These stocks are worth buying before more investors start to notice.
I constantly study great investors so that I can become a better one myself. One quote from Peter Lynch stands out: “In this business, if you’re good, you’re right six times out of 10. You’re never going to be right nine times out of 10.”
This is why I want to highlight four ideas that can help investors get richer in 2024 instead of just one. Statistically speaking, I’m not going to be right with all four. But hopefully, two or three of these will prove to be winners.
The common denominator with these four stocks is that they’re all overlooked — these aren’t the companies that usually dominate the headlines. But they’re poised for strong upside in 2024 and beyond, which is why I like them now.
1. Five Below
For those looking for a timely opportunity, discount retailer Five Below (FIVE -2.42%) might be the best one in my book. The stock has been crushed in recent months and now trades at 1.8 times sales, which is about half of its average price-to-sales (P/S) valuation and is why this is a timely idea. But zooming out from the valuation, Five Below stock is a good long-term idea because of its financial model.
As of the first quarter of 2024, Five Below has more than 1,600 locations and intends to have more than 3,500 stores by 2030. This means that management is opening hundreds of stores every year, and it’s a good use of cash. Five Below stores have a payback period of less than one year. In other words, annual profits are higher than the cost to open a new location.
Five Below is a profitable company, and it’s pouring cash into new store openings, which quickly add to the cash it has available for more growth. It’s a powerful model and explains why the company has $370 million in cash, cash equivalents, and short-term investments and no long-term debt.
Right now, Five Below stock is cheap, and it’s getting financially stronger over time. At maturity, this business could be capable of very shareholder-friendly moves, which is why I believe it’s worth buying in 2024.
2. Xometry
Turning from retail to tech, Xometry (XMTR -4.63%) is one of the more unique businesses on the stock market. This company operates a custom manufacturing marketplace that provides instant pricing through artificial intelligence (AI). And the idea is really catching on.
As of the first quarter of 2024, Xometry’s platform had nearly 59,000 active buyers, which was up 32% year over year — these are the businesses that need work done. The platform also had 3,400 active suppliers, which was up 36% — these are the small shops doing the work.
With such a niche marketplace, it’s easy to foresee Xometry building a network effect — buyers and suppliers will increasingly get on the platform because it does a ton of business. And as platform adoption increases, it puts the company in a good position to profit.
To be clear, Xometry isn’t profitable yet, but it’s quickly approaching breakeven on an adjusted basis. Breakeven could happen in 2024, and that might start turning investors’ heads toward this overlooked stock.
3. Shift4 Payments
Financial-technology (fintech) company Shift4 Payments (FOUR -1.55%) isn’t a household name. But if you’ve gone to a big sporting event or concert, it’s possible you’ve already used its services. The company’s strategy is to target big-venue customers such as Arrowhead Stadium, where the Kansas City Chiefs play, and Madison Square Garden. And the strategy has resulted in a huge surge in the amount of payments it processes.
In the first quarter of 2024, Shift4 Payments processed over $33 billion in payment volume — that’s up 400% from the same quarter of 2020. Granted, these higher-volume transactions have a lower take rate, so revenue and profits aren’t up this much during this time. But targeting big-venue customers has undoubtedly been a big boost to its business.
Unlike many of its fintech peers — or tech stocks in general — Shift4 is a high-growth company at nearly 30% top-line growth, and it’s also profitable. As the chart shows, the company has a long track record of outsized growth and consistent profits, which is why this stock lands on this list.
FOUR Revenue (Quarterly YoY Growth) data by YCharts
4. Academy Sports and Outdoors
Circling back to Lynch, if I’m only correct about two or three out of these four stocks, then I’m confident that Academy Sports and Outdoors (ASO -2.87%) is among the winners here. The market has given investors a no-brainer price to invest in the growth of this sporting goods retailer. And I believe it will pay off in 2024 and beyond.
Academy Sports just reported financial results for its first quarter of 2024, and investors didn’t like that its same-store sales fell by nearly 6% year over year. However, perspective is important. The company is coming off of several years of strong growth, so a pullback is natural. Moreover, it still had a Q1 profit margin of nearly 6%, which is nothing to sneeze at.
Long term, Academy Sports is looking to open new stores, and it believes sales per location will rebound, allowing it to eventually reach a 10% profit margin. For perspective, if it achieves its goals, it could have roughly $1 billion in annual net profits within a few years. That’s a ton for a company that’s only valued at $3.7 billion, as of this writing.
In its fiscal 2024, Academy Sports expects to earn at least $6 per share. Therefore, even in this slow year, the company is still quite profitable, and the stock trades at just 8Â times its forward earnings. In short, I believe that’s too cheap to pass up for a growing, profitable company.
Which stock is right for you?
Of these four stocks, I find Academy Sports to be the least speculative. By contrast, I find Xometry to be the most speculative. In other words, Academy Sports is a straightforward business that I believe will be hard to fail, whereas Xometry is much more complex. That said, I do like all four of these today and think investors should consider adding them to their portfolios.