The key to success in 2024 will be defensiveness and these 5 stocks, believes experienced portfolio manager
What stock strategy to choose for 2024? Jay Welles, experienced portfolio manager of the Manning & Napier fund, believes in being cautious and rather defensive. And he adds his 5 stock picks that could help investors perform well in 2024.
"In 2024, it's a game of capital preservation and defense," Welles said in a recent interview with CNBC. "It's particularly warranted, especially given the accumulation of overly positive sentiment over the last few months."
Jay Welles is clearly right on this point; stocks have been rising for the past few months as if investors have stopped perceiving the risks that still linger in the markets. The Dow Jones Industrial Average hit a record high this week, breaking the 37,000-point mark for the first time. The S&P 500 index is also less than 2% away from the ATH.
But Welles thinks the market is tight at the moment, adding that investors haven't factored in the possibility of a recession as expectations of a soft landing by the Fed are rising. But Welles doesn't consider that possibility a certainty, as many others do.
Welles is manager of the Manning & Napier Equity Series Class S fund (EXEYX), which is rated three stars by Morningstar, has $64 million in assets and has delivered an annual return of more than 8% over the past three years, ranking it 26th among funds in the U.S. equity category.
5 stocks for 2024
Welles said he looks for companies with attractive fundamentals and some sort of "dislocated" valuation. One stock that fits the bill is chemical company FMC $FMC.
FMC has strong research and development capabilities and a highly differentiated portfolio with a "phenomenal pipeline of new products" that includes the fast-growing area of biological and natural crop solutions, according to Welles.
FMC's shares have plunged 52% this year, putting it on track for its worst year ever.
About FMC: FMC Corporation is an American chemical company focused on research and development in agricultural science, crop protection and environmental technologies. Founded in 1883, the company originally specialized in the production of pesticides and herbicides and has gradually expanded its operations to include a broader range of agrochemical products. What makes FMC interesting is its strong focus on innovation and sustainability in agriculture. The company invests in the development of new technologies and products that help farmers improve yields and efficiency, while emphasizing environmental sustainability and safety.
Another name that Welles likes is Progressive $PGR, an insurance company
"It's a competitively advantaged company with a growing market share, so it has cost advantages because of its scale and well-established distribution channels," Welles said. That makes it a good buy in both the long and short term, with Welles expecting margins to improve post-pandemic.
Shares of Progressive are up nearly 18% in 2023. The stock is up as much as 36% since the July low.
About Progressive: Progressive Corporation is an American insurance company that primarily specializes in auto insurance. It was founded in 1937 and has since evolved into one of the largest auto insurance providers in the US. What makes Progressive interesting is its innovative approach to business model and marketing. It was one of the first in the industry to offer discounts dependent on driver behavior, such as safe driving discounts, and also implemented Progressive pricing models based on the customer's risk profile.
Two other names that Welles likes are Intercontinental Exchange $ICE and Masco $MAS.
He says Intercontinental's recent acquisitions of Ellie Mae and Black Knight have increased its exposure to mortgages. And Welles expects to see an increase in mortgage originations once mortgage rates start to fall.
Meanwhile, Masco will benefit from higher housing turnover as a result of falling mortgage rates, the fund manager said.
Shares of Intercontinental Exchange are up 19% since the start of the year. Masco has gained 47% this year. The stock briefly fell to near its yearly low in October, but has since nearly recovered to an all-time high.
About Intercontinental Exchange: Founded in 2000, Intercontinental Exchange is a major U.S. company that operates global exchanges and clearinghouses, including the renowned New York Stock Exchange (NYSE). ICE is distinguished by its innovative approach to financial markets, focusing on advanced technology and data analytics for efficient and transparent trading of various financial products such as equities, derivatives and commodities.
About Masco: Masco Corporation is an American company that specializes in the manufacture and sale of building and home products. Founded in 1929, Masco is best known for its portfolio of brands focused on bathrooms and kitchens, including faucets, shower fixtures, cabinets and other related products. What makes Masco interesting is its ability to innovate and adapt to changing trends in housing and design. The company has a strong focus on quality and design, both in traditional and contemporary styles.
Welles' latest stock pick is software engineering services company Epam Systems $EPAM, which already has a proven track record of organic growth of roughly 20%. Welles believes EPAM could maintain this growth rate in the coming years as the company gains market share in extremely exposed areas.
Epam shares have struggled this year, losing 11.4%.
About EPAM Systems: Founded in 1993, EPAM Systems is a global provider of software engineering and IT consulting services that has evolved from an initial focus on Eastern European markets into a global player. EPAM specializes in end-to-end software development, digital transformation and business process optimization services across multiple industries. EPAM is characterized by integrating technical expertise with an innovative approach to solving business challenges, enabling them to create tailored solutions for specific client needs.
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Data Bulios, AI, Yahoo Finance, CNBC, Bloomberg