The year 2023 came to a close with a whopping 25% return on the S&P500 and a 5 4% surge in the NASDAQ 100, which posted its best year since the dot-boom in the late 90s. With much of this performance driven by just a dozen of tech stocks, investors ask themselves whether this run can continue. As we are headed into 2024, the question on every investor’s mind is how to position their portfolio for the year ahead. Will there be new pockets of outperformance? What are the best options to earn safe returns?

What makes positioning an investment portfolio particularly tricky is the fact that some tech stocks are starting to reach valuation levels that will require a massive expansion in earnings and valuations for the 2023 rally to continue.

So what are some good options for 2024? In this article we’ll give you our top 3 investment ideas for the new year.

1. Bond ETFs – Return expectation: >10%

Investments in certain bond ETFs present a low-risk opportunity at >10% gains in 2024.

Market pundits agree that interest rates will continue to come down in 2024. The only question is how fast. Falling rates are positive for bonds. The gains seen by bond investors in the second half of 2023 are set to extend into 2024. Investors who read our blog post “High-yield bond ETFs – a unique buy-and-hold investing opportunity” and bought ETFs, such as HYG 📈, SJNK 📈 or ANGL 📈, will already by sitting on substantial gains.

The 30-day SEC yield for these ETFs still sits at attractive levels of 7.26% 7.60% and 6.35%, respectively. Income investors can lock in these yields for the year and reasonably expect to get up to 5% in appreciation on top (depending on how fast and low interest rates drop) for a total annual return of 10-12%.

The Federal Reserve’s preferred measure of inflation has more or less been on target during the past quarter, leading to a big decline in interest rate expectations. The Fed is expected to cut as soon as March, and to keep cutting it almost every meeting in 2024. The only real risk for this trade is a pickup in inflation, which seems unlikely at this time.

Source: The Economist

Even though inflation was tamed by the hike in in interest rates above 5%, the US economy keeps going from strength to strength. As a result, corporate default rates can be expected to remain below the long-term average. Junk-rated companies continue to be well funded overall for the year ahead thanks to the financing they locked in during times of ulta-low interest rates. Some caution is recommended for the years 2025 and later as junk bond issuers will have to compete for fresh money given that a large share of outstanding bonds starts to come due in 2025.

2. Data center stocks – Return expectation: 15%-20%

With the unabated growth in data, further accelerated by artificial intelligence, data center stocks are a high potential pocket of value creation. Attractive pure play stocks are Equinix (EQIX 📈), whose profit analysts expect to grow by 24%, and everyone’s darling Nvidia (NVDA 📈). The company continues to be on a tear with projected net profit growth of 30% in the year ahead.

Investors should be selective in the space, however. The prospects of certain peers, such as Digital Realty or Digital Bridge, looks considerably less promising.

Other major players in the data center industry, though less pure play, are Microsoft (MSFT 📈), Amazon (AMZN 📈) or Adobe (ADBE 📈). Of these three, our favorites are ADBE and AMZN, which we believe can continue to rise against the backdrop of very solid underlying earnings growth.

3. Clean energy stocks – Return expectation: >20%

The prospects for clean energy stocks to rebound in 2024 look increasingly good, thanks to a multitude of drivers. In this space, we like FSLR 📈 and ENPH 📈.

Money made available through the Inflation Reduction Act is starting to reach market players in the renewable energy space. This already sizeable boon looks to be surpassed by even larger resources to be plowed into renewable energy over the next decade. At the recent Dubai Climate Summit, delegates pledged to raise global renewable energy capacity to 11,000 gigawatts (GW) by 2030, up from 3,400 (GW) in 2022. That’s adding roughly 10% of today’s total capacity each year.

Raw material cost have receded from their peaks, following Covid lockdowns and the supply issues caused by Russia’s invasion of Ukraine. Windpower leader Vestas first quarterly profit in some time is indicative of this trend.

Still, investors should be highly selective in this space. We believe the best opportunities in the renewable energy space can currently be found among solar energy companies. Our top pick in the space is First Solar 📈. Analysts expect net year’s profits to rise 11-fold in 2024. Investors could start picking up Enphase’s 📈 depressed stock in light of 2024 growth in revenue and profit of 67% and 23%, respectively.

Even though the prospects for renewable energy stocks are starting to look, it pays to be selective. Investors should steer clear from some of the top holdings in holdings in many clean energy ETFs, such as PLUG and RUN. These are highly loss-making with no turnaround in sight. Accordingly, their Ziggma Stock Score stands at 39 and 8, respectively.

Whatever happens…Ziggma’s helps you stay in control.

The year 2024 will show how these investment ideas will play out. Please do your own research. Consider your risk tolerance and financial situation when making investment decisions.

Whatever happens in 2024, Ziggma’s insightful portfolio tracking and optimization tools will put you in control of your portfolio while our technology-enabled research features will help you identify new investment opportunities fast.