If you want to buy stocks in the new year, historical patterns are on your side. Since its founding in 1971, the Nasdaq Compound has risen an average of 19% each year following a rebound year like the one we experienced in 2023. And with the Federal Reserve expected to lower interest rates and begin easing its monetary policythere is no reason to think that 2024 will be an exception to this long-term pattern.
One way for investors to bet on a new bull market is with split stocks: shares of companies that have recently split their shares into more units to make them more available to retail investors. While splits don't change business fundamentals, they can increase liquidity and signal that these companies are moving in the right direction.
Let's explore why NVIDIA (NVDA 2.27%) and tesla (TSLA -0.64%) conform to the law.
NVIDIA
Chipmaker Nvidia is no stranger to explosive growth; their share price is often out of reach for smaller investors who do not have access to fractional shares. To meet the challenge, the company has split its stock five times since 2000, including a 4-for-1 conversion in 2021. The good news is that Nvidia's bull run appears to be far from over, especially as it benefits from growing interest in the generative industry. artificial intelligence (AI).
Despite rising 244% in the last 12 months, Nvidia stock still appears to have plenty of momentum. According to Bloomberg analysts, the generative AI industry could expand at a compound annual growth rate (CAGR) of 42% to $1.3 trillion by 2032 as the technology is refined and adapted to more use cases. . Nvidia will benefit from its 80% market share in advanced chips that make training these applications possible.
Although competition from rivals such as Advanced Micro Devices, the opportunity seems big enough for several companies to share in the stock. Additionally, Nvidia's early leadership has given it a competitive advantage because more programmers are familiar with its hardware and have created software and servers specifically designed for its use.
Even though its net income increased 12-fold to $9.2 billion, Nvidia stock is still reasonably valued at just under 25 times forward earnings. This is below the Nasdaq-100 average of 28, suggesting it's not too late for investors to bet on Nvidia's long-term potential.
tesla
Like Nvidia, Tesla is another fast-growing company that has relied on stock splits to manage its rising stock price. Most recently, this included a 3-for-1 split in 2022. Like many automakers, Tesla faces macroeconomic challenges stemming from high interest rates and competition. But its strategy to become a mass-market automaker is still underway.
In the short term, the electric vehicle industry is under a lot of pressure. With high interest rates and recent inflation putting pressure on consumers' pockets, people are putting off buying new cars, forcing automakers like Tesla to lower prices to maintain their market share. That said, the company is also taking the opportunity to accelerate its mass market strategy.
Image source: Getty Images.
CEO Elon Musk says he is developing a $25,000 car called the Model 2 that is expected to be unveiled this year. And Reuters reports that the company is also working on a 25,000 euro ($26,838) vehicle at its Berlin factory. Lower-cost options could help Tesla offset lower margins with higher volumes, while vertical integration efforts such as lithium refining, could help this strategy by reducing production costs.
With a price-to-earnings (P/E) multiple of 68, Tesla stock is expensive, considering the near-term challenges it faces. But the company is no stranger to having high-priced stocks. And historically it has proven naysayers wrong by increasing its valuation.
Focus on the fundamentals
While historical patterns and stock splits can make investors more comfortable in the market, they take a backseat to fundamentals in the long term. Nvidia and Tesla are great buys due to their dominant positions in their industries and the potential to ride the wave of transformative technologies.
But to me, Nvidia looks like the better bet right now due to its faster bottom-line growth rate and relatively low valuation.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.
