market opened on Nov. 29, shares have risen about 26% as of this writing. And there's reason to believe the battery stock can continue powering higher in the coming year.
One source of celebration for investors in the Q4 2023 report was that Fluence ended 2023 having exceeded its own expectations. Whereas the company originally expected to report 2023 sales of $1.4 billion to $1.7 billion, Fluence reported $2.2 billion on the top line for 2023, representing an 85% year-over-year increase. Management had also initially projected a 2023 adjusted gross profit of $60 million to $100 million. Instead, the company reported $147 million in adjusted gross profit.
But perhaps the even greater source of excitement is the company's growing backlog -- an accomplishment that bodes well for the company's future. As of Sept. 30 (the end of its fiscal year), Fluence had a contracted backlog of $2.9 billion with $13 billion in the pipeline. At the same time last year, the company's contracted backlog and pipeline were $2.2 billion and $8.5 billion, respectively.
Continuing to grow its pipeline and backlog in 2024 and converting its backlog into revenue should lead investors to bid the stock higher in the new year. Likewise, if Fluence makes progress toward its 2024 revenue guidance of $2.7 billion to $3.3 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $50 million to $80 million, shares could soar even higher. For growth investors, Fluence is a niche renewable energy stock that can power market-beating returns in the new year.
