Top Consumer Picks for 2024 and Beyond

Top Consumer Picks for 2024 and Beyond: Carnival, Chipotle, and Spotify

While AI stocks dominated headlines in 2023, several household-name consumer companies quietly outperformed the market and still hold bright potential. Here are three Motley Fool contributors' top picks for continued growth in 2024 and beyond:

1. Carnival (CCL): The Cruise Boom

• Despite its under-the-radar status compared to AI, Carnival, the world's biggest cruise line, saw a stellar 131% gain in 2023 due to rebounding business and record demand.
• The company achieved record revenue ($21.6 billion) and positive adjusted net income ($1 million) in fiscal 2023, overcoming significant interest expenses.
• With a stronger financial position (reduced debt by $4.6 billion) and record bookings, Carnival is poised for further growth.
• Continued "revenge travel" demand and potential interest rate cuts by the Fed bode well for the company.
• Carnival expects adjusted EBITDA of $5.6 billion and adjusted net income of $1.2 billion in 2024. Its high operating leverage will likely lead to margin expansion as fixed costs are covered.
• Debt reduction and lower interest expenses should further improve the bottom line. Strong demand and meeting guidance could reward investors in 2024.

2. Chipotle Mexican Grill (CMG): A Market-Beating Staple

• Chipotle has consistently outperformed the market, closing 2023 with a 65% gain, and shows no signs of slowing down.
• The chain occupies a sweet spot between fast food and casual dining, appealing to diverse consumer bases despite inflation.
• Chipotle successfully raised prices to combat higher costs without hurting demand.
• Revenue increased 11% in the 2023 third quarter, with comparable sales and operating margin also expanding. Earnings per share jumped from $9.20 to $11.32.
• The company expects mid- to high single-digit comparable sales growth for the fourth quarter and full year. Moderating inflation could further boost performance.
• With plans to reach 7,000 stores (from 3,300 currently), Chipotle has a long growth runway, focusing on new markets and international expansion.
• Its reliable performance under various circumstances makes it a favored "forever stock" among investors.

3. Spotify Technology (SPOT): Streaming Strong

• The leading music streaming service surged 148% in 2023 after a tough 2022, driven by strong revenue growth.
• New features like personalized playlists, AI DJ, and audiobooks are attracting new users, with management exceeding initial 2023 subscriber goals and aiming for 30 million by the year-end.
• Despite its recent run-up, Spotify stock offers attractive upside, trading at a lower valuation than its pandemic peak and other streaming stocks like Netflix.
• Improving growth and a focus on margin and profitability could earn Spotify a higher valuation. Increasing demand for its music service is already boosting gross profit margin.
• The company generated $228 million in free cash flow in the third quarter, with further improvement expected.
• Long-term, Spotify could see even more demand with AI-powered content curation tools. It aims to reach 1 billion monthly active users by 2030, from the current 574 million.