As we approach the final month of 2023, we’ve identified five stocks that didn’t perform well this year but seem like good picks for the upcoming year. Let’s take a closer look at why these stocks faced challenges, what changes might be in store, and why they could be Good Buys for 2024.
| Company | Ticker | YTD decline (%) | All time high ($) | % from All time high |
| DBS Group | SGX:D05 | -7.2% | $37.25 | 18.5% |
| Sea Limited | NYSE:SE | -27.9% | $357.78 | 836.6% |
| Coca Cola | NYSE:KO | -7.0% | $65.72 | 12.2% |
| Nike | NYSE:NKE | -3.0% | $177.51 | 54.2% |
| Paypal | NASDAQ:PYPL | -19.8% | $308.53 | 415.5% |
DBS Group (SGX:D05)
DBS has been the best performer amongst the three Singapore banks in recent years, delivering strong margins and record profits.
DBS continued performing in 3Q23 with its cost to income ratio for 3Q23 at 39%, falling below the 40% mark and ROE hitting a record 18.6%.
Net interest margins stood at 2.19%, a 0.05% increase from the previous quarter while the non performing loan ratio was at 1.2%, 0.1% higher than the previous quarter.
The existing loan book declined by about 1% but this was offset by the acquisition of Citibank Taiwan’s consumer banking operations, which added 2% to its loan book, enabling DBS to record an overall 1% increase.
DBS faces a double whammy of slower growth and potentially lower interest rates. The economy is expected to slow down further in 2024, leading to both slower loan growth and slimmer net interest margins.
When interest rate decreases, DBS will benefit from the rising demand for loans. However, the profit from each loan will be lower, as will the amount DBS makes by investing in short-term debt securities with its deposits.
DBS seems to be a stock where it could be worthwhile waiting until the tide turns on the economy, and this may happen sooner than expected. At the same time, a prospective quarterly dividend payout of $0.48, or 6% dividend yield, looks tempting.
Sea Limited (NYSE:SE)
Sea has fallen by about 90% from its all time high. This was attributable to reasons such as its largest shareholder Tencent reducing its shares as well as initial concerns over the company’s lack of profitability and overall sustainability.
Subsequently Sea was able to quickly pave a way to profit, with significant cost cutting measures such as layoffs and having their leadership team forgo cash compensation until the company reached self-sufficiency.
Sea operates through three revenue and growth engines: Digital entertainment, e-commerce and Digital financial services.
The digital entertainment or gaming segment saw its revenue halved over several quarters, in part due to Free Fire, one of its top grossing games, being banned in India. India subsequently unbanned the game more than a year later in September, and Sea is now looking to relaunch the game.
Sea cut advertising cost substantially, including in its e-commerce segment where it was facing severe competition from the likes of Lazada, Tiktok and Tokopedia. This enabled the e-commerce segment to achieve positive EBITDA. Shopee’s continued growth and operating efficiency leverage was also a huge reason why Sea started turning a profit.
However, cost cutting was not a long term solution as Sea had to start investing to grow its business as well as fend off competitors. This resulted in a loss in 3Q23 after several quarters of profit.
Sea has now switched its focus from cost-cutting to prioritising investing in the business to increase market share and further strengthen its market leadership.
We believe Sea is now in a much better position, demonstrating to investors that it can reach profitability, albeit with tough measures. Now that the company has switched back into a growth mindset, should the company be able to turn around and deliver growth, it will likely command a growth valuation again.
Coca Cola (NYSE:KO)
Coca Cola is a dividend aristocrat and that makes Coca Cola an excellent dividend stock. The company has increased its dividend for 61 consecutive years. Moreover, its ability to increase volumes and pricing will support its earnings and cash flows, thus enabling the company to enhance its shareholders’ returns via higher dividend payments.
Shares in Coca Cola and other food and beverage stocks has been affected recently by announcements that Ozempic, a medication for diabetes, may cause a reduction in consumption.
Ozempic is a once-weekly injectable medication formulated to help adults with type 2 diabetes manage their blood sugar. While not approved as a weight loss drug, research suggests that Ozempic can help treat obesity. People taking Ozempic may experience modest weight loss due to its active ingredient, Semaglutide, which induces satiety or a feeling of fullness.
Coca-Cola currently has a dividend payout ratio of about 75%. At the current share price, dividend yield is about 3.1%, which is considerably higher than the S&P 500 Index average yield of 1.6%. Moreover, Coca-Cola is likely to continue raising its dividend each year as its earnings continue to grow.
Nike (NYSE:NKE)
The footwear sector, much like many other consumer discretionary sectors, such as the apparel sector has experienced a weak year. Companies in this industry are stuck with elevated levels of inventory as consumer demand weakens due to factors such as higher interest rates affecting disposable income, along with concerns over the economy and job security. Additionally, Nike has faced competition from emerging athletic brands such as Hoka and On.
As the dominant player, Nike seems to be the first out of the woods. In its August financials, it was able to reduce inventory load by 10% and at the same time deliver a 2% increase in revenue and 1% decrease to profits.
This performance is considered industry leading and is possible because Nike was able to protect its gross margin with a small 0.1% decrease, even amidst price reductions across the sector to clear excess inventory.
In the near term, the industry is expect to bottom and recover from the excess inventory situation. However, there is still some uncertainty over the robustness of consumer demand worldwide. Nevertheless, Nike expects to extend its leadership position and drive growth over the long term. This makes Nike very attractive as a play on consumer demand recovery.
PayPal (NASDAQ:PYPL)
PayPal is the most accepted digital wallet in North America and Europe, and consistently ranks as one of the most downloaded finance apps worldwide.
PayPal thrived during the pandemic as consumers were forced to depend more on online transactions. But as pandemic restrictions began to ease, PayPal’s stock trajectory started to fall off. The company’s growth has been squeezed by a slowdown in e-commerce spending and rising competition in the digital payment space.
PayPal, who also owns Venmo, recently forged new partnerships with Amazon and Apple. U.S. consumers can now check out with Venmo on Amazon, and they will soon be able to use PayPal and Venmo branded cards through Apple Pay. Those partnerships could help PayPal take market share in both physical and digital commerce.
Paypal is up 12% in the month since it released a strong set of earnings for 3Q23, with payment volume growing by 15% and net revenues growing by 8%. However, earnings per share declined nearly 20% mainly due to higher transaction expenses and credit losses as well as general expenses. As a result, Paypal operating cashflow decreased by nearly 30%.
Paypal’s new CEO stated that to become a more profitable business, it needed to lower its cost base by focusing on its most profitable growth priorities. Paypal also restructured its executive leadership team with a new CFO and Chief Technology Officer in place to re-jig the business.
Closing statements
We think these 5 stocks look like good buys in 2024 after falling in 2023.
DBS and Coca Cola provides a good yield with earnings resilience providing stability while Sea Limited, Nike and Paypal looks on track to turnaround and deliver growth.
However, we cannot be looking at stocks in isolation without taking into consideration factors such as the macroeconomic and political situation which could very well pull these stocks into another year of decline.