Last week, I wrote how 2024 would be all about earnings. Corporate fortunes are diverging, interest rates are stabilizing, and 2024 is shaping up to be a year when company performance matters more than big-picture macroeconomic stories.
We’re already seeing these effects. Last Wednesday, Taiwan Semiconductor Manufacturing (NYSE:TSM) announced that its December revenues had handily beat expectations. The news would send Nvidia (NASDAQ:NVDA) up 2% and Advanced Micro Devices (NASDAQ:AMD) down 2%. It turns out AI chips are booming, but consumer electronics are not.
Similar trends are emerging in everything from streaming services to uranium miners. We’re no longer in a “rising tide” environment where every company moves in the same direction. And that means investors need to keep a close eye on corporate performance.
To separate these winning firms from the laggards, InvestorPlace analyst Louis Navellier has long used earnings revisions as a key metric. Companies with rising Wall Street forecasts tend to perform better even after the forecasts have been publicly announced, while those with declining revisions tend to underperform long after the news. These insights have long been incorporated in his proven Portfolio Grader system and have helped Louis uncover the top-performing stock on the S&P 500 every year for 12 years running.
In 2023, we saw this effect play out in black and white (or red and green). An investor who bought the 10 companies with the highest upward revisions in the S&P 500 would have walked away with a 25.5% gain. That included companies like chipmaker Qualcomm (NASDAQ:QCOM) and cruise liner Carnival (NYSE:CCL). The former saw its 2023 earnings growth revised from 3.3% to 19.6% in Q4 2022… and subsequently saw shares rise 35% over the following 12 months. The latter would jump 130% over the same period!
Meanwhile, those buying the bottom-10 companies would have fared far worse. Among these firms were Mohawk Industries (NYSE:MHK) and United Parcel Service (NYSE:UPS), which essentially ended the year flat. Those buying the bottom-30 firms by earnings revisions would have also landed companies like Signature Bank (OTCMKTS:SBNY) and First Republic Bank (OTCMKTS:FRCB), two now-bankrupt firms.
How to Invest for 2024
We’ll see even more of these divergences this year. As I wrote here last week, investors are running out of patience with startups like QuantumScape (NYSE:QS). Competitors like BYD (NYSE:BYDDY) are racing ahead, and startups are finding it harder than before to raise cheap capital.
That means investors will need to keep a close eye on earnings revisions in 2024. To get you started, the writers and analysts at InvestorPlace.com, our free news site, write this week on five companies that look set to succeed in the coming year.
5 Surging Growth Stocks to Buy: Duolingo (DUOL)
A-rated language-learning app Duolingo (NASDAQ:DUOL) has one of the highest upward earnings revisions in the Russell 3000 index. Over the last quarter, the Pittsburgh-based tech firm has seen its 2024 earnings estimates rise from 15 cents to 82 cents, a fivefold increase.
As Marc Guberti notes in a recent update for InvestorPlace.com, much of this has to do with Duolingo’s expansion into new services, which is keeping user growth high. He notes how the app grew daily active users by 63% last quarter and has raised its full-year guidance as a result.
Josh Enomoto also notes how Duolingo has been aggressively using AI to reduce workforce expenses and create new content. The company is now using artificial intelligence to help create work “dramatically faster” than before.
Of course, Duolingo isn’t for everyone. As Guberti warns, the company’s high growth means shares trade at a significant premium at 119 times forward earnings. But the numbers are clear: Duolingo remains a high-growth company that’s transitioning itself from negative to positive earnings. If it continues to maintain such growth, history tells us that Duolingo has plenty of upside ahead.
2. Spotify (SPOT)
A-rated Spotify (NASDAQ:SPOT) gets a special mention in Louis Navellier’s Market360 this week. The online streaming service has been accumulating new subscribers at an astonishing rate, and earnings have been revised up as a result. During the fourth quarter, Wall Street analysts moved their fiscal year 2024 earnings estimates from 37 cents per share to $2.10 – one of the highest revisions on the market.
Here’s more from Louis and his team:
Spotify currently has 574 million monthly average users – up 26% from a year ago. Of those, 226 million are premium users, providing Spotify with most of its revenue. In the third quarter, Spotify generated $2.91 billion from its premium members, and only $447 million through advertising directed at its free users.
The trick will be for Spotify to continue to convert free users to premium members. As it does that, the profits will continue to rise.
At InvestorPlace.com, Muslim Farooque agrees. He picks Walt Disney (NYSE:DIS), Netflix (NASDAQ:NFLX), and Spotify as his top 3 Stocks to Play the Rise of the Subscription Economy.
Streaming services can only succeed if they have a critical mass of content. And as the leading firm in music and podcast streaming, Spotify likely will have the easiest time expanding its user base while monetizing existing customers.
3. GitLab (GTLB)
In December, at InvestorPlace.com, Yiannis Zourmpanos noted how software development and IT operations (DevOps) platform company GitLab (NASDAQ:GTLB) was expanding its business with high-value customers. He believes this disruptive tech stock is set to soar by 2025:
A substantial 37% year-over-year growth, from 638 customers to 874, suggests GitLab’s lead in attracting and retaining larger enterprises… GitLab’s consistently high dollar-based net retention rate was 128% in Q3. This reflects the company’s success in expanding revenue within its existing customer base.
The numbers suggest the same outcome. Over the past three months, analysts have revised their forward earnings estimates from 16 cents to 35 cents, more than doubling initial forecasts. In short, GitLab is bringing AI to software development and deployment, and renewed focus on AI-enhanced productivity tools has put the San Francisco-based firm’s growth into high gear.
Analyst Luke Lango rightly agrees. In a special report for Early Stage Investor (subscription required) he calls GitLab one of the Top 5 “highest-quality AI software applications” to buy for 2024, and says that shares have “likely upside into and beyond 2025.” Though few outside the industry have ever heard of GitLab, that matters little for a firm growing earnings at such a rapid clip.
4. SoFi (SOFI)
This week, Louis’ team also highlights SoFi Technologies (NASDAQ:SOFI) as a company where Wall Street May Soon Turn Back to Bullish. The New Year’s selloff has pushed SoFi’s shares back into the $8 range, and a potentially strong earnings release due on Jan. 29 could send shares higher:
The next big event for SOFI stock is just a few weeks away. That would be the release of the company’s Q4/full year 2023 results, post-market on Jan. 29…
Much suggests that SoFi will crush it again with results this quarter, as it did last quarter. With the student loan moratorium lifted and SoFi’s non-student lending operations growing, the company is likely to report its first profitable quarter.
The online banking firm has seen a strong upward revision in earnings. Over the past quarter, analysts have doubled their 2024 earnings per share estimates from 3 cents to 6 cents. 2025 earnings expectations are now as high as 23 cents.
That’s because banks (and fintechs) tend to benefit when rates are elevated, since they can earn higher risk-free interest on customer deposits. SoFi also lacks a corporate-lending business, which tend to see fewer benefits of rising rates.
Analysts expect SoFi’s net interest income (the profits generated from this lending activity) to more than double this fiscal year to $1.3 billion, eclipsing the revenues earned from other activities.
5. DraftKings (DKNG)
Finally, Faisal Humayun hones in on DraftKings (NASDAQ:DKNG) this week at InvestorPlace.com as a stock Primed to Explode Your Net Worth by 2030. The firm has a strong business, Humayun says, and is supported by industry tailwinds:
DraftKings has surged by 183% in the last 12 months. The rally from deeply oversold levels is likely to sustain with profitability on the horizon. Further, with a big addressable market for online sports betting (OSB) and iGaming, I believe that DKNG stock will continue to create value.
Essentially, DraftKings is rising on a wave of gambling legalizations. U.S. governors are seeing how states like New York are plugging funding gaps with new gaming tax revenues. And everyone wants a piece.
Since October, analysts have revised their next-year earnings estimates for DraftKings from negative 50 cents to negative 26 cents, a 50% improvement. And 2025 figures are up even more; Wall Street now expects DraftKings to earn a positive 80 cents per share by the end of the year.
Together, the numbers suggest that DraftKings still has more room to run. Humayun expects margins to continue expanding for the next 12 to 24 months. If that’s the case, shares have at least another 22% upside from here.
Beating the Market
Wall Street analysts are generally quite good at their work. Many have million-dollar research budgets at their disposal, and top analysts often know corporate bosses on a personal level.
Louis and I are former Wall Streeters, and we’ve both seen this “old boys club” in action. It’s no surprise to either of us how powerful earnings revisions can be.
But Wall Street analysts also can make mistakes. In January 2023, analysts had just slashed their expectations for Facebook parent Meta Platforms (NASDAQ:META). As a group, Wall Street expected Meta’s earnings to decline 12.5% the following year.
But they were wrong. Meta would instead see a resurgence in the ad industry and the rise of generative AI. Earnings would instead rise 60% for 2023, sending shares up 145%. 2023 also saw other surprises, including resurgences in U.S. chipmaking and homebuilders. Intel (NASDAQ:INTC) and PulteGroup (NYSE:PHM) would see similarly unexpected turnarounds. No matter how skilled analysts are, some things are exceedingly difficult to predict.
So, what if you could beat Wall Street at its own game?
To do that, Louis has teamed up with earnings season expert Landon Swan reveal a revolutionary AI program with the power to predict the future earnings of more than 500 companies with uncanny accuracy. Full details here.
On the date of publication, Thomas Yeung 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.
