Do gains beget more gains? They certainly did in 2023 as a handful of the so-called “Magnificent Seven” technology names captured Wall Street’s attention and climbed relentlessly higher.
Yet, while technology and artificial intelligence (AI) were certainly dominant themes, 2023 wasn’t all about the Magnificent Seven. Believe it or not, some of the year’s biggest winners in the large-cap space weren’t technology companies.
Thus, a little digging will uncover surprising diversity among the top large-cap gainers of 2023. Granted, you might not find strong values in these stock picks if you’re using traditional metrics like trailing price-to-earnings (P/E) and price-to-sales (P/S) ratios.
At the same time, there may be strong value propositions in some companies with robust growth and/or an in-progress turnaround story. Thus, if last year’s top-performing stocks can demonstrate follow-through in 2024, these big winners may be worth holding onto in the coming quarters.
NVIDIA (NASDAQ:NVDA)
It shouldn’t be too much of a surprise that NVIDIA stock outperformed all of the well-known large-cap stocks in 2023. Astoundingly, the NVDA share price soared 239% in just 12 months.
That’s actually a share-price tripling, not a doubling. It’s even more astonishing when one considers that NVIDIA stock got cut in half in 2022.
Hardly anyone expected generative AI to become the top-of-mind motif of 2023. A number of businesses like OpenAI with its ChatGPT program provide generative AI applications.
However, NVIDIA stock was the perfect picks-and-shovels play because its processors and accelerators were ideal for managing power-intensive generative AI applications. Thus, now that NVIDIA’s GAAP-measured, trailing 12-month P/E ratio is at a lofty 65, is it too late to jump on the bandwagon in 2024?
Not necessarily, as the demand for generative-AI hardware hasn’t dissipated. If you’re willing to ride the trend until the end, NVDA stock does offer a pricey proposition but also undeniable momentum, so owning a few shares probably isn’t the worst idea in the world.
Meta Platforms (NASDAQ:META)
CEO Mark Zuckerberg’s quest to generate huge returns from virtual reality (VR) hardware and metaverse apps didn’t pan out in 2023. However, Meta Platforms still raked in plenty of revenue as its Facebook, Instagram, WhatsApp, Reels and Threads apps maintained sizable user bases throughout the year.
As it turned out, META stock tumbled 64% in 2022 but then gained 194% in 2023. Thus, it could be said that Zuckerberg had the last laugh, even if his metaverse investments have been a flop so far.
Meta Platforms’ trailing 12-month P/E ratio is around 31, and that’s certainly higher than the sector median’s P/E ratio of 17. However, before you abandon Meta Platforms’ stock based on valuation, consider its dominance in social media.
One study found that Instagram outperformed TikTok based on views for its branded video content. The research also determined that Reels videos of 90 seconds or longer had “double the median number of video views than those on TikTok.”
That’s actionable data for both advertisers and investors. If Meta Platforms can avoid bleeding excessive amounts of capital on Zuckerberg’s metaverse dreams, META stock should be able to deliver another year of outsized returns.
Royal Caribbean Cruises (NYSE:RCL)
Here’s one that’s as far from the Magnificent Seven club as it gets. Yet, Royal Caribbean Cruises stock quietly returned 162% to its shareholders in 2023.
Of course, this is more of a comeback story than a market-darling story like NVIDIA. There’s no guarantee of smooth sailing for RCL stock in 2024, but a small share position could be warranted for risk-tolerant traders.
With the COVID-19 crisis mostly in the rear-view mirror and the Federal Reserve very likely to implement interest-rate cuts this year, the stage may be set for Royal Caribbean Cruises to cruise ahead at full speed. Additionally, Royal Caribbean Cruises’ financials aren’t terrible, as it posted profitable EPS beats in the second and third quarters of 2023.
Hence, Royal Caribbean Cruises stock is an odd pick but not an entirely irrational one. It’s possible that America’s “shop ’til you drop despite high inflation” trend will continue in the new year, and Royal Caribbean Cruises will have the wind beneath its sails for another 12 months.
Builders FirstSource (NYSE:BLDR)
My final “momo” (momentum) follow-through pick for 2024 is a name you might never have heard before: Builders FirstSource. Just to recap, the company supplies building and construction materials and largely specializes in lumber-related products.
Even though the financial press scarcely reported on this, BLDR stock climbed 157% last year. Nevertheless, Builders FirstSource seems to present a decent value as its trailing P/E ratio is around 14.
The company’s track record of quarterly EPS beats is stellar, and it is now favored by analysts from Wedbush, Barclays (NYSE:BCS) and Deutsche Bank (NYSE:DB). Notably, Deutsche Bank analyst Joe Ahlersmeyer identified BLDR stock as a way for investors to get prime exposure to America’s residential construction market.
Ahlersmeyer’s $200 price target for Builders FirstSource stock doesn’t seem unreasonable, but it will depend on a number of factors. Some key considerations include whether the home-construction business will be resilient in 2024 and whether the Federal Reserve will foster a favorable home-building environment with interest-rate cuts, as anticipated.
If you believe the answer to those questions is yes, then you might want to give Builders FirstSource a try with a moderately sized share position. This could add a diversification element to your portfolio if you already bought the aforementioned technology stocks, NVIDIA and Meta Platforms. Then you could round out your holdings with Royal Caribbean Cruises stock for a four-pack of prospective powerhouse performers in 2024.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
