At the time of analyzing stocks, there are several tools which are available to both professional and retail investors. The 2 popular approaches include value investing and growth investing. Both these approaches are being significantly used in the financial community. There are analysts who can select best quality stocks to buy in 2024 through using these techniques. If we talk about value investing, this involves assessing the stocks having potential to increase in future.
The share price is particularly defined through a range of metrics including P/E ratio and fair value. While P/E ratio helps in measuring premium which market pays over the company’s ability to generate profit, fair value refers to the subjective analysis factoring in expected future cash flows and business operations to arrive at a particular stock price. If the fair value is higher, it is considered as a safe investment because less margin exists for incurring the loss in case buying decision is made.
The best quality stocks to buy in 2024 also includes the growth stocks, having higher P/E ratios. This is true because market analysts and traders believe that their share prices will significantly increase in the future given the market advantages and technological strengths the company has. As a result of these expectations, investors are willing to pay increased prices as they expect that the stock price will further increase moving forward.
One approach getting the less attention is quality investing. While there are pre-defined metrics for growth and value investing, quality stocks are quite difficult to define and spot. Despite this reality, there are several quality factor ETFs which are being operated by different entities. Names of the biggest quality factor ETFs, given their total assets, include iShares MSCI USA Quality Factor ETF, iShares MSCI Intl Quality Factor ETF, etc.
With this in mind, let us now have a look at best quality stocks to buy in 2024 and hold for 1 year.
1. Merck & Company, Inc.
The company is engaged in making pharmaceutical products to treat numerous conditions in therapeutic areas, such as cardiometabolic disease, cancer, and infections.
At the time of announcing its 3Q23 financial results, it announced that total worldwide sales came in at $16.0 billion, which exhibits a rise of 7% in comparison to 3Q22. Excluding LAGEVRIO, it saw growth of ~6% and excluding LAGEVRIO and the impact of FX, growth came in at 8%. In the quarter, the company pushed boundaries of science, and made disciplined investments to support its strong and diverse pipeline. It applied its expertise to accelerate potentially transformative treatments to meet the patient needs.
Non-GAAP EPS came at $2.13 for 3Q23 and the increases in GAAP and non-GAAP EPS on the year-over-year basis were mainly because of operational strength in business, and $0.22 of charges which were seen in 2022 associated to collaboration and licensing agreements with Moderna, Inc., Orna Therapeutics and Orion Corporation.
Gross margin of the company came at 73.3% for 3Q23 in comparison to 73.7% for 3Q22. The decline was mainly because of unfavorable impact of foreign exchange, increased LAGEVRIO sales, that have lower gross margin, and increased acquisition- and divestiture-related costs.
For FY23, the company expects sales in the range of $59.7 billion – $60.2 billion.
2. Broadcom Inc.
The company designs, develops, and supplies a range of semiconductor devices with focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices.
It released financial results for 3Q23 ended July 30, 2023, and the company’s results were supported by demand for next-gen networking technologies considering the scaling out of hyperscale customers and network their AI clusters in data centers. It 4Q outlook expects year-over-year growth, exhibiting continued leadership in networking for generative AI.
Consolidated revenue for 3Q went up by 5% year-over-year to $8.9 billion, with adjusted EBITDA increasing 8% year-over-year to 65% of revenue. It generated $4.6 billion in FCF in 3Q and the company expects cash flows to remain solid for 4Q.
Its cash and cash equivalents at the end of the fiscal quarter came in at $12,055 million in comparison to $11,553 million at the end of the previous quarter. During 3Q, it generated $4,719 million in cash from operations and shelled out ~$122 million on capex.
3. Adobe Inc.
The company and its subsidiaries operate as diversified software company. It carries out operations in 3 segments: Digital Media, Digital Experience, and Publishing and Advertising.
It reported financial results for 3Q fiscal year 2023 ended Sept. 1, 2023. The company delivered healthy margins and earnings in 3Q, and made significant investments in its technology platforms. The company’s innovation engine, global reach and strong operational rigor support the company capture massive opportunities ahead.
The company achieved revenue of $4.89 billion in 3Q of fiscal year 2023, exhibiting 10% year-over-year growth or 13% growth in constant currency. Diluted EPS was $3.05 on GAAP basis and $4.09 on a non-GAAP basis.
Cash flows from operations of the company came at $1.87 billion, and GAAP operating income came in $1.70 billion and non-GAAP operating income was $2.26 billion. GAAP net income was at $1.40 billion and non-GAAP net income was $1.88 billion.
Its 4Q fiscal year 2023 targets include total revenue in the range of $4.975 billion to $5.025 billion, and digital media segment revenue is expected between $3.67 billion to $3.70 billion.
Conclusion
To list the best quality stocks to buy in 2024, we took top 30 stocks of iShares MSCI USA Quality Factor ETF. As per experts, quality stocks have higher prices, and considering the investment strategy called Quality Minus Junk should deliver high returns in both the U.S. and abroad. This approach monitors the investor using long/short approach i.e., to go long quality stocks and shorter the others, etc.
Therefore, it has been made sure that best quality stocks to buy can only be listed by going through stock quality. One place where investors can find answers is academia. The research paper from 2017 saw several signals which are being used by traders to assess stock quality.
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