Trading Strategies for 2024

Image Source: Pexels

The stock market is heating up again as the global economy relaxes and improves. After the pandemic recession in 2020 and inflation in 2022, growth prospects are becoming rosier.

As macroeconomic indicators start to stabilize, a rally may take place. Even so, investors must keep their guard up, given the potential delay in rate cuts, to prevent inflation from rebounding. In this article, we will give you some investing strategies for FY24.

Opening an account with online stock trading or brokerage platforms is as easy as 1-2-3. You can find many online choices with low initial deposit requirements to start trading.

As the digital revolution persists, trading apps and websites have become more prolific and user-friendly. Some stock trading platforms allow users to trade various investment types simultaneously.

Meanwhile, others have features that assess risk profiles and suggest stocks for diversification. AI further enhances this capability by providing predictive analysis to help traders find the best entry and exit points for buying and selling stocks.

However, choosing the best platform can be confusing at times. That is why you must take some time to study all your prospective platforms. You can check their offers, user reviews, and fees to avoid scams or fraud. You must do some background checks to find low-cost but secure trading platforms.

For instance, you can enjoy commission-free trades with SoFi for as low as $5. This benefit will save you plenty of money to add to your trading fund.

The stock market started to heat up again when inflation decelerated, and interest rate hike pauses were sustained.

But recently, the market has signaled some pullbacks, which we can attribute to the inflation uptick in February and March. That is why it is essential not to rely solely on your technical analysis skills. Inflation and interest rate hikes continue to play a crucial role in price changes. Nonetheless, we may expect it to rebound in the second half.

As such, you must examine all industries and their potential to generate earnings, which can drive the price uptrend.

Given their crucial role in technology and other sectors, AI-related stocks are at the top of my pecking order per industry. In 2023, these were the primary drivers of the stock price upside. They rose 40% year-over-year compared to non-AI stocks at only 9%. Today, their average price is 4% higher than in 2023 versus non-AI stocks at 1%.

Hospitality stocks come second due to the expected complete recovery of tourism in 2025. In 2023, the average occupancy rate reached 63.0%, a substantial increase from 43.9% in 2020. Also, it was only 2.9% shy from pre-pandemic levels, showing sustained improvement in the past three years.

Given their size and solid fundamentals, Marriott (MAR) and Hilton (HLT) are our top picks.  Their fee-based business model works to their advantage. It allows them to modify prices based on demand and macroeconomic factors. We can see this in their double-digit revenue growth of 14.2% and 16.9%, respectively.

They managed their costs and expenses better, given their operating margin of 17% and 24%, respectively. This figure contrasts with Hyatt (H), which uses a lease-based model. Although revenue streams are more fixed, this model is relatively inflexible regarding pricing and cost-reduction strategies. We can see its operating margin, which remained within the 5-7% range, much lower than the two hotels.

Our third and last choice is the HCM or human capital management industry due to the increased preference for remote and hybrid work. This also increases the reliance on HCM solutions for payroll management, employee monitoring, and workflow optimization.

Paychex (PAYX), ADP (ADP), and Paycom (PAYC) are our top picks, given their impeccable revenue growth and operating margin. More interestingly, PAYX and ADP’s net debt/EBITDA ratio has a negative value. They have more cash reserves than their existing borrowings.

Meanwhile, PAYC has less than 1.0x, so paying all its borrowings will take a few months. Hence, they are all earning enough with adequate liquidity.

The P/E and P/B ratios are the two most common metrics used to assess the reasonability of stock prices. They are often helpful, particularly in capital-intensive companies like hotels and property builders.

However, they don’t always consider the stock’s intrinsic value since they only focus on the EPS and tangible book value.

As such, it is wise to use a more comprehensive method, particularly the DCF Model. It can forecast both the financial performance and target price of the stock. It also considers external factors, such as inflation and market beta, to estimate the perpetual growth rate and the WACC. Relative to our industry picks, the DCF Model most applies to hotel stocks.

The Sharpe Ratio and the Jensen’s Alpha can help you optimize risk-return management. It weighs stock returns and standard deviation to determine the optimal stock to buy.

To compute it, you must get the difference between the annual returns and risk-free or ten-year treasury rates. Then, divide the difference by the volatility rate or the standard deviation.

Meanwhile, Jensen’s Alpha shows how a stock performs relative to the market. So, a positive Jensen’s Alpha means that the stock has outperformed the market.

Strategies 2 and 3 mostly employ fundamental analysis, a comprehensive company or stock valuation approach. However, it would be better to do a technical analysis to assess the price direction and momentum.

As traders, the Average True Range (ATR) is our go-to option since it averages true price ranges over a specified period. With that, it measures volatility by including gaps in price movements.

Typically, it is based on 14 daily, weekly, or monthly periods. ATR can also be used intraday, which can be helpful for many traders. We used a Simple Moving Average (SMA) with ATR to ensure precision.

Aside from ATR and SMA, we use double up and double bottom to trace any reversal pattern. This is more essential today, given the recent pullback in stock prices. Using these reversal patterns, we can identify if the price reversal will change the trend.

Stock trading can be daunting at first due to various factors to consider before deciding. But you can learn the ropes quickly with preparation, practice, and perseverance. It is especially exciting today, given the upside drivers that may push prices upward. There may be returns in the long run.