These are the top sectors for blue chip growth in 2024

Key Points

• The Health Care Sector is expected to post the largest earnings growth in 2024. 
• The Communications Services Sector will be led by double-digit growth at Meta and Alphabet. 
• Information Technology is driven by AI and led by stocks like Microsoft and NVIDIA. 

With 2023 drawing to a close, it’s time to start looking at 2024 and what it may bring to investors. The number one item on the list is uncertainty. Between inflation, the FOMC and the outlook for interest rates, there is OPEC+, oil prices and consumer health to cause concern. Regardless, some sectors and the blue-chip stocks within them are poised to grow in 2024 and are most likely to outperform the broad market. This is a quick look at the sectors with the most robust outlook for earnings growth in 2024 and the stocks in the best position to provide value to investors. 

Healthcare will lead the market in 2024

The Healthcare Sector NYSEARCA: XLV is among the laggards in earnings growth in 2023, but that will change drastically in 2024. 2023 is marked by a COVID and patent cliff for many healthcare stocks, impacting results by double-digits in some cases, but growth is expected to resume next year. The 20% decline in sector earnings posted YTD in 2023 won’t be recouped completely but it is close. 

Bullish factors favoring healthcare stocks are the 19% increase expected to lead the broad market and the rising estimates for earnings growth. The consensus figure for the healthcare sector is up 500 basis points since the start of CQ4 2023, while most other sectors are in decline. 

The only negative is that the sector as a whole is a low-yielding group, and the stocks with the most robust growth outlook have the lowest yields, so stock picking within the group may not lead to the desired results. Regarding growth, Eli Lilly NYSE: LLY is expected to grow its earnings by triple digits in 2024, while others will see persistent earnings declines.  Regarding yield, AbbVie NYSE: ABBV is the 5th largest holding and yields close to 4.5%; AbbVie earnings will decline in 2024.

Communications Services slips into 2nd position

The Communications Services NYSEARCA: XLC sector is expected to post a solid double-digit earnings increase in 2024. Still, growth will slow from nearly 25% in 2023 to the high teens, and the estimates have been under pressure. Results are strong nearly across the board, but there is concern that 2024 estimates are too high. 

However, the top two holdings in the sector are Meta NASDAQ: META and Alphabet NASDAQ: GOOG, at nearly 50% of the portfolio. They have been outperforming in 2023 and will likely do so in 2024. The shift to AI supports both, and Meta has seen a notable improvement in user metrics and ad impressions that are expected to be sustained. 

Growth will be spread more evenly in the group. Meta and Google are 50% of the portfolio, but Disney NYSE: DIS, AT&T NYSE: T, and T-Mobile US NASDAQ: TMUS earnings are all expected to grow in alignment with the sector outlook. T-Mobile US has the most robust outlook for growth, about 30%, which will lead its peers AT&T and Verizon NYSE: VZ. Verizon, the highest yield in the group (7% compared to 0.7% for the ETF), isn’t expected to grow earnings in 2024, but cash flow and FCF are improving. 

Information Technology and the AI revolution

The Information Technology Sector NYSEARCA: XLK is expected to post the 3rd strongest growth in 2024, about 15.75%. Estimates are falling, but this is most likely caution given the demand for AI driving most of the business. Microsoft NASDAQ: MSFT is the largest holding at over 20% and is expected to post a 16% increase in earnings. NVIDIA NASDAQ: NVDA, in 5th position regarding portfolio allocation, is expected to see its earnings grow by 60% and is the most likely to report a positive surprise.

The market action in the Information Technology ETF is bullish at the end of 2023. The market for this ETF confirmed an uptrend in late October and moved up to set a new all-time high in November. Now, it is poised to extend the rally to another new high and may gain another $25 before the end of the year.