The year is off to a running start. The S&P 500 index is up by 3.1% so far, checking the last box needed to declare a bull market starting in October 2022. History says that these bull runs tend to last for a couple of years, and the gains before the next (inevitable) bear market should run much higher than this strong start.
So it's high time to look around Wall Street and find some great buying opportunities at this auspicious moment. Read on to see why five Motley Fool contributors think Tesla Motors (TSLA 0.88%), NextEra Energy Partners (NEP 2.83%), Shopify (SHOP 2.63%), D.R. Horton (DHI +0.97%), and the brand-new Bitcoin (BTC 0.78%) exchange-traded funds (ETFs) stand out as excellent investments right now.
NASDAQ: TSLA
Key Data Points
Tesla is falling back down to earth
Daniel Foelber (Tesla): After a year of price cuts and margin compression, Tesla investors were hoping for a turnaround in 2024. That's not what they got on the company's fourth-quarter 2023 earnings call, which included muted guidance for the year on top of an overall weak quarter.
Revenue growth was just 3% year over year, operating income fell to $2.1 billion, and the operating margin was 8.2%. For comparison, Tesla's operating income was $3.9 billion in the fourth quarter of 2022, and its operating margin was 16%.
High operating margins have been a differentiating factor for Tesla and a key reason for its premium valuation. Since its margins have been cut in half, it would have to double its revenue to get the same operating income as it did in the 2022 fourth quarter. The ideal scenario is sustaining a relatively high operating margin and growing revenue. But both revenue growth and margins look to be disappointing for a while.
Management made it clear on the earnings call that while its vehicles are a good value, they are simply more expensive than the most popular mass-produced vehicles like the Toyota Corolla or Honda Civic. It's harder for consumers to justify paying more when the monthly payment is higher due to high interest rates. And yet, Tesla's Model Y was still the best-selling vehicle (not just EV) in the world last year.
The company is doing a good job with what it can control: cost management. Costs per vehicle declined in the fourth quarter, and Tesla is confident it can find further savings in 2024.
Specifically, costs per vehicle are falling by about 2% per quarter or around 10% per year. Cost of goods sold per vehicle was just above $36,000 in the fourth quarter of 2023 compared to over $39,000 a year earlier.
Elon Musk sees Tesla as an artificial intelligence (AI) and robotics company, not just a car company. Responding to his post on X that he was "uncomfortable growing Tesla to be a leader in AI and robotics," Musk clarified that it's not about the economic gain of having more shares, but about the voting control to ensure Tesla can grow in AI and robotics without a hostile takeover by an institutional service to take control of the powerful technology.
He proposed the idea of a dual-class stock to improve voting control and make the company more secure. From the comments, it doesn't seem that Musk wants to take his AI interests elsewhere but rather wants to ensure the company's governance is intact as innovation becomes irreversible.
Overall, Tesla seems to be doing a good job investing in its near-term and long-term growth. The company should be able to take market share during a prolonged downturn. And if interest rates do come down, it could see a noticeable uptick in demand.
The long-term investment thesis is intact, so Tesla looks like a good buy, especially if the market overreacts and there's a steep sell-off.
NASDAQ: IBIT
Key Data Points
An easy on-ramp to the crypto superhighway
Anders Bylund (Bitcoin ETFs): At long last, investors finally have access to exchange-traded funds (ETFs) tracking the live market price of Bitcoin. For the first time ever, I can recommend a stock-like investing asset that gives you direct exposure to that cryptocurrency's price, with minimal fees and wide availability on pretty much any stock-trading service.
Perhaps you see no value in Bitcoin since it isn't a business that makes a product or delivers a service. If so, you can stop reading here and move on to a more traditional stock recommendation.
You would be in great company. Warren Buffett will probably never own the tiniest sliver of a Bitcoin. Vanguard founder Jack Bogle swore off cryptocurrencies in his lifetime, and the fund-manager firm he created has sworn off the entire crypto industry. It's hard to bet against these investing geniuses. I get it.
If you're still reading, maybe you disagree with Vanguard's and Buffett's crypto-free philosophies. And maybe you have stayed away from cryptocurrencies until now only because you don't want to open and fund another investing account with yet another firm, sharing your financial details and bank account numbers over the internet just to get started. And then you're in exactly the right place.
As long as you have a stock brokerage account, you probably have easy access to all 11 of the new Bitcoin-based ETFs. Like any other ETF, you buy and sell them in the same manner as you would trade any ordinary stock.
Moreover, index-tracking ETFs tend to come with no transaction fees and absolutely minimal annual management fees -- in the spirit of Jack Bogle. Technically speaking, these ETFs will match the current Bitcoin price on one of several suitable price-tracing indexes, each averaging the figures from several crypto-trading platforms in order to smooth out volatility. Therefore, a Bitcoin ETF lets you follow Bogle's investing style even if Vanguard isn't involved.
Still with me? All right. I recommend sticking with the larger ETFs and most-trusted management firms. These funds stand out above the rest in my reasonably informed opinion:
|
Fund Name |
Expense Ratio |
Fee Waiver |
Assets Under Management |
|---|---|---|---|
|
iShares Bitcoin Trust (IBIT +1.05%) |
0.25% |
0.12% for first 12 months for up to $5 billion in assets |
$1.73 billion |
|
Fidelity Wise Origin Bitcoin Fund (FBTC +0.99%) |
0.25% |
0% through July 31, 2024 |
$1.50 billion |
|
ARK 21Shares Bitcoin ETF (ARKB +0.98%) |
0.21% |
0% for first 6 months for up to $1 billion in assets |
$481 million |
|
Bitwise Bitcoin ETF (BITB +1.02%) |
0.20% |
0% for first six months for up to $1 billion in assets |
$465 million |
Data source: Each fund's home page and ETF.com. Market data is current as of 1/26/2024.
Each option comes with a unique selling point or two.
- The iShares and Fidelity ETFs are special because of their household-name brands and massive early interest. The iShares Bitcoin fund has the gigantic financial backing of industry giant BlackRock (BLK +0.00%).
- Fidelity's corporate backing might be smaller, but this privately held investment firm also manages its own price-tracking index and handles all the buying, selling, and holding of Bitcoin tokens on its own platform. Everyone else relies on third-party services for these purposes.
- ARK 21Shares is managed by growth-investing genius Cathie Wood. That connection alone is enough to drum up plenty of Bitcoin business, and the fund also comes with one of the lowest annual fees when all the promotional programs expire.
- The Bitwise ETF offers the lowest-cost option. And it promises to share some of the few dollars of management profit with developers in the Bitcoin community.
I have selected the Bitwise ETF for my own Bitcoin ETF holdings, but all of the names above are fine choices. So if you're interested in building a Bitcoin position without dealing with the hassle and fees of buying the actual cryptocurrency yourself, pick your favorite among these leading Bitcoin spot-price ETFs and get started.
Crypto investing might not be everyone's cup of encrypted transaction ledgers, but the first step is just as easy as buying any old stock nowadays.
NYSE: DHI
Key Data Points
Build, baby, build
Keith Speights (D.R. Horton): You might have noticed that Warren Buffett didn't buy many stocks last year. In fact, he was a net seller of stocks. However, the legendary investor did scoop up shares of several homebuilders in 2023. His biggest position in the group was (and is) D.R. Horton.
When Buffett likes a stock, it grabs my attention. D.R. Horton wasn't really on my radar screen before, but it definitely is now.
It isn't just any homebuilder; it's the biggest one in the U.S. The company operates in 118 markets in 33 states. It claims the highest market share in three of the country's five largest housing markets. Last year, the company closed on 90,777 homes.
After its shares soared more than 70% last year, their momentum is faltering now. The stock fell on the company's mixed fiscal 2024 first-quarter results. D.R. Horton's full-year projected revenue growth is only 3%.
NYSE: DHI
Key Data Points
I think that this pullback presents a great buying opportunity for long-term investors. Why? The U.S. housing shortage hasn't been solved. Some experts estimate that the country needs another 4 million new homes.
Sure, the boom from last year seems to be taking a breather. Chief financial officer Bill Wheat acknowledged in the recent earnings conference call that the company is offering more incentives and reducing home prices in some cases to appeal to buyers.
However, Wheat also noted that the company's sales "can be significantly affected by changes in mortgage rates and other economic factors." With the Fed talking about interest rate cuts later this year and the U.S. economy showing strength, I think D.R. Horton's near-term prospects are better than they might seem. And its long-term prospects remain as strong as ever.
NYSE: NEP
Key Data Points
Sweet Valentine gifts
Demitri Kalogeropoulos (Shopify): Shopify will announce its next earnings update on Feb. 13, likely making the next trading day a volatile one for the stock. But investors don't have to wait until Valentine's Day to pick up shares of this highly successful e-commerce infrastructure specialist.
Shopify checks most of the boxes that growth investors love to see in a stock. It has a small but significant market share with plenty of room to expand. Its platform accounts for just about 10% of U.S. e-commerce transactions right now, yet a growing merchant base is sure to lift that metric over time.
The company gave investors plenty to celebrate in its previous earnings report in early November. Sales volumes jumped 22%, and rising subscription, payments processing, and advertising fees all combined to push third-quarter sales up 25%.
Profits are rising at a much faster rate, and surging cash flow implies years of continuing gains ahead as its platform of services grows. Recent additions include back-office functions like financial management, for example.
It's true that the stock doesn't look cheap heading into the mid-February report. You'll have to pay nearly 16 times sales for this business, up from around 10 times sales at a few points in 2023. Yet for investors who don't mind volatility, it's worth considering putting this stock into your portfolio and giving it plenty of time to earn its premium valuation.
A turnaround stock for 2024?
Neha Chamaria (NextEra Energy Partners): (NEP 2.83%) NextEra Energy Partners wiped out investors' wealth in 2023 as its stock price crashed nearly 57%.
The stock, known for steady and growing dividends, hit income investors where it hurts most: It slashed its annual average dividend growth target through 2026 from a range of 12% to 15% to only 5% to 8%, with a target of 6%. Rising interest rates were to blame because they made funding for growth and buyouts of debt in the form of convertible equity portfolio financings costly for the renewable energy specialist.
NextEra Energy Partners' dividend cut didn't sit well with investors, but that's where the misconception lies: The company didn't cut its dividend. On the contrary, it will still be growing it, albeit at a slower pace for now, and only because it wants to ensure that it can pay out dividends at a sustainable level even in a difficult business environment.
While many expected things to get even worse for NextEra Energy Partners, the company just released its fourth-quarter numbers and assured investors that it can raise its dividend by an average of 5% to 8% through 2026, including a 6% raise for 2024. Importantly, management asserted that its transition plan is on point and that it does not require an acquisition to fund dividends, or issue stock through at least 2027 to fund growth.
NextEra Energy Partners, in fact, expects to generate $730 million to $820 million in cash available for distribution (CAFD this year. That reflects nearly 12% growth at the midpoint.
The company recently sold part of its natural gas assets as planned and is identifying more and more wind assets to repower in a bid to boost CAFD yields as part of its transition plan. Having brought down NextEra Energy Partners' dividend growth in line with peers, its parent company, NextEra Energy (NEE +1.21%), is now focused on improving its cost of capital to put the renewable energy company back on the growth track.
With NextEra Energy Partners' management reaffirming its transition plan and dividend growth goals, and the stock still down nearly 50% in the past six months, it's a rock-solid value buy for long-term investors now.
