The outlook for 2024 outlook is mixed. On one side, the U.S. Fed has hinted at interest rate cuts, raising hopes of a revival in interest rate-sensitive sectors like real estate and automotive. Conversely, the World Bank expects global GDP growth to slow to 2.4% in 2024 from 2.6% in 2023. A slower GDP growth affects demand in automotive and real estate. Looking at the macroeconomic situation, which stocks should you buy in 2024 and which you should avoid?
Two stocks to buy in 2024
Two stocks have been in a downtrend for the last two years due to short-term headwinds and industry weakness. However, they have strong fundamentals and future growth prospects, making them value stocks to buy and hold.
Magna stock
Magna International (TSX: MG) stock fell 39% from its all-time high in July 2021. The automotive sector is not the most profitable as the market has matured. However, electric vehicles (EV), autonomous cars, and hydrogen cars present secular growth trends, which could replace existing fossil fuel cars with greener alternatives. And government policies will play a role in this transition. Magna stock surged 100% between November 2020 and June 2021 on the back of U.S. president Joe Biden’s clean energy bill. The upcoming U.S. elections in November 2024 could put clean energy and artificial intelligence back in the limelight.
Any policy decisions around EVs could push Magna stock. Until then, a 3.3% dividend yield could help your investments fight inflation.
If you are bullish on automotive demand, Magna is a good option. It supplies seats, power terrain, and body exteriors to major automakers. The company also provides complete car manufacturing services to tech companies. It is investing in sustainable car components and could see a rebound in stock price when the cyclical downturn ends.
CT REIT
CT REIT (TSX: CRT.UN) stock has fallen 16% since April 2022, as rising interest rates pulled down property prices. The value of a real estate investment trust (REIT) lies in the value of its property portfolio. Real estate is an asset class most investors invest in to secure their investments. But when the property market is in a bubble, wait for the market to fall and buy a REIT stock at the dip. When the property value appreciates, you will benefit from stock price appreciation.
CT REIT is an investment trust of Canadian Tire. It gets the preference of acquiring and developing any new store Canadian Tire wants to buy or expand. The REIT funds acquisition from working capital and keeps the debt low. Hence, the rising interest rate reduced CT REIT’s net profit but did not impact its distribution payouts.
CT REIT is a passive income stock. If you buy the stock near its dip, you can reduce the downside risk while locking in a higher payout for the long term. The REIT grows its distributions at an average annual rate of 3.5%, adjusting your payouts for inflation. Plus, a 6% distribution yield is an attractive payout for a low-risk stock.
A stock to avoid in 2024
Suncor Energy (TSX: SU) stock fell 18% from its June 2022 high. Is it a stock to buy the dip? Oil is a decelerating industry. It is becoming difficult to drill oil wells due to environmental concerns. The overall investment in oil has decreased and shifted to renewable energy. The Russia-Ukraine war and the Israel–Hamas war have accelerated the efforts towards energy security and alternative sources of energy.
Suncor’s stock price peaked at over $52 in June 2022 as the oil price reached US$125/barrel from the supply shock. Such a high price is not sustainable as it curbs demand. The oil price is likely to be in the range of US$70-US$100/barrel, limiting the upside of Suncor, which produces oil at $35/barrel. The highest the stock can go is $46-$48, a 6-11% upside from the current price of around $43. However, there is a significant downside risk if the economy plunges into a recession. Hence, avoid investing in Suncor at its cyclical peak.
