As we approach 2024, there are several high-quality stocks that appear poised to deliver triple-digit returns over the next year. After the recent market correction, many strong companies are now trading at attractive valuations and offer significant upside potential once the broader market recovers. It is time to take advantage of these current discounts.
I’m neither a “permabull” nor a “permabear.” In my view, the current headwinds facing the market, including high inflation and rising interest rates, aren’t likely to result in a recession in the near-term. The strength of the economy has been noteworthy. Plus, as the Fed pauses its aggressive tightening cycle and inflationary pressures ease, quality stocks trading at depressed levels today will see their businesses and stock prices come roaring back.
So, with the economy still on solid footing despite some cooling, and the Biden administration likely encouraging dovish Fed policy entering an election year, the macro environment seems conducive for a market recovery in 2024. Obviously, things can get very bad very soon, but the economic reports coming in have been saying otherwise for the past few quarters, with the most recent GDP growth estimate coming in hot at 4.9%.
By investing now in high-quality companies with strong fundamentals that are in oversold territory, I believe there is minimal downside risk but huge upside potential as market sentiment improves. The stocks I have selected have rock-solid balance sheets, growing revenues, and dominant market positions – the temporary challenges they face do not diminish their long-term growth trajectories. As their stock prices catch up to reflect the underlying strength of their businesses, 100%+ returns over the next year are very achievable. Here are three to consider.
Bombardier (OTCMKTS:BDRBF), the Canadian aircraft manufacturing company, recently smashed expectations in its third quarter earnings report after months of share price decline. Naturally, the stock is now up 23% from its trough. However, in my view, there is still ample room for this company to deliver double-digit upside even from today’s levels.
In the third quarter, Bombardier’s revenues jumped 28% year-over-year to $1.86 billion, handily beating estimates by $114 million. Adjusted earnings per share came in at 73 cents, crushing estimates by 27 cents. The company also generated strong free cash flow of $80 million in the quarter.
With its commercial aviation business now stabilized after years of restructuring, Bombardier is firing on all cylinders. Its aftermarket services business saw 11% revenue growth as it continues ramping up its worldwide service center footprint. Aircraft manufacturing revenues were up 34% alongside higher delivery volumes. Adjusted EBITDA margins also expanded 100 basis points to 15.4% on operational improvements.
In my view, even if investors were to pay double Bombardier’s share price today, which would equate to a $7.3 billion market cap, the valuation would still be reasonable. At these levels, its forward price-earnings multiple would be around 20-times and forward price-sales multiple just 0.88-times – hardly expensive valuations for a company growing earnings and revenues at double-digit clips.
Furthermore, Bombardier maintains a solid $14.7 billion order backlog, equivalent to 18-24 months of manufacturing. It expects to deliver over 130 aircraft in 2023, implying a robust Q4 delivery schedule. The company also reaffirmed its full-year free cash flow guidance of above $250 million.
With the stock still down nearly 5.5% in 2023, I see significant upside potential as the market recognizes Bombardier’s much improved financial position. If we look ahead to 2026 and exclude potential earnings beats along the way, Bombardier trades at just 4-times earnings even at today’s depressed valuation. Thus, I believe 100%+ upside over the next 12-18 months is achievable as this high-quality aerospace company continues executing strongly. The average Wall Street analyst sees almost 160% one-year upside with BDRBF stock.
eXp World Holdings (EXPI)
eXp World Holdings (NASDAQ:EXPI) is another company that I believe can double over the next year, despite its recent earnings miss. The real estate stock has been sliding sideways for nearly 18 months now, unable to break out, even after a summer price bump. It now trades back down near $13 per share.
In its latest Q3 results, eXp’s earnings of 3 cents missed estimates slightly. However, revenues of $1.21 billion beat by $44 million. The revenue beat, led by strong agent growth, likely explain why analysts have slowly bumped up 2023 and 2024 earnings per share estimates, despite the bottom-line miss this quarter.
In my opinion, EXPI stock has a strong floor around the $11 level, where it bottomed in April before rallying 100% into mid-August. Thus, the downside seems limited here. On the upside, the stock still has massive potential. Simply returning to August highs around would equal 80%+ gains from current levels. Over a multi-year timeframe, I believe multi-bagger returns are achievable.
Analysts expect eXp to grow its earnings per share by triple-digits in 2023 and 80% in 2024. Revenue growth is forecasted to reaccelerate to 14% next year. Yet the stock trades at just a 13-times forward price-earnings multiple, hardly expensive for a company putting up this kind of growth.
eXp also continues gaining market share and growing its agent count much faster than rivals – agent count was up 5% year-over-year. Management expects similar agent growth next year even if housing transactions remain pressured. With its innovative virtual brokerage model and agent equity incentives, eXp is attracting top talent from traditional brokers.
Therefore, I see plenty of upside potential in eXp stock from today’s low $13 per share price. This is a long-term compounding machine still in the early innings of disrupting real estate. While 2023 results fell short of 2021’s blockbuster pandemic year, the huge opportunity ahead remains intact in my view. I believe this is a stock capable of doubling or more over a 1-2 year timeframe. But again, you shouldn’t ignore the prospects of a possible crash in the housing market in the near future, so tread cautiously.
While not the fastest-growing company on this list, Philippine telecom giant PLDT Inc. (NYSE:PHI) appears meaningfully undervalued at current levels, in my opinion. Although its revenue increased just slightly, earnings per share are poised to bounce back in 2023. Thus, its forward price-earnings multiple of just 9-times seems far too low.
More importantly, I believe the market is overlooking the positive impact currency fluctuations will have on PLDT’s results next year. As a Philippine company, PLDT’s financials are significantly exposed to the peso’s exchange rate versus the U.S. dollar. With the peso weakening considerably in 2023 amidst rising U.S. interest rates, PLDT’s dollar-denominated earnings metrics have taken a hit.
However, I expect the Philippine peso to strengthen back to its historical range once the Fed pauses its rate hikes. As this currency tailwind kicks in, PLDT’s valuation could expand meaningfully as its earnings multiple drops significantly in dollar terms.
Meanwhile, PLDT is executing well operationally. Its mobile subscriber base held up better than rivals’ in the face of new SIM registration regulations. Home broadband revenues rose 11% on fiber customer additions. Enterprise revenue also grew 2%, driven by strong data services demand.
With low single-digit growth projected next year for both revenues and EBITDA, PLDT’s profit outlook seems brighter than what its recently depressed valuation implies. The company also pays a 7.5% dividend yield that appears to be funded, given its strong cash flows.
In conclusion, I view PLDT stock as a relatively low-risk turnaround play on a still-growing telecom provider. The exceptionally cheap multiple limits downside risk for investors, while currency upside provides sizable appreciation potential over the next 12-18 months. I believe PLDT’s risk-reward profile is skewed positively at current levels for long-term investors.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.