Discerning investors are constantly on the lookout for lucrative opportunities, especially due to a challenging 2023. As we usher in 2024, the focus shifts to identifying the best shares to invest in, taking into account the backdrop of economic recalibration and market realignment.
2023’s Challenges and Impact on ASX Stocks
The year 2023 was marked by significant headwinds, including rampant inflation and escalating interest rates, which exerted considerable pressure on growth stocks. With the Australian Consumer Price Index (CPI) inflation hovering around 4.3% and the Reserve Bank of Australia (RBA) cash rate target rising to 4.35%, investors are currently going through a terrain riddled with financial complexities. These economic strains were further compounded by global geopolitical tensions, notably the Ukraine War and ongoing pandemic-related disruptions in China, casting long shadows over numerous ASX growth stocks.
Source: Australian Bureau of Statistics
2024’s Potential For Growth Stocks
The turbulence has potentially set the stage for 2024 to be a year of buying opportunities. Growth stocks, characterized by their rapid expansion potential and typically high price-to-earnings ratios, present an intriguing proposition for investors seeking to capitalize on market dips. These Growth stocks or best shares to buy now, often innovators or niche market leaders, reinvest profits to fuel further growth, eschewing immediate dividends for long-term capital gains.
Beyond Small Caps and Market Myths
Contrary to popular belief, growth stocks aren’t exclusively small caps with constrained financials or domestic market limitations. They can encompass larger entities, as exemplified by global behemoth Tesla, which, despite its colossal market capitalization, continues to be classified as a growth stock due to the vast untapped potential of the automobile market.
The Risk-Reward Equation of ASX Growth Stocks
The inherent risk-reward dynamic of investing in growth stocks places them in a unique category. While they offer the promise of exceptional returns, just like high-risk penny stock investments, they also bear the risk of rapid declines if performance falters. This is influenced by several factors, including technological innovations, market share dominance, and the company’s ability to tackle the economic cycles.
A Launchpad for ASX Growth Stocks in 2024
As we have moved towards 2024, the Australian financial climate offers a distinctive advantage. The RBA’s relatively lower interest rates, compared to global counterparts, could help make a more conducive environment for domestic growth. This scenario bodes well for ASX growth stocks, which thrive on cheap borrowing and expansive monetary policies.
With the global financial sector still reeling from the aftershocks of significant bank collapses and the spectre of a potential recession looming, the investment picture of 2024 is likely to shift. Traditional value investing may give way to a more diversified approach, with commodities continuing to hold strong. In this milieu, we have carefully curated a list of the best ASX stocks to invest in as well as the best dividend stocks Australia has to offer that can help create a more stable portfolio and a potential passive income stream in 2024.
Top ASX Picks for 2024
Boss Energy
Boss Energy’s (ASX: BOE) strategic position in the uranium sector marks it as a noteworthy investment, particularly in the current energy sector. The company’s recent binding agreement to supply a significant quantity of uranium to a major US utility over a seven-year period is an important achievement. This contract not only solidifies Boss Energy’s revenue stream but also smartly aligns it with the fluctuating uranium market, ensuring profitability above projected production costs at its Honeymoon project.
Crucially, Boss Energy is poised to begin production in early 2024, a timing that coincides with a global shift towards nuclear power amid heightened clean energy initiatives and a push to reduce reliance on Russian uranium. This global trend, coupled with the US’s urgent need to establish a domestic enriched uranium supply, signals a rising demand for uranium. Boss Energy, ready to commence production and with key contracts in place, is strategically positioned to capitalise on these market shifts. This context frames Boss Energy not just as a mere participant in the uranium market but as a potential key player in an industry at the cusp of significant growth.
Goodman Group
Key to Goodman’s appeal is its strong global presence, evidenced by a 99% occupancy rate and a diverse portfolio spanning key markets like North America, Australia, New Zealand, Europe, and Asia. Goodman’s focus on digital economy-driven properties, including data centers, aligns well with the accelerating digital transformation and cloud computing trends. This strategic focus is reflected in their $12.7 billion development work in progress, with 25% dedicated to data centers.
Moreover, Goodman’s robust pipeline and high-quality, strategically located assets are poised to benefit from sustained demand and market rental growth, despite the current high interest rate environment. This positions Goodman uniquely to capitalise on both current market conditions and long-term structural shifts in the property sector.
Pro Medicus Limited
Pro Medicus (ASX: PME) presents a compelling investment case, mainly pushed by its Visage 7 platform, a game-changer in medical imaging, which provides radiologists with high-speed remote access to images on any device. This advanced technology has led to significant contract wins with top-tier US hospitals with strong market acceptance and potential for growth.
Financially, Pro Medicus has a remarkable track record: a three-year EPS compound annual growth rate of 44%, operating margins over 65%, and an impressive ROE of 44%. These figures significantly outpace industry averages. Despite a high payout ratio, Pro Medicus maintains a healthy balance of profit reinvestment and shareholder dividends, with future ROE forecasts remaining robust. Analysts see a bright future, driven by market share gains, product development, and expansion.
Altium
Altium Limited stands out as a lucrative investment opportunity, primarily driven by its impressive performance in the electronic design software market, particularly for printed circuit boards (PCBs). The company’s full-year 2024 financial results forecast a promising double-digit revenue growth, with anticipated revenues between $315m and $325m, marking an increase of 20-23%. This growth trajectory is underpinned by Altium’s innovative Altium 365 platform, which integrates all aspects of PCB development, and its operation of the world’s largest electronic components marketplace. Financial stability is further exemplified by Altium’s consistent dividend payments, averaging $0.40 per share over the past five years, coupled with a reliable dividend yield of 1.16%.
The company’s share price has seen a significant appreciation, up 93% over five years and 24% year over year. Analyst consensus leans towards a positive outlook, with a majority rating of OUTPERFORM or BUY. Altium’s ambitious target of $500m in revenue by FY 2026, along with its solid track record and innovative edge in a niche market, presents a compelling case for investors looking for steady growth and reliable returns.
Lovisa Holdings
In FY23, the company impressively opened 210 new stores, expanding its global footprint to 810 outlets. This expansion isn’t just about numbers; it’s a strategic foray into untapped, populous markets like Canada, Mexico, and soon, China and Vietnam, hinting at substantial growth potential. Financially, Lovisa has demonstrated remarkable resilience and growth, with a 33.1% increase in FY23 revenue to $596.5 million and a significant 24.7% rise in net profit before tax to $92.9 million. Notably, the company has consistently rewarded shareholders with growing dividends since 2020. Analysts, too, are buoyant about Lovisa’s prospects, with Morgans setting a target price of $27.50, reflecting confidence in its potential as a global retail success story.
FAQs
What defines the ‘best’ ASX stocks to invest in right now?
The ‘best’ ASX stocks generally encompass companies with strong fundamentals, consistent growth potential, resilient business models, and a competitive edge in their respective industries. These stocks often have a proven track record of performance, and sound management, and are well-positioned to navigate various market conditions.
How should investors approach selecting ASX stocks in the current market environment?
Investors should focus on diversification, considering a mix of growth and value stocks across different sectors. It’s crucial to evaluate the financial health, market position, and future growth prospects of companies. Staying informed about macroeconomic trends and industry-specific developments is also essential in making informed decisions.
Are there any particular sectors on the ASX that are currently showing strong investment potential?
Sectors such as technology, healthcare, and renewable energy are showing strong potential, driven by innovation, demographic trends, and global shifts towards sustainable energy. However, it’s important to conduct sector-specific research as each industry has unique risks and opportunities.
What role does market volatility play in investing in ASX stocks?
Market volatility can present both risks and opportunities. While it can lead to short-term fluctuations in stock prices, it can also provide opportunities to buy quality stocks at lower prices. Investors should focus on long-term potential rather than short-term market movements and consider their risk tolerance.
What are some key strategies for managing risk when investing in ASX stocks?
Key strategies include diversification across different stocks and sectors, investing in companies with solid fundamentals, and avoiding overexposure to high-risk investments. Staying informed, setting clear investment goals, and not succumbing to market panic is also crucial for effective risk management.