Will 2024 be the year of growth stocks, value stocks, dividend stocks, or perhaps a blend of all three? What is certain is that quality growth stocks have a history of performing well over time. Even companies with pricy valuations in relation to their trailing earnings have the potential to become a better value if earnings outpace the rate of stock price growth.

Tesla, Microsoft, and Enphase Energy are not bargain stocks by any measure. However, they all have clear paths towards increasing earnings in the years ahead. Three Motley Fool contributors have offered more detailed insights into why each of these growth stocks is worth considering for investment in 2024.

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Tesla’s Innovative Strategy for 2024

Lee Samaha (Tesla): The auto market is currently split with the electric vehicle (EV) market showing high growth while the internal combustion engine (ICE) market is not. Tesla, the leader in the EV market, must operate as a growth company rather than a traditional ICE vehicle manufacturer dealing with low single-digit growth end markets. Tesla’s strategy of lowering prices to keep its cars affordable amid interest rate increases making monthly payments higher is the right move. Although it has impacted Tesla’s margin, it has helped maintain its market leadership and production plans on track.

This strategy enables Tesla to invest in technological advancements and factory expansions, ultimately lowering its cost per vehicle. This will allow Tesla to offer more affordable cars, maintain market share, and improve profit margin and profits, especially if interest rates move lower in 2024.

Microsoft’s AI Investment for 2024

Scott Levine (Microsoft): The surge in public interest in artificial intelligence (AI) has led to increased investor interest in AI stocks like Microsoft. Microsoft, known for its word processing and spreadsheet offerings, has also been actively advancing AI. With a $10 billion investment in Open AI and the incorporation of AI into many of its own products, Microsoft is strongly committed to AI. CEO Satya Nadella stated that Microsoft is “rapidly infusing AI across every layer of the tech stack and for every role of business process to drive productivity gains for our customers.” For investors seeking AI exposure without excessive risk, Microsoft is an ideal opportunity.

Enphase’s Grounded Outlook for 2024

Daniel Foelber (Enphase): Despite a turbulent 2023, Enphase stock rebounded and is still a better value than it has been in the past. Even though it is not as cheap as it was in late October, it presents a compelling option when looking at its trailing figures. The issue lies in Enphase’s projected earnings, which could be lower in 2024 than previously anticipated.

Enphase Falls Short on Growth

In 2024, Enphase Energy may find itself in more turbulent waters than in 2023. This situation translates to a forward price-to-earnings ratio that edges towards being pricier than its trailing P/E based on the last 12 months of earnings. This shift poses a stark departure from the blowout results that investors have grown accustomed to and further compounds the negative growth trend seen from Enphase. The company’s slowdown showcases the considerable impact of high interest rates on the residential solar industry, and management’s near-term outlook is somber at best, despite glimmers of hope for a turnaround in the latter half of 2024, indicating a promising outlook for 2025.

Interest Rates & Industry Slowdown Dampen Prospects

The painful reality for Enphase is that it is inexorably tied to interest rates, with many of its customers reliant on securing financing at low interest rates. Furthermore, Enphase itself benefits from a lower cost of capital to drive its expansion. The company’s prospects are further contingent on a robust economy and enthusiasm for the energy transition. Therefore, pinning hopes on a rapid reversal of fortunes seems ill-advised, necessitating a more cautious approach.

In 2023, Enphase rallied at year-end due to being oversold, not due to a fundamental improvement in its position. While the worst of the sell-off may be in the rearview mirror, Enphase’s guidance for a dismal Q4 2023 indicates a considerable slump in revenue growth from the previous year.

Investment Strategy for Enphase

As the market braces for the first half of 2024, the critical question remains: how will Enphase fare? A swift industry recovery could potentially position Enphase for a stellar year. Conversely, if the deceleration observed in Q4 2022 extends into Q1 and Q2, without a matching recovery in the latter half of the year, impulsive investors may be inclined to offload their Enphase stock in a hasty retreat.

The most prudent approach to a stock such as Enphase involves concentrating on its long-term promise, without losing sight of short-term market movements. The protracted weak performance and guidance, alongside a sector-wide slowdown, wreaked havoc on Enphase through the first ten months of 2023. However, a broad market upswing and the prospect of lower interest rates resulted in Enphase becoming one of the best performers in the market over the final two months of the year.

Investment Inclinations and Cautionary Tales

Investors with a robust risk appetite could potentially consider an investment in Enphase at this juncture. Nonetheless, it remains vital to recognize that this stock is immensely volatile and prone to unpredictable movements in the short term.

Conclusion

For Enphase Energy, the road ahead seems fraught with challenges, and past stalwart performance may not suffice to weather the stormy forecast. As investors navigate the precarious waters of 2024, it is imperative to adopt a balanced, forward-thinking strategy, considering the company’s long-term trajectory while remaining wary of immediate market forces.