The U.S. stock market has had a dream run in 2023, driven mainly by the exceptional performance of the "Magnificent Seven" tech stocks. Fundstrat analyst Tom Lee expects many more U.S. stocks to rally in 2024, thanks to the Federal Reserve's anticipated interest rate cuts, falling yields on the 10-year Treasury note, a loosening housing market, improving outlook for business capex, and anticipated fund flows in money market funds.
Although shares of many companies are already trading at higher valuations than a year ago, investors can still find reasonably priced high-quality growth stocks, such as UiPath (PATH) and Confluent (CFLT -0.87%), all set to soar much higher in 2024. Here's why investors should consider these stocks -- currently trading at less than $35 per share -- as potential long-term investments.
UiPath
UiPath is leveraging robotic process automation (RPA) tools and artificial intelligence (AI) technologies to help companies automate and streamline repetitive and rule-based tasks, which, in turn, helps boost the latter's cost efficiency and productivity. The company is already seeing solid demand for its automation tools in traditional industries -- such as telecommunications, retail, manufacturing, and consumer packaged goods -- to drive efficiencies in areas like store openings, employee onboarding, and pricing strategies.
UiPath's focus on tailoring its automation solutions to the needs of specific industries or verticals instead of a one-size-fits-all solution has been a key differentiator for the company. The company leverages its deep understanding of industry-specific processes and workflows to provide targeted solutions. The company also works with global system integrators and other strategic partners to further tap into their customer base and reach a wider range of industries.
UiPath also sees the recently released Autopilot, a new set of generative AI-powered capabilities, as a major growth catalyst. Autopilot can help developers, testers, analysts, and knowledge workers accelerate automation testing and improve specialized document understanding and communication mining models. A few hundred customers have already tested the Autopilot product in a private preview. UiPath further expects Autopilot to accelerate adoption and the speed of deployment of its automation platform in the coming months.
UiPath reported a 24% year-over-year jump in ARR (annual recurring revenue) to $1.38 billion in the third quarter of fiscal 2024 (ending Sep. 30, 2023). The company is also profitable and free-cash-flow positive on a non-GAAP (generally accepted accounting principles) basis.
Considering the RPA market is estimated to grow annually at a compounded average growth rate (CAGR) of 37.9% from $2.6 billion in 2022 to $66 billion in 2032, there is still significant runway for this industry-leading stock to grow in the coming years.
Confluent
In an era dominated by data-driven decision-making, Confluent is enabling companies to process and analyze huge mounds of real-time streaming data and derive actionable insights. The company's comprehensive data streaming solution works across multiple clouds and in an on-premise environment, thereby helping clients get a holistic real-time view of their overall data.
Being the first commercial provider of the open-source distributed streaming platform Apache Kafka, Confluent is benefiting from continuous innovation and feedback from the open-source community. The company has also added data governance capabilities and Flink open-source streaming processing framework to its platform. These product enhancements can help the company further penetrate the $60 billion data streaming technology market.
The increasing adoption of AI technologies is also a major tailwind for Confluent. Since data is the foundation of any successful AI strategy, enterprises are increasingly investing in data applications -- which bodes well for the company's data streaming platform.
Confluent boasted nearly 4,960 businesses at the end of the fourth quarter of fiscal 2023 (ending Dec. 31, 2023), up 16% on a year-over-year basis. Particularly encouraging was the strong pace of growth in its high-value clients, with the number of customers generating more than $1 million in annual recurring revenue (ARR) growing year over year by 24% to 158 in the fourth quarter.
To add new customers and workloads, Confluent is transitioning its cloud business from a bookings or committed spending model to a consumption-based model. This shift will make the platform even more accessible to customers by reducing the up-front costs, making it easier for them to make the initial purchasing decision. While a consumption-based model can result in some revenue variability during difficult economic times, it ensures high customer retention and a sticky customer base.
Confluent's shares have surged by almost 35% in the past week, after reporting stellar fourth-quarter results. Despite this, the stock is currently trading at a price-to-sales ratio of 13.7, significantly lower than its historical three-year average of 18.1x. Hence, considering the many tailwinds and a reasonable valuation, Confluent seems to be a smart buy in 2024.
Manali Bhade has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Confluent and UiPath. The Motley Fool has a disclosure policy.
