Is 2024 set to be a great year for growth stocks? I think it could be, and I’ll explain why.
Looking at how Rolls-Royce Holdings went in 2023 makes it clear there’s an appetite for growth, and less fear of high price-to-earnings (P/E) valuations these days.
After trebling in the year, the Rolls P/E is approaching 40 now. How sentiment has changed since the 2020 stock market crash!
Growth forecasts
I won’t bang on again about how broker forecasts show strong earnings growth in 2024. Well, maybe I will, a bit.
At the last check, AJ Bell‘s Dividend Dashboard showed a £30.8bn rise in pre-tax profit forecasts for this year, from just one FTSE 100 sector. The financial sector.
And once we allow for the sectors where earnings look set to fall, the finance sector accounts for more than the entire predicted index growth.
Results coming
Now, I know the City has cooled off a bit in its outlook in the past few months. And economic forecasts are not great.
But if strong 2023 results start to roll in, might we just see those traditional income stocks turn into champion growth stocks in 2024? Lloyds Banking Group a growth stock? It might happen.
I won’t keep pushing the idea of a FTSE 250 resurgence in 2024 either. Oh go on then, maybe just a little.
Mid-cap stocks
The index of smaller stocks outstripped its big sibling in the early days of the post-pandemic recovery. It then fell back when the economic pain really kicked in, as inflation and interest rates soared.
But now that looks like easing off, I think we could be in for another FTSE 250 bull run.
Judging by history, at least, those mid-cap stocks do seem to beat the FTSE 100 when the market is in a growth phase.
I also see a number of stocks that I think have strong growth potential in 2024 and 2025.
Cheap growth stocks
I reckon the housebuilders should have it for their recovery potential. Names like Taylor Wimpey in the FTSE 100, and the FTSE 250’s Persimmon, have both suffered.
But I reckon their businesses and their shares are trading at well below their long-term potential. The sector could still face short-term volatility, mind.
But interest rate cuts might make a difference. Still only in January, some economists are already forecasting inflation of less than 2% by April or May.
That’s way faster than I’m sure the Bank of England had hoped. And if it happens, rates must surely drop.
More growth
Marks & Spencer had a great year in 2023. But forecasts still look strong, and I don’t think they’re fully reflected in the valuation.
We’re looking at a 2025 P/E of just 11. Retail probably still has a few storms to clear, but I can see growth here too.
I think easyJet could see some growth too. Airlines have more work to do, for sure. But this one’s on a very low valuation. And it’s perhaps the most nimble in the business.
Anyone who goes for growth stocks in 2024 needs to recognise that they come with risk though. And I’d say there’s a fair bit more than with income stocks.
