The stock market recovered nicely in 2023 and has many investors feeling excited about future prospects. Many corporations have posted year-over-year (YOY) revenue and earnings growth as consumer spending continues to grow.
Consumer spending is a critical driver of the U.S. economy, and growth in this spending can help stocks propel to all-time highs. However, some stocks look more promising than others. Some investments reached elevated valuations in 2023 and now look overdue for corrections. These stocks appear compelling for investors willing to wait a few years instead of dumping shares after any bad news.
Elf Beauty (ELF)
Elf Beauty (NASDAQ:ELF) is a cosmetics brand that has won over Gen Z and looks poised to win over more generations. The company offers beauty products that are made with cruelty-free products. For instance, other cosmetics companies source their ingredients from animals in ways that cause suffering.
Elf Beauty drifts away from that trend. Investors seeking maximum returns shouldn’t put capital into a company just because it is socially conscious. There needs to be something more to justify an investment, and Elf Beauty delivers where it matters for investors – financials.
The company grew revenue by 76% YOY in Q2 of 2024. Net income almost tripled. The revenue growth represents a significant acceleration rather than a gradual deceleration from a previously established high. In the second quarter of fiscal 2023, Elf Beauty ‘only’ achieved 33% YOY revenue growth.
Investors shouldn’t expect revenue to triple YOY. However, revenue growth has elevated. Fiscal 2023 also represents an acceleration compared to Q2 of 2022. The company continues to gain market share each year, and high net income growth will make it easier to justify the 44-forward P/E ratio.
It’s only a matter of time before this adtech company rebounds. The valuation is too low and the fundamentals are too appealing to walk away from this company without giving it a meticulous look.
Perion (NASDAQ:PERI) offers advertising solutions in search, social, display, and other outlets. The company taps into new advertising channels such as connected TV and digital out-of-home ads. The stock has been flat over the past year but is up by 865% over the past five years.
It’s shocking to see a company with a 9 forward P/E ratio and a 0.42 PEG ratio not report better gains over the past year. The company has a $1.4 billion market cap but an enterprise value under $900 million due to its healthy cash position and zero debt.
Perion is even growing revenue at an impressive pace. The company reported 17% YOY revenue growth and released a generative AI-powered dynamic audio advertising solution in the third quarter. Net income jumped by 28% YOY.
Perion is unlikely to stay flat for the second year in a row. Currently, the small company offers a vast margin of safety for investors.
iShares Gold Trust (IAU)
While growth stocks generated many wins last year, investors may also want to consider precious metals for their portfolios. The iShares Gold Trust (NYSEARCA:IAU) reflects the price performance of gold. You won’t have to store the asset and can still benefit from its appreciation.
Gold tends to go up during economic uncertainty. The asset performed well during the Great Recession while many equities lost ground. Several factors contribute to higher gold prices, but rising inflation and lower interest rates help. It’s possible for us to witness both of those events take place at the same time.
The Federal Reserve has been hinting at lower interest rates. However, the Fed may not cut rates as aggressively as the most bullish market participants hope. Lower interest rates can lead to higher inflation in their own right, but investors should also monitor developments in the Red Sea.
Iran-backed militants have been waging attacks in the Red Sea and destroying ships. The ongoing conflict has forced shipping companies to take less efficient routes to deliver products worldwide. Longer routes mean more fuel which translates into higher shipping costs. That can lead to more inflation.
Gold is a popular hedge during economic uncertainty, rising inflation, and declining interest rates. The iShares Gold Trust offers investors an easy and more direct entry into the precious metal.
On this date of publication, Marc Guberti held long positions in ELF, PERI, and IAU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.