In this article, we will discuss the 10 Best Fundamental Stocks to Invest In.
As per Ameriprise Financial, the broader stock market continued to climb in Q3 2024, despite surprises that occurred on the way. Particularly, the stocks were resilient during September. In July, weaker-than-anticipated jobs data raised concerns that the US labor trends have been slowing faster than expected. As a result, there were worries that the US Fed left the rates too high for too long. Furthermore, in August, an unexpected increase in the rate from the Bank of Japan weighed over the global stocks for a brief period.
Moving forward, the results of the US Presidential election are likely to decide the course of the broader market in 2025. As per Fidelity Investments, the November election outcomes should shape the economic policy debate in 2025. Some of the examples of proposals from the Republican party consist of corporate tax cuts and lower regulatory pressures on some industries, but elevated tariffs and tighter immigration restrictions can be inflationary. Democratic party proposals consist of a focus on increasing taxes to finance public spending.
Fidelity Investments added that the fiscal deficit is expected to remain large over the upcoming several years (6%–7% of GDP), with interest payments grabbing an even larger share of the overall federal budget.
Q4 2024: What Lies Ahead?
Ameriprise Financial believes that, economically, the US consumer and business activity has demonstrated signs of healthy moderation in Q3, with inflation ebbing lower and labor/spending/savings trends slowing but staying firm throughout the quarter. The corporate profits saw a healthy growth in H1 2024 and this trend is likely to continue in H2 2024. The labor conditions are expected to remain healthy. Overall, the investment firm believes that the macroeconomic backdrop might remain strong and supportive for asset prices in Q4, outside of periods of brief volatility.
Another factor that should help companies and broader equities is an expectation that inflation and interest rates are on the path to move lower. After reducing the policy rate by a strong 50 bps in September, the US Fed might cut its policy rate by at least another 50 bps before 2024 ends. The September cut was the first since 2020 and likely concludes an aggressive rate-hiking cycle. As per the Fed projections, the policymakers might continue to cut rates through 2024-end and into 2025, supporting growth and labor moving forward.
While some sort of weak seasonality factors might be visible in Q4, Ameriprise Financial highlighted that S&P 500 managed to deliver an average return of ~4.2% in the fourth quarter since 2000 and an average of ~9.8% over the last 5 years.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
The Case For a Soft Landing
The IMF’s chief economist hinted that the US remains close to achieving a “soft landing” by navigating challenges, such as inflation, without prompting a prolonged recession. While global growth is slowing, the US is still a positive exception. The inflation in the US appears to be easing towards the US Fed’s target, and the labor market, despite some cooling, remains resilient. As per State Street Global Advisors, despite the US election uncertainty and Middle East geopolitical tensions, the US Fed’s dovish pivot and still-solid US economy continue to make the case for a soft landing.
IMF’s chief economist stated that, globally, an inflation picture seems to be coming very close to central bank targets in the course of the next year. Also, several supply-side factors are aiding the US economy, including good US productivity data, and a significant increase in the number of foreign-born workers, which supported spurring growth without driving inflation.
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Our Methodology
To list the 10 Best Fundamental Stocks to Invest In, we conducted extensive research using Finviz screener and online rankings. To select the stocks, we chose companies with stable and reliable 10-year revenue and net income growth rates. We also mentioned the hedge fund sentiment around each stock, as of Q2 2024. Finally, the list has been arranged in the ascending order of their hedge fund holdings.
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 Fundamental Stocks to Invest In
10) The TJX Companies, Inc. (NYSE:TJX)
10-Year Revenue Growth Rate: ~7.03%
10-Year Net Income Growth Rate: ~8.14%
Number of Hedge Fund Holdings: 56
The TJX Companies, Inc. (NYSE:TJX) operates as an off-price apparel and home fashion retailer in the US, Canada, Europe, and Australia.
Over the long-term, The TJX Companies, Inc. (NYSE:TJX)’s top line and bottom line growth is expected to stem from its global scale and cost advantages. Furthermore, its growth prospects are expected to be aided by the consumers’ focus on value and trade-down behavior. Wall Street analysts see The TJX Companies, Inc. (NYSE:TJX) as an important player in the post-department store retail world as it will serve as a marketplace for brands and a destination for consumers who are value-conscious. This positioning enabled the company to maintain strong relationships with vendors and secure favorable inventory deals.
The TJX Companies, Inc. (NYSE:TJX) has been focusing on top-line growth without compromising customer experience, which remains critical for market share gains. Moreover, the company has been exploring opportunities throughout various product categories, with particular optimism around Home segment.
The TJX Companies, Inc. (NYSE:TJX)’s off-price model is defensive and capable of performing well even when consumer spending is low. Its ability to offer value to consumers throughout different income levels places it well to capture market share in strong and weak economic environments. As traditional retailers decrease their presence, the company is expected to capture displaced customers who are seeking branded merchandise at discounted prices.
Analysts at UBS Group upped their price target from $134.00 to $148.00, giving a “Buy” rating on 22nd August. Madison Investments, an investment advisor, released its Q2 2024 investor letter. Here is what the fund said:
“The TJX Companies, Inc. (NYSE:TJX), an off-price retailer, continues to do well. Its value-based retail stores are resonating with consumers given the backdrop of higher inflation, which led to strong revenue and profit growth in the most recent quarter.”
9) Accenture plc (NYSE:ACN)
10-Year Revenue Growth Rate: ~8.02%
10-Year Net Income Growth Rate: ~9.4%
Number of Hedge Fund Holdings: 68
Accenture plc (NYSE:ACN) offers management and technology consulting services and solutions.
Accenture plc (NYSE:ACN)’s long-term growth strategy is expected to be aided by its intangible assets, mainly derived from its reputation and expertise. Furthermore, it benefits from switching costs. Accenture plc (NYSE:ACN) remains optimistic about leveraging digital transformation for healthy growth in FY 2025. Moreover, the long-term debt markets might be tapped to enhance liquidity while, at the same time, keeping a low net leverage ratio.
Wall Street believes that Accenture plc (NYSE:ACN)’s strong acquisition capabilities and the integration of GenAI should enhance efficiency and customer engagement. With a strong emphasis on helping clients in their digital transformation journeys, Accenture plc (NYSE:ACN) is well-placed to continue its growth trajectory into FY 2025, thanks to its strong consulting book-to-bill target and managed services growth.
As the company looks forward, the transition to GenWizard technology, together with a strong emphasis on talent acquisition and innovation, should fuel success in the coming fiscal year. For fiscal year 2025, Accenture plc (NYSE:ACN) expects revenue growth of 3% – 6% in local currency and GAAP EPS of $12.55 – $12.91, reflecting a rise of 5% – 8% from adjusted EPS for fiscal 2024.
Aoris Investment Management, a specialist international equity manager, released its Q2 2024 investor letter. Here is what the fund said:
“The largest detractors for the quarter were Accenture plc (NYSE:ACN) and CDW Corp, which both fell by around 14%. Accenture and CDW are currently experiencing flattish years in terms of revenue and earnings growth. This follows a period of post-pandemic elevated demand. We believe both companies continue to gain market share.
Accenture is the world’s largest IT outsourcing and consulting company. While earnings in its quarter ended May was essentially flat, we were very encouraged by underlying demand. This demand strength is reflected in a 22% year-on-year increase in client bookings for the quarter. Further, the number of $100m+ contracts signed in the nine months to May was 92, up from 85 in the same period a year earlier. All this bodes well for Accenture’s revenue and earnings in the next few years.”