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For the last two years, investors around the world have been told one thing: cash is king. But it looks like that king is about to be dethroned, and stocks will be in favour once more.
The news came down from Barclays’s strategists, and it was a huge headliner. That’s because, for the last two straight quarters, Barclays continued to recommend cash over stocks and bonds. This has included fixed income such as Guaranteed Investment Certificates (GIC).
Now, that’s no longer the case, as stocks look to outperform in the coming year. So, let’s look at what’s changed the mind of this major institution.
After the last two quarters saw cash and fixed income do far better, strategists have stated that equities are looking to produce single-digit returns in 2024. This will certainly outperform fixed income, even if those bond yields remain above 5% as they have been.
Other strategists also leaned into this beyond Barclays. They now say that two- to three-year bonds are more ideal as equities recover. It’s now “time to take some risk,” as investors will likely be able to do far better than the 5% on yields.
This comes as rate hikes look to be coming to a close, and an improved economy, along with artificial intelligence, revenue, and earnings, should push stocks higher once more. That’s already been seen, as markets around the world (including the TSX today) had one of the best weeks in quite some time.
Could it hit double digits?
While there are certainly set to be improvements, strategists still believe that hoping for double-digit growth in the markets, even into 2025, is too much to expect. However, downsides have certainly diminished.
But that doesn’t mean there aren’t going to be opportunities for double-digit growth among certain stocks. We’ve already started to see this with megacap tech stocks, but there are still some with room to grow. Instead, it could be a great time to pick up strong discretionary stocks — especially from service-oriented stocks.
With that in mind, here are some discretionary stocks that investors may want to consider, as the market continues to rally into 2024.
Buy at your “discretion”
Some of the top companies to recover among discretionary stocks should see growth, even around the Santa Claus Rally. For instance, companies such as Canadian Tire (TSX:CTC.A) should do well as retail starts to pick up once more. But this also gives you exposure to the automobile sector, which should continue to see growth. This is why Magna International (TSX:MG) should also be a strong option.
Canadian Tire stock fell recently as the company saw sales drop. However, it’s a long-term hold that could certainly provide a benefit for investors. Shares trade at just 15.05 times earnings, with a whopping 4.83% dividend yield. Yet after missing profits and laying off 3% of employees, shares are now quite low. Therefore, it’s primed for a rise during a bull market.
Magna stock is another strong option. Canadians have been struggling to buy a new car in this economy. It’s not just because they can’t afford it; even used vehicles are down thanks to supply-chain disruptions during the pandemic. Now, there could be a surge in new vehicles created, as Magna stock continues to solve supply-chain problems and, indeed, increase its guidance. That’s thanks to more growth in electric vehicle use as well.
Magna stock trades at just 15.79 times earnings, offering a 3.39% dividend yield. But investors aren’t quite on board yet after being burned. So, I would consider this a great stock to pick up as we see a rally into 2024.