EasyResearch: Stocks to Look Out for in 2024!

Predicting the future of the stock market is always a crystal ball game, but 2024 already has some intriguing trends bubbling beneath the surface.

In this EasyResearch, we'll dive into four sectors rife with potential: the rise of ‘affordable’ credit like Buy Now, Pay Later (BNPL), continued AI and robotics advancements, geopolitical sanctions reshaping the commodities landscape, and the complex dance between climate change initiatives and the energy sector.

BNPL: Where Credit Gets Clickable

Forget credit cards; the future of consumer spending might just be "buy now, worry later." BNPL (buy now, pay later) offers consumers the option to make purchases and defer payments, paying in instalments over time, usually with no interest. BNPL platform pioneers like Affirm have been making strides in the space, expanding their networks. This is fueled by e-commerce growth and millennials' preference for flexible, bite-sized payments.

Looking at what Affirm was busy with last year:

• Amazon commenced the rollout of Affirm’s buy now pay later offering to eligible sole business proprietor businesses and is expected to reach eligible sole proprietor customers by Black Friday.
• It partnered with Blackhawk Network Partner, one of the leading gift card distributors in the US; shoppers will be able to use Affirm to buy gift cards.
• Partner with Google Play, where BNPL payment options will be offered to merchants and customers who use Google Play in the US.
• Partnership with Liberty Travel, where travellers can book and pay over time.
• Expanding its Walmart to over 4,500 of its self-checkout kiosks.

This expansion into various sectors, including retail, e-commerce, gift cards, and travel, indicates Affirm's efforts to diversify its offerings and cater to a broader consumer base. Investors may view these developments positively as they reflect the company's strategic growth initiatives and potential for increased market share in the evolving landscape of consumer spending.

Affirm revealed in the first quarter of its 2024 financial year (FQ1’23) results that gross merchandise volume increased 28% year on year (YoY); total revenue was up 37% YoY - revenue-less transaction costs were up 16% YoY. Its funding capacity increased to a total of $13 billion.

Speaking about credit, it’s interesting to note that EasyEquities, a subsidiary of JSE-Listed Purple Group Limited, offers investors share-based credit for EasyVSTRs invested in qualifying shares on the platform. Read more on it here.

AI and Robotics: Where Machines Get Smarter (and Stronger)

Artificial intelligence (AI) and robotics are no longer the stuff of science fiction. From healthcare diagnostics to automated warehouses, these technologies are rapidly permeating every industry.

Appen is an Australian listed AI data solutions leader, prioritizing ethics and positive impact through large language models and deep learning. In November 2023, it announced that it would be partnering with Amazon Web Services to drive AI innovation. The company is also a member of the Amazon Partner Network - a global network of over 130,000 Amazon partners in more than 200 countries, thriving on Amazon Web Services (AWS). In the first half of 2023, group revenue dropped 24% to $138.9 million, led by a 27.4% decline in Global Services to $100.1 million. New Markets revenue fell 13.7% to $38.9 million. As of June 30, 2023, the company held $55.2 million in cash with no debt.

According to the CEO, despite the tech slowdown, the company is on track for positive FY23 EBITDA. It achieved 63% of $46M cost cuts, prioritizing high-potential areas for further streamlining.

When it comes to robots, iRobot is one of EasyResearch’s stock picks. The company offers top robot vacuum and mop options for your home's cleaning needs. It is one of the companies that Amazon initially wanted to buy for $61 a share in August 2022, which was later revised to $51.75. The stock is trading at a discount to the offer, at $38 per share as of writing.

Q3 2023 revenue: $186.2M, down from $278.2M YoY. Geographically, U.S. revenue dropped 42%, Japan 35%, and EMEA 1%. Mid-tier and premium robot sales constituted 81% in Q3 2023, up from 76% last year. The stock started trading at these levels after surging by over 30% in November 2023 after a report saying the deal from Amazon could be approved by the EU Commission, with the final decision set to be announced by February 14, 2024.

AI and robotics industries are growing rapidly, with Appen facing revenue challenges but aiming for positive FY23 EBITDA. iRobot's stock is influenced by a potential Amazon acquisition, and investors should stay vigilant for regulatory decisions and industry trends.

Sanctions Reshuffle: When Politics Fuels Profits

Geopolitical tensions are on the rise, and sanctions are becoming an increasingly common tool. This can mean big business for companies supplying sanctioned commodities and those controlled. There have been several noticeable controls over the movement and processing of several commodities, influenced by geopolitical events involving Russia, China, the US, the UK, and more.

In December, the UK government introduced legislation to ban the import of diamonds from Russia and proceeded with a prohibition on ancillary services related to metals, in coordination with international partners. Read the full announcement here.

China recently announced controlling measures over Rare earth extraction and separation technology, as well as production technology of rare earth metals and alloy materials, "in order to safeguard national security and public interest." Here’s the official announcement.

Looking at rare earth elements outside China, Lynas is among the rare earth players aiming to mine and process rare earth elements listed in the Australian market; the company secured an updated construction contract with a US government contribution of approximately US$258 million. This collaboration with the USDoD (US Department of Defense) aims to strengthen the supply chain for rare earths crucial to advanced technologies, benefiting the U.S. high-tech industry and national security. It will be the sole producer of separated Heavy Rare Earths outside of China upon completion. The CEO emphasizes: Our plant, the first outside China, establishes a crucial rare earth supply chain. Lynas, unique beyond China, is an ideal DoD partner, addressing vulnerabilities and boosting national security.

Sales in the first quarter of its 2024 financial year fell to $128.1 million due to lower rare earth prices and NdPr (Neodymium and Praseodymium) and SEG (mixed Heavy Rare Earths compound). NdPr production was 1,526 tonnes, affected by maintenance at Lynas Malaysia. Market demand is good, especially for Heavy Rare Earths in electric vehicles and, according to the results, it kept SEG products for future HRE sales when prices rise.

Climate Catch-22: Energy at the Crossroads

The energy sector faces a delicate balancing act in 2024. On the one hand, there's the ever-present pressure to meet the growing demand for energy. On the other hand, climate change initiatives and stricter emission regulations are squeezing traditional fossil fuel sources.

Carbon capture captures CO2 emissions from burning fossil fuels, helping increase oil and gas production while addressing climate goals.

Harbour Energy is, according to its homepage, the largest London-listed oil and gas company with operations in Indonesia, Vietnam, Mexico, and Norway. In December, it announced that it wants to buy all (excluding Russian) Wintershall Dea upstream assets. These are assets involved in exploration, drilling, and extraction activities. The acquisition is expected to enrich Harbour’s portfolio with exploration and production (E&P) assets in countries like Egypt, Argentina, and more, as well as carbon capture licenses in Europe - potentially turning Harbour into one of the world's largest oil and gas companies.

The deal is subject to regulatory approval and is expected to be completed in Q4 2024. 

In H1 2023, Harbour’s operations maintained a steady pace at 196 kboepd (Thousand barrels of oil equivalent per day), aligning with guidance. Adjusted 2023 production to 185-195 kboepd reflects drilling delays. Operating costs for the period stood at $0.5 billion, showcasing robust cost control amid inflation and currency fluctuations, with unit costs at $15/boe (barrels of oil equivalent). Forecasts for full-year unit operating costs remain at c.$16/boe. Total H1 capital expenditure amounted to $0.4 billion, with the full-year projection adjusted to $1 billion due to delayed rig arrivals.

For investors, the impact of these sanctions may be complex and constantly evolving. While they aim to achieve specific political or economic goals, they can also have unintended consequences on global markets and prices and profit margins on mining companies.

Conclusion

The 2024 landscape offers opportunities and challenges for investors. BNPL platforms like Affirm signal a shift in consumer habits, but expansion into various sectors poses risks, demanding vigilance amid potential regulatory scrutiny. In AI and robotics, despite Appen's revenue challenges, its commitment to positive EBITDA and partnerships with Amazon showcase resilience. iRobot, influenced by a potential Amazon acquisition, underscores the importance of staying informed about regulatory decisions.

Geopolitical tensions impact commodity markets, which is evident in Lynas' collaboration with the USDoD to strengthen the rare earth supply chain. However, investors must be cautious about market volatility tied to geopolitical events. The energy sector, represented by Harbour Energy, faces a balance between meeting energy demands and addressing climate change. Investors should monitor regulatory developments amid the shift towards cleaner energy.

Navigating 2024 requires a diversified and informed investment strategy, considering the ever-changing landscape and potential risks. Stay informed, adapt to trends, and consider long-term implications for successful investment decisions.