In this article, we will take a look at the 10 Best Retirement Stocks to Buy According to Hedge Funds.
After much suspense, the US Federal Reserve finally began cutting interest rates in late 2024, dropping the federal funds rate by 75 basis points in two cuts in September and November, with the market expecting further cuts this year. The Fed’s decision came in reaction to falling US inflation and employment market statistics, which suggested that the elusive soft landing was still within reach. However, as February comes to a close, things appear to have changed. For the time being, the Federal Open Market Committee is projected to leave interest rates unchanged on March 19. That’s because the labor market looks to be strong, and inflation is still over goal and slightly increasing. The FOMC’s most recent meeting in January also said that “respondents generally judged that policy rate reductions would occur later than previously assessed,” implying that any reduction (if at all) will occur sometime later in 2025.
According to the Census Bureau, the 65-and-older population in the United States will grow from 58 million in 2022 to 82 million by 2050, when it is expected to account for more than a quarter of the total population. The World Economic Forum further predicts that half of kids born in the United States in 2007 would survive to the age of 103. As such, wages seem to be falling behind inflation as people live longer lives. That’s especially true now that businesses have moved the burden of retirement savings to employees, giving 401(k)s instead of pensions that promise a fixed income each month.
One dilemma many face as they approach retirement is how much money they will need to live comfortably when they stop working. According to Consumer Expenditure Surveys, the average retiree household in the United States spends around $5,000 per month. With a median 401(k) balance of $210,724 for those aged 60 to 69, implementing the 4% withdrawal rule yields around $702 per month—which, when combined with the average monthly Social Security payment of $1,976, still falls short of meeting basic needs. According to Dan Doonan, executive director of the National Institute on Retirement Security, non-wealthy workers still have insufficient retirement coverage, forcing them to save on their own:
“In general, we’re just asking way too much of individuals to get all this right. And saving during the middle years of your life to provide income throughout retirement, it really is a challenging endeavor.”
Conversely, Doonan believes that a more streamlined network of retirement schemes across the country can help private-sector companies reduce employee turnover. In addition, Congress has already taken its own steps, passing laws like the Secure 2.0 Act of 2022, which alters federal retirement plan rules with the purpose of boosting access. According to Doonan, these revisions may encourage more employees to save in accounts similar to pensions.
In addition, retirees should monitor the equities market, which soared in 2023 and 2024, propelled by technology companies and optimism about AI-related advancements. According to FactSet statistics, the S&P 500 is predicted to expand by double digits this year, at a rate of 14.8%. This would outperform the trailing 10-year average of 8% profit growth. Furthermore, this strong performance may prove to be more significant than the Fed’s interest rate forecast. Regarding this, Garrett Melson, portfolio strategist at Natixis Investment Managers in Boston, said the following:
“While we anticipate 2025 is likely to be more volatile than the remarkably low volatility environment of 2024, the fundamentals remain supportive for both equities and fixed-income assets. And it’s those fundamentals that matter more for the outlook than the exact number of cuts.”
Photo by Max Harlynking on Unsplash
Our Methodology
For our list of the best retirement stocks, we used stock screeners, ETFs, and online rankings to find large companies with low beta values, a history of reliable dividend payments, and well-established businesses. These equities were then rated using hedge fund sentiment from Insider Monkey’s Q4 2024 database.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. United Parcel Service, Inc. (NYSE:UPS)
Beta Value: 0.94
Dividend Yield: 5.64%
Number of Hedge Fund Holders: 58
United Parcel Service, Inc. (NYSE:UPS) is a Georgia-based transportation and supply chain management company that provides a variety of package delivery and related services to its customers. United Parcel Service, Inc. (NYSE:UPS) currently pays a quarterly dividend of $1.64 per share, which increased by 0.6% in February. This was the company’s 23rd straight year of dividend increase.
On January 31, UBS analyst Thomas Wadewitz cut United Parcel Service, Inc.’s (NYSE:UPS) price target to $141 from $170, while maintaining a Buy rating on the company’s stock. The change follows UPS’s decision to cut its volume with Amazon by almost half and to move its Surepost business in-house from the US Postal Service. Wadewitz believes that these actions will help UPS to migrate to a better quality business mix, including more small and medium-sized company (SMB) and business-to-business (B2B) engagements, in the long run.
9. Lockheed Martin Corporation (NYSE:LMT)
Beta Value: 0.42
Dividend Yield: 3.00%
Number of Hedge Fund Holders: 65
Lockheed Martin Corporation (NYSE:LMT), created by the 1995 merger of Lockheed Corporation and Martin Marietta, is a global leader in aerospace, defense, weaponry, information security, and technology. The company is divided into four major business segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
The company’s fourth-quarter 2024 earnings per share came in at $2.22, notably below the average forecast of $6.62. The reported EPS includes the impact of the aforementioned charges, totaling $5.45 per share. Adjusted for these expenses, the EPS would be $7.45. Lockheed Martin’s revenues for the quarter were $18.62 billion, slightly lower than the expected $18.86 billion. However, the corporation has a solid overall backlog of $179.4 billion and an exceptional book-to-bill ratio of 156%.
Notably, Lockheed Martin’s F-35 program maintained its performance, with 62 deliveries in the quarter. The allocation of Lot 18 for the F-35 in December marked a significant milestone, and management expects to deliver between 170 and 190 F-35 aircraft by 2025.
Delaware Ivy Core Equity Fund stated the following regarding Lockheed Martin Corporation (NYSE:LMT) in its Q3 2024 investor letter:
“Finally, we added Lockheed Martin Corporation (NYSE:LMT) to the portfolio. While demand for the company’s products remains strong as a function of increased defense industry expenditures and a favorable geopolitical backdrop, margins have been impaired by government contracts that were fixed in price before the onset of rapid inflation. We believe the longer-term profit outlook is inflecting as mispriced contracts are replaced by more favorable ones, beginning in 2025. As several observers have noted before, defense companies are a great insurance policy for what you don’t know, a saying that certainly rings true amid escalating conflict across the globe.”
