In this article, we discuss the 10 best consumer discretionary stocks to buy according to hedge funds along with the latest updates and data around consumer spending.
Many experts and analysts are concerned about a slowdown in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail foot traffic rose by 4.4% in June, indicating strong consumer activity despite flat overall sales.
While furniture and home improvement stores saw declines due to reduced monumental purchases and a sluggish housing market, grocery stores, and apparel retailers performed better. Grocery sales grew by 1.7%, with a nearly 5% increase in foot traffic, as consumers managed their budgets despite cutting costs. Apparel sales also increased by 3.8%, driven by early back-to-school shopping and wardrobe updates, leading to an 8.3% rise in foot traffic.
In July, consumer spending saw a modest increase compared to June, with gains across 10 of 12 retail categories, as reported by the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gas, rose by 0.7% month-over-month, slightly up from June’s 0.5%, but the year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail, which excludes restaurants, saw a 1% monthly increase. Significant sector performances included a 3.4% rise in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the healthcare, personal care, and garden supplies sectors experienced slight declines.
June and July data together indicate that consumer spending remains resilient, supported by strong household finances and a strong job market. While some sectors, particularly furniture and home improvement, are struggling due to reduced consumer confidence and a slow housing market, other categories are performing well.
The data suggests that consumers are still willing to spend, especially on essential and seasonal items, though they may be more cautious with larger purchases. Despite some areas of decline, the overall retail environment appears stable, with consumers continuing to spend where they find value, which indicates a cautiously optimistic outlook for the remainder of 2024.
Latest Updates on Interest Rates and Potential Effects On Consumer Spending
In the July meeting, Fed Chair Jerome Powell highlighted the Fed’s ongoing focus on achieving maximum employment and stable prices. He noted significant progress in the economy, with inflation dropping from 7% to 2.5% and a balanced labor market with low unemployment at 4.1%. The Fed chose to keep interest rates steady within the 5.25% to 5.5% range and continue to reduce its securities holdings to maintain a restrictive stance, which is aimed at aligning demand with supply and reducing inflationary pressures.
Powell mentioned that while inflation has eased, the Fed is not yet ready to lower rates and requires more consistent positive data before making such a move, possibly as early as September. According to the CME Fed Watch Tool, all the experts are expecting cuts in September. 50.5% of the experts predict a 25 basis points (bps) reduction in the interest rates while 49.5% expect a 50 bps cut.
Rate cuts generally have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which could lead to increased consumer borrowing and spending. This increased affordability can boost consumer confidence and promote spending on discretionary items. That’s a good set up for discretionary stocks, and with that, let’s look at the 10 best consumer discretionary stocks to buy according to hedge funds.
10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds
Our Methodology
For this article, we used the Finviz stock screener to identify over 50 large-cap consumer discretionary stocks then narrowed our list to 10 stocks that were most widely held by institutional investors as of Q1, and listed the stocks in ascending order of hedge fund sentiment.
Why are we interested in 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 Consumer Discretionary Stocks To Buy According to Hedge Funds
10. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 70
The Home Depot, Inc. (NYSE:HD) is a leading American multinational corporation specializing in home improvement retail. As the largest home improvement retailer in the U.S., it offers a broad range of products, including tools, construction materials, appliances, and garden supplies.
Home Depot (NYSE:HD) provides both in-store and online shopping options. The company’s online presence includes websites such as homedepot.com, homedepot.ca, and homedepot.com.mx, as well as specialized sites like blinds.com, justblinds.com, and americanblinds.com for custom window coverings.
Additionally, Home Depot (NYSE:HD) operates thecompanystore.com for textiles and décor, and hdsupply.com for maintenance, repair, and operations (MRO) products and services.
At a stake value of $5.5 billion, 70 hedge funds held positions in Home Depot (NYSE:HD) in the first quarter. As of Q1, Fisher Asset Management is the most dominant shareholder in the company and has a position worth $3.445 billion. The company takes the 10th spot on our list of best consumer discretionary stocks to buy according to hedge funds.
Since going public in 1981 with just six stores, Home Depot (NYSE:HD) has grown into a major player in the home improvement sector. Today, it operates over 2,300 stores across the United States, Canada, and Mexico. The company’s stock price has delivered an astounding return of 112,364% as of August 9, since its initial public offering, which highlights its remarkable growth and success.
Home Depot (NYSE:HD) is the largest do-it-yourself and home improvement retailer in the U.S. and benefits from its extensive network and well-established business model. One of the key advantages of the company is its stable focus on home improvement projects, rather than shifting consumer trends in fashion or electronics. This allows the company to maintain steady performance and consistently increase dividends while repurchasing stock. The company’s strong position in the market makes it a reliable choice for investors.
Home Depot (NYSE:HD) is well-positioned for future growth, especially as the housing market shows signs of recovery. With the Federal Reserve expected to lower interest rates starting in September, borrowing costs will decrease, which could revitalize home buying and renovation activities. Lower mortgage rates and easier access to home equity lines of credit will likely give way to both home purchases and renovation projects, benefiting the company.
Additionally, Home Depot (NYSE:HD) is expanding its market share among professional contractors, a crucial segment for its growth. This expansion has been further supported by the acquisition of SRS Distribution done in March, a leading distributor in roofing, landscaping, and pools. This acquisition opens up access to a $1 trillion market, possibly improving the company’s footprint and growth potential.
9. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 71
NIKE, Inc. (NYSE:NKE) is an American multinational corporation that designs, develops, manufactures, and markets athletic footwear, apparel, equipment, and accessories. It is one of the best consumer discretionary stocks to buy according to hedge funds. The stock was held by 71 hedge funds in the first quarter and the stakes amounted to $3.6 billion. Fisher Asset Management is the top shareholder of the company and has a position worth $953.926 million, as of March 31.
The company offers a range of performance gear and accessories, including bags, sports balls, socks, eyewear, watches, digital devices, bats, gloves, protective gear, and other sports equipment. It markets these products under several brands such as Nike Pro, Air Jordan, and Converse. The company is also well-known for its famous “Just Do It” slogan and the distinctive Swoosh logo.
NIKE (NYSE:NKE) has built one of the most recognized brands in the world through effective marketing, high-profile athlete endorsements, and innovative product development. The company’s success is not merely a result of chance but a culmination of decades of strategic effort to connect deeply with consumers.
It has cultivated a distinct style that goes beyond performance. Its products have become a significant part of global fashion, mainly due to its association with iconic athletes. One of the most notable examples is the Air Jordan line.
Launched in 1985, Air Jordan generated $126 million in its first year and has since grown to achieve $7.1 billion in revenue. This remarkable growth is evidence of the company’s effective brand management and market positioning. It continues to attract endorsements from top athletes such as Tiger Woods, Cristiano Ronaldo, and LeBron James, which strengthens its presence in the sports world.
Moreover, NIKE’s (NYSE:NKE) influence extends to the highest levels of global sports, as it sponsors major leagues like the NFL, MLB, and NBA. This widespread sponsorship network, which includes everything from professional teams to corporate apparel, further solidifies the company’s role in the sports industry.
In summary, NIKE’s (NYSE:NKE) combination of a powerful brand, a strong presence in global sports, and a constant focus on innovation makes it a standout player in the industry, with the potential for continued success and growth.
Mar Vista Focus strategy stated the following regarding NIKE, Inc. (NYSE:NKE) in its first quarter 2024 investor letter:
“NIKE, Inc.’s (NYSE:NKE) recent earnings report was a mixed bag. While revenue met expectations and earnings exceeded them, the stock price dipped due to management’s cautious outlook for fiscal 2025. The company is currently undergoing a period of internal restructuring and product line adjustments, which is expected to lead to flat revenue growth in the first half of the coming fiscal year. However, this transition aims to position Nike for long-term success.
Our conviction in Nike remains high, and we expect it to emerge stronger and more competitive once the restructuring is complete despite the softer revenue forecast. Nike still anticipates earnings will grow around 10% in calendar 2024 and will accelerate to 15% in 2025 as execution normalizes.”
8. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 74
Tesla, Inc. (NASDAQ:TSLA) is the leading company among the global electric vehicle (EV) companies. The company also provides other clean energy solutions such as stationary battery energy storage devices, solar panels, and solar shingles.
As of 2023, it manufactured 1.8 million battery electric vehicles BEV and is only the sixth company to cross the $1 trillion market cap mark. In 2023, the company’s Model Y broke Toyota’s (NYSE:TM) dominance in the automotive market to become the most selling vehicle in the world.
Even though Tesla (NASDAQ:TSLA) faces stiff competition from Chinese EV companies, especially BYD, the company has made a significant name for itself in the EV market and is expected to remain one of the top sellers for the foreseeable future, especially in the North American market.
As of 2023, the company has a nearly 20% market share in the global EV industry. The global EV industry is expected to be over $670 billion by the end of 2024 and is expected to reach $1.9 trillion by 2032, according to Fortune Business Insights.
On August 8, RBC Capital analyst Tom Narayan slightly reduced Tesla’s (NASDAQ:TSLA) price target from $227 to $224 but maintained an Outperform rating and showed confidence in the company’s potential despite the minor adjustment. Narayan highlighted several key factors that make the company an attractive investment. It is positioned to benefit from increasing regulatory credits, which are earned by producing electric vehicles that meet emissions standards, providing a lucrative revenue stream without additional production costs.
Tesla’s (NASDAQ:TSLA) growing energy storage business is also a significant driver of future growth as demand for renewable energy solutions rises. Additionally, Narayan noted that Tesla (NASDAQ:TSLA) could potentially cut the price of its Full Self-Driving (FSD) software, a move that would likely increase its adoption and provide a substantial revenue boost. These factors collectively position Tesla as a compelling investment despite the slight downward revision in its price target.
In February, Stellantis (NYSE:STLA), the automaker behind Jeep, Ram, and Chrysler, announced plans to adopt Tesla’s (NASDAQ:TSLA) North American Charging Standard (NACS) for its electric vehicles by 2025, joining major automakers like Ford (NYSE:F), General Motors (NYSE:GM), and others in standardizing the charging connector across North America.
This comes as great news for Tesla (NASDAQ:TSLA) as the company benefits significantly from the widespread adoption of its NACS by other automakers. First, it reinforces the company’s position as a leader in the EV charging infrastructure, which is evidence of industry-wide recognition of the superiority and reliability of its supercharger network. This adoption could lead to increased usage of the company’s charging stations by non-Tesla vehicles, which could potentially create a new and stable revenue stream.
In Q1, 74 hedge funds had stakes worth $4.95 billion in Tesla (NASDAQ:TSLA), making it one of the best consumer discretionary stocks to buy. As of March 31, Cathie Wood’s ARK Investment Management is the company’s most prominent investor with nearly 5.2 million shares worth $910.316 million.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:
“The vast majority of the Fund’s underperformance this quarter stemmed from the Fund’s 10-year investment in Tesla, Inc. (NASDAQ:TSLA). Tesla’s shares fell 29.3% during the period and detracted 13.41% from the Fund’s first-quarter results. Although Tesla has contributed importantly to the Fund’s performance since 2014, on occasion it has detracted from quarterly performance. In previous instances when Tesla shares have underperformed during a discrete period, they have shortly afterwards reflected the strong growth of the underlying business and the stock has appreciated considerably. We believe that will be the case again, although cannot guarantee it.
A significant decline also occurred at the end of 2022. In that instance, investors had become concerned about a host of external factors. Investors believed the company founder, visionary, and CEO Elon Musk was distracted by his acquisition of Twitter. They also believed a weak Chinese economy emerging from COVID and U.S. government policies would curtail the purchases of Tesla vehicles. These fears proved to be overblown. As the company achieved milestones in the succeeding year, the stock subsequently doubled over the next 12 months…” (Click here to read the full text)
7. Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Holders: 75
Lennar Corporation (NYSE:LEN) is one of the largest home builders in the US. The company also provides other services beyond homebuilding, including mortgage financing through its subsidiary, Lennar Mortgage, and title insurance services. The company has also pioneered innovative home designs, such as the Next Gen model, which caters to multigenerational living.
While the recent housing market fluctuations have made a few analysts skeptical about companies like Lennar (NYSE:LEN), it is still a fundamentally strong company with several future growth catalysts. With the increasing likelihood of a Fed rate cut, the company stands to benefit significantly. A reduction in interest rates could lead to lower mortgage rates, which could increase demand for new homes, a market where Lennar (NYSE:LEN) is one of the most dominant players.
According to a report published by the National Association of Home Builders (NAHB) in February, the U.S. housing market is expected to experience a gradual recovery in 2024, driven by anticipated Fed interest rate cuts in the latter half of the year. Lennar (NYSE:LEN) primarily focuses on single-family homes and the NAHB economists said that despite higher interest rates pushing down single-family housing starts (new construction activity) in 2022 and 2023, they see a 4.7% increase in starts in 2024 and a further 4.2% rise in 2025.
Moreover, Lennar (NYSE:LEN) is trading at a low multiple of 11.8x its 2024 earnings compared to the 15x sector median. While the company is expected to grow its earnings by merely 4.2% year-over-year in 2024, analysts expect better growth in 2025, and their consensus estimates predict a 17.4% growth in the company’s per-share earnings from 2023 levels.
As of the first quarter of the year, 75 hedge funds had stakes worth $3.9 billion in Lennar (NYSE:LEN), bringing the company to 7th position on our list of best consumer discretionary stocks. Greenhaven Associates is the company’s most prominent shareholder with 8.9 million shares worth $1.5 billion as of Q1.
6. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 76
PDD Holdings Inc. (NASDAQ:PDD), previously known as Pinduoduo, is a global e-commerce powerhouse. The company runs Pinduoduo, a prominent e-commerce platform in China that stands out for its extensive range of products and its unique team purchase model, which improves the shopping experience by encouraging group buys. Additionally, the company manages Temu, an international online marketplace focused on delivering high-quality, cost-effective products to consumers around the world. It is the 6th best consumer discretionary stock on our list.
In Q1, 76 hedge funds had investments in PDD (NASDAQ:PDD), with positions worth $5.8 billion. As of March 31, Hillhouse Capital Management is the top investor in the company and has a stake worth $1.37 billion.
PDD (NASDAQ:PDD) is making significant strides in the e-commerce world, particularly through its brands Temu and Pinduoduo. The company’s success in the e-commerce sector can be traced back to its early focus on rural and smaller cities in China, where it carved out a substantial presence. Unlike its competitors, which primarily targeted larger urban centers, the company tapped into a market eager for affordable products in less saturated areas.
PDD’s (NASDAQ:PDD) innovative approach, which includes a group-buying model, allows customers to pool their orders and secure lower prices, quickly resonated with shoppers looking for savings. This model has propelled the company into becoming one of China’s top e-commerce platforms.
Building on its success at home, PDD (NASDAQ:PDD) expanded internationally with the launch of Temu in the U.S. in 2022. Despite being a relatively new entrant, Temu has made impressive progress. According to Business of Apps, a B2B media and information platform, by September 2023, Temu had attracted 82 million active users in the U.S. alone and achieved over 250 million downloads globally, predominantly from the American market.
Temu’s approach focuses on offering a selection of products at competitive prices, with delivery times of about a week. This model emphasizes value for money and sells good-quality, generic goods at lower prices compared to many other retailers.
PDD’s (NASDAQ:PDD) ability to deliver both value and convenience has set it apart in the crowded e-commerce landscape. As Temu continues to grow and establish itself internationally, it builds on the successful strategies that it has employed in China, positioning the company as a formidable player in the global e-commerce market.
Baron Emerging Markets Fund stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its fourth quarter 2023 investor letter:
“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.”
5. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 78
General Motors Company (NYSE:GM) is a leading American automotive manufacturer, headquartered in Michigan. It takes the 5th spot on our list of best consumer discretionary stocks according to hedge funds. The company produces vehicles under well-known brands such as Chevrolet, GMC, Cadillac, and Buick. In addition to its American brands, the company holds significant stakes in Chinese automotive ventures, including Baojun and Wuling through a joint venture with SAIC. In addition, the company also oversees the production of delivery vans, defense vehicles, and auto parts.
Despite facing challenges, such as losing its title as the world’s largest automaker to Toyota (NYSE:TM) in 2008 and navigating bankruptcy in 2009, General Motors (NYSE:GM) has remained resilient. It is now focused on innovation, particularly in electric vehicles, with plans to transition away from internal combustion engines by 2035 and achieve carbon neutrality by 2040.
General Motors (NYSE:GM) has been adjusting its focus as it navigates the transition to electric vehicles. Despite a promising 40% increase in electric vehicle deliveries, which reached 22,000 units in the second quarter, it is the company’s gasoline-powered vehicles that are driving substantial profits.
Owing to its internal combustion engine (ICE) division, General Motors (NYSE:GM) reported a significant boost in its earnings before interest and taxes (EBIT), reaching $4.4 billion for the second quarter. This represents a 37% increase compared to the previous year, largely fueled by strong demand for its pickup trucks and SUVs.
The GMC Sierra and Chevrolet Silverado are leading the charge in this segment. The GMC Sierra achieved its best first-half sales ever, while the Chevrolet Silverado posted its strongest sales since 2021.
General Motors’ (NYSE:GM) emphasis on internal combustion engine vehicles remains strong, with a steady stream of new and redesigned models entering the market. In the second quarter, eight new crossover models were introduced, including key vehicles like the Chevrolet Traverse, GMC Acadia, Buick Enclave, and Chevrolet Equinox.
By maintaining a strong lineup of profitable gasoline-powered vehicles while gradually expanding its electric vehicle offerings, General Motors (NYSE:GM) is positioning itself well for future growth. The company’s approach ensures continued profitability and market presence as it adapts to evolving industry trends.
As of Q1, General Motors (NYSE:GM) stock was held by 78 hedge funds at a combined value of $4.8 billion. Harris Associates holds the most prominent stake in the company with 35.5 million shares worth $1.61 billion as of the first quarter.
Diamond Hill Large Cap Strategy stated the following regarding General Motors Company (NYSE:GM) in its first quarter 2024 investor letter:
“Other top contributors included Allstate, Caterpillar and General Motors Company (NYSE:GM). Automobile manufacturer General Motors continues capitalizing on the shift to electric vehicles (EVs) while maintaining the strength of its core gas-engine truck and SUV business. Though it has experienced some setbacks — such as needing to roll back its Cruise driverless car project — we believe the company remains well-positioned relative to secular tailwinds within the automobile business.”
4. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 79
MercadoLibre, Inc. (NASDAQ:MELI) is a Latin American e-commerce giant with over 100 million unique users across 18 countries as of the second quarter of 2024. The company is headquartered in Uruguay. Apart from e-commerce, the company also has significant fintech operations and provides logistics, retail ads, online storefront solutions, and classified services.
On August 1, MercadoLibre (NASDAQ:MELI) posted stronger-than-expected results for the second quarter. It reported $5.07 billion in revenues, up over 41%, and its net income increased by over 100% year-over-year to $531 million. On a per-share basis, the company’s earnings of $10.48 topped analyst estimates by $2.
MercadoLibre’s (NASDAQ:MELI) e-commerce platform has seen significant traction, particularly in Brazil, where gross merchandise value (GMV) grew by 36%, and in Mexico, where the company continues to gain market share. In Mexico, its revenue saw a 66% growth.
MercadoLibre’s (NASDAQ:MELI) fintech arm, Mercado Pago surpassed 50 million monthly active users for the first time, which highlights strong user engagement and a thriving credit business that saw total payment volume (TPV) grow 3x year-over-year.
MercadoLibre’s (NASDAQ:MELI) introduction of innovative logistics solutions, such as the launch of a U.S.-based fulfillment center and the deployment of robotics in Brazil, further strengthened the company’s competitive edge by improving efficiency and expanding service offerings.
On August 8, Bank of America raised its price target for MercadoLibre (NASDAQ:MELI) from $2,000 to $2,250 while maintaining a Buy rating on the stock. This adjustment came in response to stronger-than-expected GMV in the second quarter, which outperformed market expectations.
The analyst highlighted that MercadoLibre’s (NASDAQ:MELI) ability to consolidate its market position, improve logistics and shipping, implement strategic pricing, and introduce multiple user experience improvements is driving this elevated GMV growth. As a result, the firm revised its long-term GMV compound annual growth from 16% to 21%, reflecting confidence in the company’s sustained growth trajectory.
In Q1 of 2024, MercadoLibre’s (NASDAQ:MELI) shares were held by 79 hedge funds, valued at $4.74 billion. This makes the company the fourth best consumer discretionary stock on our list. As of Q1, Rajiv Jain’s GQG Partners increased its stake by 443% in the quarter to 794,782 shares worth $1.2 billion, making it the most significant shareholder of the company.
Lakehouse Capital stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its May 2024 investor letter:
“The Fund’s largest position, Buenos Aires based e-commerce leader MercadoLibre, Inc. (NASDAQ:MELI), reported a robust result that once again came in ahead of analyst expectations. Net revenue grew 30% year-on-year in U.S. dollar terms to US$4.0 billion while operating margins came in at 12.0%, providing a healthy balance of growth and profitability. Its marketplace business proved resilient, with strength in Brazil and Mexico more than enough to offset weakness in Argentina, which contacted by roughly a third due to weak macroeconomic conditions exacerbated by the 50%-plus devaluation of the Argentine Peso in December 2023. Whilst the economic situation in Argentia remains severe, we are comfortable with the risk as not only has management proved very adept at handling the challenges to date, but post the devaluation, the risk is meaningfully reduced as Argentina now only contributes 13% of the company’s total operating income. Overall, gross merchandise value still grew at 20% year-on-year to $11.4 billion and we continue to see significant opportunities ahead given the relatively nascent penetration of e-commerce in the region.”
3. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders: 97
Booking Holdings Inc. (NASDAQ:BKNG) is a leader in providing online travel and related services, offering a range of services such as hotel bookings, car rentals, flight reservations, and dining reservations. It is one of the best consumer discretionary stocks to buy according to hedge funds.
Through its well-known brands like Booking.com, Priceline, Agoda, Kayak, and OpenTable, the company strives to provide a complete travel planning experience. With a strong presence across over 220 countries and territories, Booking (NASDAQ:BKNG) has cemented its role as a leading provider in the online travel market, connecting users with a variety of travel options worldwide.
Booking (NASDAQ:BKNG) is well-positioned for continued growth, owing to a shift in traveler preferences and its ability to adapt to the evolving market. A survey by Trends Global Survey highlights that 80% of travelers now prefer to book their entire trip online, with Millennials and Gen Z leading this trend.
This shift towards online travel agencies (OTAs) presents a promising growth opportunity for Booking (NASDAQ:BKNG), which caters to this demand by providing a comprehensive platform where users can book flights, hotels, car rentals, and experiences, often at discounted rates.
In the second quarter, Booking (NASDAQ:BKNG) saw its revenue rise by 7.3% year-over-year, reaching $5.86 billion, surpassing Wall Street’s expectations of $5.77 billion. The company also saw a 7% increase in room nights booked, totaling 287 million. Gross travel bookings grew to $41.4 billion, reflecting a 4% increase compared to the previous year. The company’s EPS reached $44.38, marking a 27% year-over-year increase.
Booking’s (NASDAQ:BKNG) diverse service offerings continue to expand. The company’s emphasis on integrating artificial intelligence (AI) and technology has played a crucial role in this growth.
Innovations such as a generative AI-assisted trip planner and upgraded mobile applications have streamlined booking processes and enhanced user experiences. Additionally, the company has broadened its revenue streams with significant advancements in flights, ground transportation, and restaurant reservations through OpenTable.
While platforms like Airbnb, Inc. (NASDAQ:ABNB) have gained popularity, there remains a strong demand for traditional hotel accommodations and the convenience offered by OTAs. The coexistence of these options suggests a thriving market for both, with Booking (NASDAQ:BKNG) continuing to benefit from travelers’ need for comprehensive, efficient booking solutions.
In Q1, 97 hedge funds held stakes in Booking (NASDAQ:BKNG), with positions worth $7.9 billion. As of the first quarter, Fisher Asset Management is the most significant shareholder in the company and has a position worth $1.42 billion.
Wedgewood Partners stated the following regarding Booking Holdings Inc. (NASDAQ:BKNG) in its Q2 2024 investor letter:
“Booking Holdings Inc. (NASDAQ:BKNG) contributed to performance as travel spending across the U.S. and Europe remains quite healthy, whereas the Company took share in alternative accommodations, and looks set to expand margins after a few years of reinvestment. The Company has also been aggressively reducing its share count at reasonably attractive valuation multiples. Booking should be able to compound earnings at an attractive, double-digit rate for the next few years given these various initiatives.”
2. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 103
Alibaba Group Holding Limited (NYSE:BABA) is a prominent Chinese multinational technology enterprise renowned for its diverse range of activities across e-commerce, retail, internet services, and technology. Its business activities span various sectors, including core commerce, digital media and entertainment, and cloud computing.
Alibaba’s (NYSE:BABA) portfolio includes several famous platforms and services. It runs Taobao and Tmall, major digital retail platforms, and Alimama, its in-house monetization service. The company also operates online wholesale sites such as 1688.com and Alibaba.com, along with AliExpress, an international retail marketplace.
Additionally, Alibaba (NYSE:BABA) owns several e-commerce platforms like Lazada, Trendyol, and Daraz, and a grocery retail platform called Freshippo. Tmall Global serves as its import-focused e-commerce outlet.
Instead of directly selling products, Alibaba (NYSE:BABA) earns revenue by charging fees and commissions to merchants who use its platforms, including AliExpress. The company holds a dominant position in China’s retail market, commanding a 40% share of the total e-commerce GMV and a substantial active user base of 930 million. The company also generates significant revenue from its cloud computing services, logistics, and digital entertainment ventures.
Alibaba (NYSE:BABA) was part of 103 hedge funds’ portfolios in the first quarter with a total stake value of $3.3 billion. Appaloosa Management LP is the biggest shareholder in the company and has a position worth $814.050 million as of Q1. The company takes the second position on our list of best consumer discretionary stocks.
Alibaba (NYSE:BABA) is on a promising trajectory in its international commerce segment, which, while currently a smaller part of its overall business, shows significant potential for expansion. During the first three months of 2024, the company generated $3.8 billion from international commerce, accounting for 12% of its total revenue of $30.7 billion.
This segment is not only growing rapidly but is also Alibaba’s(NYSE:BABA) fastest-expanding area, with a remarkable 45% year-over-year increase. Over the past three years, the international commerce sector has seen an average growth rate of 32% annually, driven primarily by platforms like AliExpress, Trendyol, and Lazada.
Revenue from International Commerce Retail, excluding Alibaba’s B-to-B platform, surged by 60% in 2024 alone, owing to a substantial increase in orders through AliExpress’ Choice platform, which now represents approximately 70% of AliExpress’ total orders.
The potential for Alibaba’s (NYSE:BABA) international commerce to grow further is substantial, especially as the company incorporates artificial intelligence to boost its global operations. AI is proving to be a game-changer, helping merchants overcome language barriers, resolve customer disputes, and create product descriptions more efficiently.
Zhang Kaifu, who leads Alibaba’s (NYSE:BABA) AI development for international e-commerce, reported that in internal trials, AI tools have enabled merchants to increase their order volumes by up to 30%. The company’s unique advantage lies in its proprietary large language model, Tongyi Qianwen, which allows it to offer highly tailored support and further enhance growth prospects. With these advancements, Alibaba is well-positioned to expand its international commerce footprint significantly in the coming years.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 302
Amazon.com, Inc. (NASDAQ:AMZN) is a US-based global technology firm that runs through three main segments, North America, International, and Amazon Web Services (AWS). It tops our list of the best consumer discretionary stocks to buy according to hedge funds.
Through its famous e-commerce platforms, Amazon.com (NASDAQ:AMZN) provides an extensive selection of products ranging from electronics and clothing to groceries. In addition to its retail offerings, the company delivers cloud computing solutions through AWS, digital streaming with Prime Video, and a range of consumer electronics, including Kindle e-readers and Echo devices.
In the first quarter, 302 hedge funds had stakes in Amazon.com (NASDAQ:AMZN), with total positions worth $60.37 billion. As of March 31, Fisher Asset Management is the largest shareholder in the company and has a position worth $7.68 billion.
Amazon.com (NASDAQ:AMZN) has established itself as a dominant force in two of the most significant trends of recent years, online retail and cloud computing. Since its early days in 1999, when it generated $650 million in sales, the company has transformed from a small player into a major force in e-commerce.
Even with its immense size, Amazon.com (NASDAQ:AMZN) continues to see robust revenue growth. In the second quarter, the company reported a 10% increase in consolidated revenue compared to the previous year, driven by growth across all its business segments.
The key driver of its profitability is Amazon Web Services (AWS), which leads the global cloud infrastructure market with a 32% share, according to Solganick, an independent investment banking and M&A advisory firm. AWS has proven to be a vital component of Amazon’s financial success, supporting its overall growth.
Amazon.com’s (NASDAQ:AMZN) website attracts over 3 billion visits each month, underscoring its extensive reach and influence in the online marketplace. Additionally, its advertising services have seen impressive year-over-year growth of around 20%, generating nearly $25 billion in revenue.
With over 310 million active users in its ecosystem, Amazon.com’s (NASDAQ:AMZN) advertising segment remains a significant contributor to its success. The company continues to push boundaries in e-commerce by innovating with features like electric delivery vans, drones, and the Amazon Prime subscription service. These initiatives not only enhance customer experience but also drive further growth and market leadership.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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