Up 50% in 2023! Are these the 2 best stocks to buy for 2024?

These two FTSE 100 companies were among the best shares to buy in 2023. They have bright prospects for 2024, but are they now too pricey?

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While looking for the best shares to buy in 2023, I mostly targeted dirt cheap, high-yielding FTSE 100 shares that looked ripe for a recovery. As a result, I overlooked some top momentum stocks that have smashed it this year.

Associated British Foods (LSE: ABF) and Melrose Industries (LSE: MRO) have rocketed 51.9% and 48.01% respectively over the last 12 months. Is it too late to buy them today, or can they continue to fly in 2024?

Associated British Foods has never really got my juices flowing. It’s a bit of a mash-mash, spread across clothing/lifestyle retail via flagship Primark, food brands such as Blue Dragon, Kingsmill, Ovaltine and Twinings, and sugar production via British Sugar. Diversification is good, but it makes the company’s prospects harder to judge.

Classy conglomerate

Investors who developed a taste for its heady blend of food, ingredients and retail haven’t just bagged growth. Last month, the board cheerfully waved through a final dividend of 33.1p per share, plus a special dividend of 12.7p. That lifts the full-year payout to 60p, up more than a third on 2022.

The group has completed a £500m share buyback and is now lining up another £500m. That’s in tribute to its strong balance sheet and positive cash generation. It’s pretty impressive, given the cost-of-living crisis.

Primark posted sales rose 17% to £9bn, boosted by board’s decision not to pass on the full impact of higher input costs. That did squeeze margins, but it’s looking to widen them in 2024 as material and freight costs fall. Well-run companies can do things like that.

Few investors will be complaining given that pre-tax profits still rose 25% to £1.34bn. Inevitably, given its success, ABF shares are a little pricey, trading at 16.6 times earnings, while the forecast yield is relatively low at 2.46%. It’s had a blistering 2023 and could do well next year too, as falling interest rates ease the consumer squeeze. I’d like a cheaper entry point though, and will buy on any sign of market turbulence.

To the stars!

Pureplay aerospace business Melrose was hit hard by the pandemic, its shares crashing from 570p to 175p during the first lockdown. It’s now posted pre-tax losses in four of the last five years and revenues have only picked up slowly since the pandemic.

The dividend has also taken a beating too. The 4.6p per share payout in 2018 was slashed to just 0.75p in 2020. In 2021, investors got 1.75p per share and 2.33p last year. Melrose is forecast to yield just 0.78% in 2023 and 1.24% in 2024. That’s low, but heading in the right direction.

Investors have been piling into the stock in anticipation of brighter times ahead and in November, the board reported revenue growth of 18%, beating expectations. Margins were “substantially better” than expected too.

Revenues are expected to total £3.3bn in 2023 and markets forecast steady but not spectacular growth to £3.63bn in 2024. The outlook is promising and Melrose also has a strategy of growing through acquisition.

The deal breaker for me is today’s whopping valuation of 79.29 times earnings (and 122 times 2024 earnings). That leaves the sentiment vulnerable to any bad news. I’m afraid I’ve missed my chance here. Never mind. It happens.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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