Let Your Profits Ride: The Best-Performing Stocks of 2023
David Ricardo, one of the first economists, famously said, “Let your profits run (on).” This advice still holds true today. When it comes to investing in stocks, it’s ideal to own or buy stocks that are in uptrends. In 2023, there have been several exceptional uptrends, with thirty-six Russell 1000 stocks seeing gains of over 100%. So what should you do with these winners if you have the option to trade? Here’s my take.
Keep Riding: Meta’s Story
One prime example of a winning stock is Meta. At the beginning of the year, Meta was undervalued and trading at only $90 per share. However, the company had strong fundamentals, including a solid balance sheet and a history of generating free cash flow. The main concern for investors was Mark Zuckerberg’s extravagant spending on his metaverse vision. Many worried that he had lost focus on the core business. Fortunately, Zuckerberg decided to moderate his spending, and as a result, Meta returned to profitability. The stock has soared by 140% since its low in November 2022.
Meta remains an attractive investment due to its growth potential and reasonable valuation. Although the stock is not as cheap as it was a year ago, trading at 20 times FY2024 EPS estimates, it still represents 20% annual EPS growth. With strong financials and a competitive advantage in its industry, Meta is a prime example of growth at a reasonable price.
Other Winners for 2023
Aside from Meta, there are other stocks that have performed well in 2023 and are poised for success in 2024. Vertiv Holding, Builders Firstsource, Topbuild Corp, PulteHome, Nvidia, and Uber are all strong contenders. These companies have benefited from low long-term interest rates and a stable job market. However, it’s important to note that some investors may have delayed taking profits in these stocks for tax reasons. As a result, any market volatility could have a more significant impact on these names.
Time to Hedge: Coinbase’s Rebound
One of the top-performing stocks in 2023 is Coinbase. The cryptocurrency exchange saw its stock plummet by over 90% from its peak in November 2021 due to the decline in cryptocurrency prices. However, as cryptocurrencies rebounded in 2023, so did Coinbase. The stock has skyrocketed by over 400% since then.
Despite the impressive price recovery, Coinbase’s revenues and earnings have not bounced back to the same extent. FY2024 revenue expectations are still 60% below the company’s peak in 2021. Analysts do not expect a return to profitability until 2027. This raises questions about the company’s ability to generate consistent income despite volatile cryptocurrency prices.
Affirm’s Success Story
Affirm Holdings, a buy now, pay later fintech company, has been the best-performing stock in the Russell 1000 for 2023, with a gain of nearly 420%. Affirm’s popularity stems from its attractive zero-interest financing options and partnerships with major online retailers like Amazon and Walmart. The company’s growth potential is significant considering its small market capitalization compared to other payment players like Visa and Mastercard.
However, Affirm faces competition in the buy-now-pay-later space, and rising consumer credit balances pose risks to its business model. Additionally, if other credit agencies begin tracking these loans, it could eliminate a perceived benefit for consumers. When comparing Affirm to profitable companies like PayPal, the latter seems like a more attractive investment.
Hedge When You Can
It’s always better to hedge your gains before you have to. The current market conditions indicate low volatility, with the VIX Index closing at a near-record low. However, market sentiment can change quickly, and it’s essential to be prepared for potential downturns. Consider taking steps to protect your investments when the opportunity arises.
Hot Take: Choose Quality Over Hype
When it comes to investing in stocks, it’s crucial to focus on quality rather than chasing hype. While some stocks may have experienced significant gains in 2023, their future prospects may not be as promising. It’s essential to assess a company’s fundamentals, growth potential, and competitive position before making investment decisions.
Investing in stocks involves risks, and it’s advisable to seek advice from a financial advisor who can provide personalized recommendations based on your unique circumstances.
Disclaimer: The above content is for informational purposes only and does not constitute financial, investment, tax, or legal advice. Always consult with a qualified professional before making any financial decisions.
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