After falling more than 25% in 2022, the stock market came roaring back in 2023, and history suggests there's more to come. The S&P 500 closed just shy of its all-time high as of market close on Tuesday. When it does finally hit a new record high, that event combined with a more than 20% increase from its recent low will mark the start of the next bull market.
So why does it matter? Well, since 1957, bull markets on average have lasted nearly five years, rewarding investors with average gains of just over 169%. Going back to the beginning of trading for the Nasdaq Composite in 1972, history shows that in every year following a market recovery, the tech-centric index has generated average annual gains of 19%.
The economy is generally unpredictable, so things could still get worse before they get better, but the historical data suggests a good year is ahead for investors.
There are many reasons to buy a stock, and many of them include the expectation that the stock will ultimately make investors money. One of those reasons is a bull market tends to benefit a lot of stocks. Here are my top 10 growth stocks to buy for 2024 before the bull market charges ahead.
Image source: Getty Images.
1. Alphabet
A significant decline in digital advertising in 2022 and a pause in the growth of cloud spending hit Alphabet (GOOGL 10.22%) (GOOG 9.96%) hard, but the improving economy is sparking a rebound. Google remains the global search leader, the world's largest online advertiser, and a "Big Three" cloud infrastructure provider, which will continue to buoy its fortunes.
Perhaps the biggest catalyst will be Alphabet's efforts involving artificial intelligence (AI). Alphabet recently rolled out Gemini, a program it claims is the most advanced generative AI system yet. It also offers more than 100 prebuilt AI models via Google Cloud and custom tools to make users more productive.
This gives Alphabet multiple catalysts to boost its stock in 2024. Trading at 4 times forward sales, the stock is historically cheap.
2. Amazon
Economic headwinds, led by soaring inflation, weighed heavily on Amazon (AMZN 3.43%) in 2022, but green shoots of growth are appearing across its vast operations. Digital retail is bouncing back, and AI is boosting cloud spending, fueling its two largest growth areas.
The company has also planted its stake in AI, providing cloud customers with all the top generative AI models via Amazon Web Services (AWS). The company continues to integrate AI into every aspect of its operations, improving productivity along the way.
The twin tailwinds of an improving economy and AI will drive Amazon higher. Trading at just 2 times forward sales, the stock is a steal.
3. MercadoLibre
MercadoLibre (MELI 3.09%) is likely the least well-known company on this list. It's the leading provider of e-commerce and digital payments services in Latin America, and business is brisk. In the third quarter, revenue climbed 69%, while operating income surged 194% -- despite generating record-setting growth last year.
This trend is expected to continue. The adoption of e-commerce in the region is among the fastest in the world, and with a population of nearly 668 million, it's twice the size of the U.S., so its pool of potential customers is much larger.
Add to that MercadoLibre's margin expansion and strong cash flow, and investors shouldn't sleep on this Latin American powerhouse.
4. Microsoft
Microsoft (MSFT 1.82%) suffered from the same headwinds as its tech rivals but responded by kicking off the AI gold rush with a $13 billion investment in ChatGPT creator OpenAI. What followed was a flurry of activity, integrating generative AI tools across its suite of products and services and AI cloud offerings. Its AI-fueled digital assistant Copilot is seeing robust demand, the headliner in the "fastest-growing $10 billion business" in Microsoft's history.
The demand is unmistakable. Microsoft's Azure cloud revenue growth outpaced rivals in the calendar third quarter, with three percentage points of that growth attributable to demand for AI.
The stock is selling for 32 times forward earnings, particularly reasonable in light of its prospects.
5. Nvidia
Nvidia (NVDA 6.18%) processors have long been the gold standard for gaming, data center, and artificial intelligence (AI) use cases, capitalizing on the generative AI boom that hit last year. The resulting shortage of AI chips is expected to persist through 2024. Nvidia ramped up production to meet the accelerating demand and continues pouring money into research and development, creating ever-improving solutions.
The company has generated triple-digit year-over-year revenue and profit growth in each of the past two quarters, and soaring demand for AI is expected to continue. Nvidia's price/earnings-to-growth ratio (PEG ratio) of less than 1 is cheaper than the broader market, making this stock a steal.
6. Palantir Technologies
With decades of experience under its belt, Palantir Technologies (PLTR 3.73%) was ready when AI went viral last year. The company quickly pivoted, adding generative AI models to its repertoire, which work hand in hand with Palantir's AI-powered data analytics. The resulting Artificial Intelligence Platform (AIP) has generated robust interest, and management said, "Demand for AIP is unlike anything we have seen in the past 20 years."
The stock might seem pricey at 11 times forward sales, but with four successive quarters of profitability, Palantir is "eligible for inclusion in the S&P 500," management noted on the company's recent earnings call. As one of the few pure-play AI stocks out there, Palantir is well-positioned to benefit from the ongoing AI gold rush.
7. Roku
Despite a punishing couple of years, Roku (ROKU -10.29%) remains the world's most widely used streaming platform, with 51% of the market. The dearth of ad spending last year has begun to lift, and with multiple viewers across its 76 million active accounts, it's a compelling opportunity advertisers can't ignore, fueling ad growth on its platform.
Furthermore, the secular tailwinds of cord-cutting and the deterioration of broadcast viewing have caused an ongoing advertising shift from broadcast to streaming. Roku is the one place to reach these highly engaged viewers, who consumed 26.7 billion hours, or roughly 3.9 hours per day. And at roughly 3 times forward sales, investors are getting a bargain.
8. Shopify
With the downturn largely in the rearview mirror, things are looking up for Shopify (SHOP 1.11%). E-commerce spending has returned to growth, and as the leading provider of software tools for online merchants, Shopify is positioned to thrive. The company released new generative AI tools to help sellers prosper and it has a minority stake in Global-e Online, which helps merchants expand into international markets.
Shopify streamlined its operations last year, trimming staff and shedding its logistics business to focus on its mission to empower digital retailers. This has fueled strong growth and profitability, making Shopify a compelling opportunity for investors.
9. Tesla
Tesla (TSLA -1.11%) has a reputation as a battleground stock, but it continues to defy detractors. Last year, the Model Y became the world's best-selling car by a comfortable margin, a first for an electric vehicle. Despite headwinds and price adjustments -- which led to temporary profit declines -- the company continued to drive further into the automotive mainstream.
With inflation cooling and interest rates expected to drop next year, conditions will be much more favorable for Tesla. This could help the company return to its long-term production goal of 50% annual growth while also helping expand its profit margins.
Finally, 5 times forward sales is a pretty reasonable valuation, especially considering the stock price gains of more than 2,300% over the past decade.
10. The Trade Desk
Some investors were surprised by the impact the aforementioned decline in marketing spending in 2022 had on The Trade Desk (TTD 1.67%). The company's self-service digital advertising platform actually took market share from the walled gardens, including Alphabet and Meta Platforms, notching growth even as its rivals suffered year-over-year revenue declines.
Late last year, CEO Jeff Green said, "Over the last few quarters ... we have gained more market share than in any other period in our company's history." The Trade Desk's recently released Koa AI copilot should fuel this trend, helping advertisers get the most out of their ad campaigns.
Finally, with a price/earnings-to-growth (PEG) ratio of less than 1 -- the standard for an underpriced stock -- the Trade Desk is a compelling bargain.
