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Sushree Mohanty

2 'Strong Buy'-Rated Growth Stock Picks for 2024

For some people, the start of a new year means making new choices and habits. If you're among those who have decided to invest in the stock market this year, the "Magnificent Seven" stocks would likely be your first pick. Not that I would disagree.

But if you look past the hot stocks in the market, you might find these growth stocks with a "strong buy" rating that would also be an excellent addition to your portfolio in 2024. Leading payment tech company Mastercard (MA) and creative software company Adobe Systems (ADBE) experienced impressive growth in 2023 as a result of their diverse business models and artificial intelligence (AI) opportunities. 

Last year, Mastercard shares soared 23%, while Adobe shares surged 77%, compared to the S&P 500 Index’s ($SPX) gain of 24%. Wall Street, however, thinks both stocks have a lot more upside ahead, based on the consensus "strong buy" ratings. Let’s find out more.

The Case For Mastercard Stock

Mastercard has evolved from a simple credit card provider to a multifaceted financial services entity. Its presence spans across continents, with operations in over 210 countries and territories. Its global footprint, combined with strategic partnerships and acquisitions, has enabled the company to tap into new markets and broaden its reach.

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This diversified global business has helped the company grow its revenue from $15 billion in 2018 to $22.2 billion by 2022. Additionally, earnings have also surged, rising from $5.60 per share in 2018 to $10.20 per share in 2022.

Amid a challenging macro environment, Mastercard also reported remarkable results in its latest quarter. Continued strength in travel demand boosted cross-border volume for Mastercard in Q3, which rose 21% year-over-year. Non-travel cross-border spending also contributed to the volume surge, according to management.

The third quarter's total revenue increased 14% to $6.5 billion, surpassing the consensus estimate by $5.88 million. Adjusted earnings per share (EPS) grew 26% to $3.39, also beating the estimate by $0.18.

CEO Michael Miebach said of the results, “While macroeconomic and geopolitical uncertainty remains elevated, our diversified business model positions us well to capitalize on the substantial opportunities in payments and services.”

Furthermore, Mastercard is a dividend-paying stock. Its payout ratio of 18.6% suggests there is plenty of opportunity for dividend growth, even though its annual dividend yield of 0.54% isn't all that appealing. The company also utilized its free cash flow to repurchase 4.8 million shares in the third quarter.

The ongoing shift from cash to digital payments presents a lot of scope for Mastercard in the coming years. For 2024, analysts forecast Mastercard’s revenue and earnings will increase by 12.2% and 16.8%, respectively, year-over-year. Trading at 29 times forward estimated 2024 earnings, Mastercard shares are reasonably priced when compared to its last five years' average price-to-earnings ratio of 40.

Wall Street rates Mastercard as a "strong buy" overall. Out of the 28 analysts that cover the stock, 23 maintain a “strong buy” rating, while three have a “moderate buy” rating and two analysts rate it a “hold.” The mean analyst target price for Mastercard stock is $447.82, which is 6.5% above current levels.

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The Case for Adobe Stock

Adobe, a creative software company, is another business that has prospered, thanks to its diverse line of business and large user base worldwide. Its well-known products - Adobe Photoshop, Illustrator, and Acrobat - already have a devoted following of users. Moreover, Adobe has increased sales and profits by integrating AI into its products.

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In the fourth quarter of fiscal 2023, total revenue came in at $5.05 billion, an increase of 12% year-over-year. Adobe now has a subscription-based model that allows for recurring revenue, despite the economic scenario. Subscription revenue contributed $4.3 billion to total revenue of $19.4 billion for fiscal 2023. Revenue grew 10% year-over-year for the full year, while adjusted EPS of $16.07 increased 17.2% from fiscal 2022.

Last year, Adobe introduced Firefly, a “family of creative generative AI models,” to provide its users with text effects and high-quality images. Firefly is now a part of its other products, which include Adobe Express, Document Cloud, Experience Cloud, and Creative Cloud. Furthermore, businesses can now purchase Adobe Firefly for Enterprise. In the fourth quarter, the company also introduced three “new Firefly models, Firefly Image 2 model, Firefly Vector model and Firefly Design model.”

Adobe's investments in AI could propel the company to great heights. Keeping the AI prospects in mind, the company expects fiscal 2024 revenue in the $21.3 billion to $21.5 billion range, with EPS in the $17.60 to $18.00 range.

Moreover, according to Bloomberg, the collapse of the Adobe-Figma acquisition deal leaves the company with $6 billion in cash, which it can utilize to advance its AI offerings.

The increasing demand for digital content creation infused with the golden touch of AI should bode well for Adobe’s future. For fiscal 2024, analysts predict EPS of $17.94 on revenue of $21.5 billion. Additionally, revenue and earnings could grow by 11.9% and 13.5%, respectively, in fiscal 2025. 

When it comes to valuation, trading at 28 times forward 2025 estimated earnings, the stock might look a tad overpriced. However, I believe Adobe's AI potential is being overlooked here.

Turning to Wall Street, Adobe stock has a “strong buy” rating. Out of the 27 analysts covering the stock, 19 have a “strong buy” recommendation, one analyst rates it a “moderate buy,” and seven rate it a “hold.” The average analyst target price of $631.04 for ADBE is 10% above the stock’s current levels.

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The Key Takeaway

In conclusion, Mastercard, with a diversified portfolio, a global presence, a commitment to sustainability, and a focus on innovation, can become a global financial powerhouse in the near future.

Meanwhile, the demand for high-quality digital content creation tools and solutions is on the rise, playing into Adobe's strengths. With a strong foundation in creative software, diversified offerings, a global presence, and a commitment to innovation, Adobe is well-positioned to capitalize on the burgeoning AI-led digital market.

Therefore, I believe that by the end of 2024, Mastercard and Adobe stock will both be able to reach their respective Street-high target prices, which would indicate a potential upside of 17% for MA and 22% for ADBE.

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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