In this article, we will discuss the 10 Best Conglomerate Stocks to Buy According to Hedge Funds.
As per Lloyd Capital, the new year starts on the back of economic resilience. Global conditions remain benign, courtesy of a healthy US economy, moderating inflation, and a gradual easing of global monetary policy. However, investors are required to remain cognizant of the several risks looming. Notably, governments worldwide have fueled economic activity in a way that has deteriorated fiscal positions. Also, inflation is yet to fully return to the respective targeted levels and the geopolitical situation remains uncertain.
As per the investment management firm, investors are required to remain focused on analyzing the quality of the businesses they purchase and ensuring that these are done at prices offering an adequate margin of safety relative to intrinsic value.
S&P 500 to Reach 6,666 in 2025, Says Bank of America
As per BofA’s equity strategy team, led by Savita Subramanian, the S&P 500 index should reach 6,666 by 2025 end. Part of this growth is expected to stem from healthy economic growth. The investment firm’s economics team expects that the US economy should grow at an annualized rate of 2.4% in 2025, higher than Bloomberg consensus forecasts of 2% growth. As a result, the firm has favored companies that are GDP-sensitive and is now going overweight on Financials, Consumer Discretionary, and Real Estate, among others.
Bank of America went on to add that, in 2025, there will be a broadening out of the stock market rally from the “Mag 7” tech stocks to other 493 stocks of the S&P 500 Index. J.P. Morgan also has somewhat similar expectations. Let’s look at that in detail.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
How Can Investing in Conglomerates Provide Support in 2025?
J.P. Morgan believes that equity earnings should broaden moving forward. Equity returns were dominated by “Mag 7” since the beginning of 2023. Over that period, the broader market (S&P 500 index) managed to return 62%, more than half of which was made by Magnificent 7 (delivering 242% over the same period). The strong returns have a solid backing as the Mag 7 were able to grow their earnings at 40%, and the remaining 493 stocks in the index were able to post 2%.
However, J.P. Morgan expects that performance is expected to broaden in 2025 as the remaining “493 stocks” should be able to more than 5 times their earnings growth to 13% in 2025. Therefore, Wall Street analysts believe that investing in companies having a diversified presence should deliver healthy returns in contrast to pure-play (sector-specific) investments. The wealth management firm believes that reduced interest rates, renormalization of inventories and production, and easier comparables are expected to act as potential tailwinds for the cohort over the next year.
Analysts are bullish on businesses with multiple revenue streams and one group that gives investors a diversification advantage is conglomerates. With this in mind, let us now have a look at the 10 Best Conglomerate Stocks to Buy According to Hedge Funds.
A financial analyst at his computer monitor, tracking the public company’s investments.
Our Methodology
To list the 10 Best Conglomerate Stocks to Buy According to Hedge Funds, we used a screener and online rankings. After getting an initial list of 20-25 stocks, we selected the ones having high hedge fund holdings. Finally, the stocks were ranked in ascending order of their hedge fund sentiments, as of Q3 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Conglomerate Stocks to Buy According to Hedge Funds
10) RCM Technologies, Inc. (NASDAQ:RCMT)
Number of Hedge Fund Holders: 7
RCM Technologies, Inc. (NASDAQ:RCMT) provides business and technology solutions in the US, Canada, Puerto Rico, and Europe.
The company’s healthcare business includes working with educational institutions to provide services such as special education staffing, therapy, and nursing services for students with disabilities. RCM Technologies, Inc. (NASDAQ:RCMT) is well-placed for a solid finish to 2024, with Healthcare sector expected to witness 20% revenue growth in school services for the 2024-2025 school year. This growth should stem from expansions in school districts. The company was able to secure more than 20 new school district contracts.
RCM Technologies, Inc. (NASDAQ:RCMT) expects to achieve sustained growth in both Healthcare and Engineering, with a strong pipeline of projects and clients going into 2025. Moving forward, expansion in school-based services is expected to support this business as demand for therapy and nursing services in schools continues to grow because of higher diagnoses of developmental and learning disabilities.
With the healthcare industry increasingly prioritizing home and community-based care, RCM Technologies, Inc. (NASDAQ:RCMT) appears to be well-placed to provide skilled professionals for the services. Wall Street expects the company’s healthcare business to sail through economic fluctuations due to its ability to provide temporary, contract, and permanent staffing.
9) Mammoth Energy Services, Inc. (NASDAQ:TUSK)
Number of Hedge Fund Holders: 7
Mammoth Energy Services, Inc. (NASDAQ:TUSK) operates as an energy services company in the US, Canada, and internationally.
Wall Street analysts opine that Mammoth Energy Services, Inc. (NASDAQ:TUSK) is well-placed to achieve growth from the current juncture. This growth should stem from a cash-rich balance sheet after settling with the Puerto Rican Power Authority (PREPA). The company announced that it received $168.4 million of the $188.4 million owed to its subsidiary through the Settlement Agreement with the PREPA. Therefore, Mammoth Energy Services, Inc. (NASDAQ:TUSK) is now debt-free and plans to invest in both its Infrastructure Services and Well Completion Services divisions over the next year.
In Infrastructure Services, the company plans to invest in additional crews and its engineering services capabilities to better serve the customers. In its Well Completion Services division, Mammoth Energy Services, Inc. (NASDAQ:TUSK) will upgrade pressure pumping equipment to more efficient dual fuel Tier 4 technology. These investments will place the company well to capitalize on rising demand as markets are anticipated to improve later next year. Softness across Mammoth Energy Services, Inc. (NASDAQ:TUSK)’s Well Completion Services markets seem to have bottomed and the company now expects a rebound.
Wall Street believes that Mammoth Energy Services, Inc. (NASDAQ:TUSK)’s infrastructure segment has a strong growth potential, providing electric and telecom infrastructure solutions, from transmission lines to storm repair. This business appears to be well-placed to benefit from increased power demand, mainly fueled by AI growth and frequent extreme weather events.
8) NN, Inc. (NASDAQ:NNBR)
Number of Hedge Fund Holders: 7
NN, Inc. (NASDAQ:NNBR) designs, manufactures, and sells high-precision components and assemblies for various end markets.
Wall Street believes that much of NN, Inc. (NASDAQ:NNBR)’s growth is expected to come from the Chinese market as the company plans to tap into its vast industrial and consumer base and leverage favorable trends in manufacturing, infrastructure, and innovation. China’s position as a global leader in manufacturing offers NN, Inc. (NASDAQ:NNBR) opportunities to supply components for various industries.
NN, Inc. (NASDAQ:NNBR) continues to expect strength in the Chinese market, despite a slowing economy. The company’s focus on innovation, such as the new rear-wheel steering product, should contribute to future success. Notably, a new rear-wheel steering product was launched in collaboration with Tier 1 suppliers in China. Amidst slowness in the economy, government incentives and increased vehicle production are benefiting NN, Inc. (NASDAQ:NNBR)’s business in the region.
China’s strong government support for EVs and clean energy initiatives is expected to create increased demand for components and materials related to EV production, like precision bearings, lightweight materials, or energy storage systems. Furthermore, China’s focus on upgrading its industrial base via initiatives such as “Made in China 2025” emphasizes the need for high-quality, precision-engineered components that NN, Inc. (NASDAQ:NNBR) specializes in.
Greystone Capital Management, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“During the quarter I sold our entire stake in NN, Inc. (NASDAQ:NNBR), despite our recent purchases along with my optimism about the investment. The reasons for the sale are two-fold. First, we made two new investments recently, one toward the end of last quarter and the other in Q3, which represent much better uses of capital than our smaller position in NNBR.
Second, I’ve been doing a fair amount of reflection on past portfolio mistakes and successes, leading me to the realization that owning higher quality businesses, with no room for anything else, is my desired path forward. NNBR is not a great business. A potentially great investment, but not a great business. There is a big difference. One is a shorter-term return stream with a fixed valuation / price target, and a larger than desired room for error. The other is what your portfolios should contain if we want to maximize long-term results. To date, my biggest investment mistakes have been selling quality businesses too early and replacing them with lower quality businesses under the guise of cheapness/opportunity cost. Our returns would be much better if I stopped doing this. Moving forward, I think it’s prudent to focus on (and own) higher quality businesses that can compound their value over a long period of time. I am currently penning more thoughts on this topic which I look forward to sharing once complete.”
7) Compass Diversified (NYSE:CODI)
Number of Hedge Fund Holders: 12
Compass Diversified (NYSE:CODI) is a private equity firm specializing in add-on acquisitions, buyouts, industry consolidation, recapitalization, and late-stage, and middle-market investments.
Analysts at TD Cowen are optimistic about Compass Diversified (NYSE:CODI)’s long-term growth potential and the research firm believes that the company provides shareholders an opportunity to own a portfolio of actively managed businesses having compelling attributes. The firm believes that Compass Diversified (NYSE:CODI)’s advantages consist of diversification, flexibility to transact at optimal times, favorable cost of debt, and permanent equity capital.
Compass Diversified (NYSE:CODI) expects consolidated pro forma subsidiary adjusted EBITDA of between $510 million – $525 million. The increase in its full-year guidance will likely come from a rise in its branded consumer vertical, which should deliver adjusted EBITDA of between $390 million and $400 million. The company’s branded consumer businesses, which focus on acquiring and managing mid-market companies having strong consumer brands, are expected to support the next leg of growth.
Compass Diversified (NYSE:CODI)’s branded consumer businesses should be aided by a healthy portfolio of consumer-oriented brands, e-commerce expansion, and the economic resilience of premium brands. The company’s brands focus on evolving consumer preferences and sustainability. For instance, PrimaLoft continues to expand its use of recycled materials, aligning with the eco-conscious trends.
As per Wall Street, the shares of Compass Diversified (NYSE:CODI) have an average price target of $30.67.
6) FTAI Infrastructure Inc. (NASDAQ:FIP)
Number of Hedge Fund Holders: 21
FTAI Infrastructure Inc. (NASDAQ:FIP) focuses on acquiring, developing, and operating assets and businesses representing infrastructure for customers in the transportation, energy, and industrial products industries in North America.
As per Wall Street, FTAI Infrastructure Inc. (NASDAQ:FIP)’s portfolio of diverse, high-quality infrastructure assets offers significant opportunities for value creation with the help of strategic monetization. Its Long Ridge power plant, the company’s power generation asset, will be an extremely valuable asset because of its access to low-cost energy and increasing electricity demand.
Long Ridge should benefit from capacity auction results which indicate a significant increase in revenue potential because of higher power demand. This business should see an increase in annual adjusted EBITDA by $16 million in 2025/2026 as a result of new capacity pricing for the 2025-26 season. Analysts remain optimistic about the value of the Long Ridge power plant, considering its potential for monetization via partnerships or sales.
Long Ridge is pioneering in blending hydrogen with natural gas, targeting to become one of the first power plants in the US capable of operating on 100% green hydrogen. This places FTAI Infrastructure Inc. (NASDAQ:FIP) as a leader in clean energy innovation. Therefore, this transition to green hydrogen should fuel overall growth.
Tourlite Capital Management, an investment management firm, released its Q4 2023 investor letter. Here is what the fund said:
“FTAI Infrastructure Inc. (NASDAQ:FIP) remains an attractive and overlooked opportunity. The priority this year will be to redeem the preferred stock, followed by the refinancing of the 10.5% holding company debt. With Jefferson Terminal steadily increasing throughput volumes from signed contracts, we anticipate the potential sale of Jefferson Terminal this year. The tax-free proceeds from this sale would go towards redeeming the preferred, marking the initial step in unlocking the value embedded in the Transtar asset, which we believe exceeds the current market cap of FIP.”
5) MDU Resources Group, Inc. (NYSE:MDU)
Number of Hedge Fund Holders: 27
MDU Resources Group, Inc. (NYSE:MDU) is engaged in the regulated energy delivery, and construction materials and services businesses in the US.
The company’s pipeline business, which is expected to fuel growth momentum, focuses on the transportation and storage of natural gas. As per Wall Street analysts, this business is expected to continue to be aided by higher transportation volumes and service rates. The rise in transportation volumes is driven by organic growth projects. Furthermore, new transportation and storage rates, together with higher storage-related revenues, should continue to fuel the income growth of the business. Furthermore, MDU Resources Group, Inc. (NYSE:MDU)’s investments in the pipeline business are expected to aid customer growth and the completion of ongoing projects driven by increasing customer demand.
The company has also announced a capital investment plan of $3.1 billion for the period from 2025 through 2029, demonstrating a 15% increase over the previous five-year plan (2024-2028). This investment focuses on enhancing and expanding MDU Resources Group, Inc. (NYSE:MDU)’s electric, natural gas, and pipeline services. By focusing on strategic upgrades and expansions, the company’s pipeline operations are well-positioned to optimize service delivery and support long-term profitability.
Approximately $473 million of this plan has been earmarked specifically for the pipeline segment. This investment will allow MDU Resources Group, Inc. (NYSE:MDU) to modernize its pipeline infrastructure and address increasing customer demand. Overall, the investment strategy aligns with MDU Resources Group, Inc. (NYSE:MDU)’s goal of achieving a 6%–8% annual earnings growth target.
4) Griffon Corporation (NYSE:GFF)
Number of Hedge Fund Holders: 28
Griffon Corporation (NYSE:GFF) offers consumer, professional, and home and building products in the US, Europe, Canada, Australia, and internationally.
Griffon Corporation (NYSE:GFF)’s growth is expected to be driven by its Home and Building Products (HBP) segment. This segment saw revenues of $1.6 billion in 2024, which was consistent with the prior year, demonstrating increased residential volume. This was offset by reduced commercial volume. HBP’s Q4 2024 results confirmed the trends Griffon Corporation (NYSE:GFF) saw throughout the year.
At HBP, Griffon Corporation (NYSE:GFF) continues to invest in productivity and innovation to further drive growth. These investments consist of expanding Clopay’s Troy, Ohio sectional door manufacturing capacity and adding advanced manufacturing equipment to better satisfy customer demand for premium products. Furthermore, Griffon Corporation (NYSE:GFF) plans to continue to make investments in capacity expansion and technology in 2025.
In 2025, HBP sales are expected to benefit from increased residential volume. Griffon Corporation (NYSE:GFF) anticipates continued strong performance at HBP with EBITDA margins in excess of 30%. Wall Street believes that ongoing trends in home improvement, driven by increased housing activity, aging housing stock, and a focus on outdoor living, should create sustained demand for HBP products.
As per Wall Street, the shares of Griffon Corporation (NYSE:GFF) have an average price target of $100.00.
3) Valmont Industries, Inc. (NYSE:VMI)
Number of Hedge Fund Holders: 33
Valmont Industries, Inc. (NYSE:VMI) operates as a manufacturer of products and services for infrastructure and agriculture markets in the US, Australia, Brazil, and internationally.
With strategic leadership appointments, investments in infrastructure, and positive demand drivers in utility and telecom sectors, Valmont Industries, Inc. (NYSE:VMI) appears to be well-placed to capitalize on long-term demand trends, despite headwinds in the agricultural sector. The company announced the appointment of Deborah Caplan to its Board of Directors.
Caplan’s strong experience in utility markets and talent development should contribute to Valmont Industries, Inc. (NYSE:VMI)’s strategic initiatives focused on market expansion, operational excellence, and organizational development. The telecom business is expected to drive the next leg of growth. Wireless carriers have returned to more normalized spending levels, which should remain above previous cycles. This hints at steady demand for Valmont Industries, Inc. (NYSE:VMI).
Valmont Industries, Inc. (NYSE:VMI)’s telecom business should be supported by the global expansion of 5G networks. This needs significant investment in infrastructure such as small cells, monopoles, and cell towers, areas where Valmont Industries, Inc. (NYSE:VMI) has strong capabilities. Furthermore, rural broadband initiatives in developed markets, aided by government funding, are expected to contribute to the demand for telecom infrastructure.
Artisan Partners, an investment management company, released its Q4 2023 investor letter. Here is what the fund said:
“Along with Argenx, our top detractors in Q4 were Lattice Semiconductor and Valmont Industries, Inc. (NYSE:VMI). Valmont is a leading designer and manufacturer of engineered metal products. There remains a lot to like about the company. It has exposure to several secular tailwinds (accelerating spending for renewables, grid hardening and renewed irrigation investments to ensure more efficient water usage), a solid balance sheet, strong free cash flow generation and an attractive valuation. However, the company abruptly changed CEOs in July and reported a goodwill impairment in its most recent earnings release. The goodwill impairment was on Prospera, an AI company focused on agriculture that Valmont acquired in 2021, due to significantly slower growth than originally projected. Given the operational missteps and new management team, we have started to harvest the position after giving back most of the strong gains generated in 2021 and 2022.”
2) Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 55
Honeywell International Inc. (NASDAQ:HON) is a diversified technology and manufacturing powerhouse.
Wall Street believes that Honeywell International Inc. (NASDAQ:HON)’s long-term growth should be driven by a commercial agreement with Bombardier, which is a leading manufacturer of business jets. This alliance includes using Honeywell International Inc. (NASDAQ:HON)’s avionics and engines in Bombardier’s aircraft fleet, which should act as a significant opportunity.
The agreement should generate ~$17 billion in lifetime revenue opportunities for Honeywell, further strengthening the potential long-term benefits of this alliance. These revenue opportunities indicate a promising growth trajectory for Honeywell International Inc. (NASDAQ:HON)’s aerospace segment. Apart from securing a steady revenue stream, it strengthens Honeywell International Inc. (NASDAQ:HON)’s position as a leading supplier of avionics and engine technologies for business jets.
The agreement should lead to higher market share and enhanced brand recognition in the business aviation segment. With Bombardier continuing to innovate and expand its product line, Honeywell International Inc. (NASDAQ:HON) should benefit from the elevated demand for advanced avionics and propulsion systems. With the business jet market recovering and growing, Honeywell International Inc. (NASDAQ:HON) remains well-placed to capitalize on this trend, potentially resulting in sustained revenue growth and margin expansion in the aerospace segment.
UBS Group reissued a “Buy” rating with a price target of $298.00 (up from $215.00) on the company’s shares on 13th November 2024.
1) 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 82
3M Company (NYSE:MMM) offers diversified technology services in the US and internationally.
3M Company (NYSE:MMM)’s delivered a YTD return of more than ~40%, courtesy of the appointment of a new CEO and implementation of strategic initiatives. The new leadership plans to focus on 3 main areas: driving sustained organic growth, improving operational performance, and effective capital deployment. 3M Company (NYSE:MMM) targets to revitalize its R&D efforts to align organic growth with global GDP growth rates. By doing this, the company should regain its innovation edge and capture new market opportunities.
The new CEO’s emphasis on operational execution improvements throughout various areas including facility rationalization and distribution network optimization should unlock significant cost savings and efficiency gains. These initiatives are expected to fuel margin expansion and improve cash flow generation.
Wall Street expects 3M Company (NYSE:MMM) to achieve adjusted operating margins in the mid-20s range. This expansion is expected to stem from self-help measures, such as cost structure optimization, salesforce restructuring, and facility rationalization. 3M Company (NYSE:MMM)’s strong emphasis on distribution network optimization should result in improved supply chain efficiency and reduced costs, supporting margin expansion.
As per Wall Street, with the appointment of a new CEO and the implementation of strategic initiatives, 3M Company (NYSE:MMM) should see a potential turnaround. Analysts at UBS Group raised shares of the company from a “Neutral” rating to a “Buy” rating, increasing the target price from $130.00 to $184.00 on 13th November.
While we acknowledge the potential of MMM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MMM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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