In this piece, we will take a look at the ten best stocks in each sector in 2024.
With 2024’s close approaching fast, the stock market has touched new records that few would have thought were possible when the Federal Reserve started its interest rate hiking cycle in March 2022. Most of the stock market’s gains are due to artificial intelligence making a splash in November 2022, and since then, investors have had a chance to bask in meteoric returns as they waited for financial conditions to ease.
For instance, consider the stock performance of the world’s leading AI GPU designer. From the start of 2021 to the end of 2022, when inflation had peaked in the US, its shares had bled 53%. Back then, the semiconductor industry was facing a historic glut as chip companies had shipped excessive inventory into the channel after witnessing booming demand during the pandemic era. However, since the start of November 2022, the stock has gained 800%+, simply due to the fact that its GPUs are the prized commodity for training and using AI software.
On the flip side, consider a warehouse and logistics real estate stock with a market value of $117 billion and which ranked 11th on our list of the 12 Best Forever Stocks To Buy Now. During the time that the GPU designer’s shares gained 800%+, its stock has posted a mere 17% in returns through share price appreciation. This bifurcation sits at the heart of the stock market right now, where while stocks exposed to AI, such as the 4th top stock out of the 12 that Jim Cramer believes investors should watch closely, are up by 61% year to date.
Apart from chip designers, other stocks have also been caught up in the AI wave. One of the biggest sectors that has seen these tailwinds is utilities. Within utilities, firms that rely on carbon free sources to generate electricity are seeing particular interest. One top stock that has performed well this year ranked 2nd on our list of 10 Best Infrastructure Stocks To Buy Now. A nuclear energy firm that generates 90% of its 32GW energy capacity through nuclear, the stock is up 120% year to date. In fact, this stock jumped by a hefty 26% between September 18th to September 23rd, after Microsoft announced a 20 year deal with it to use a nuclear plant at Three Mile Island to power up its AI data centers. The shares were further helped when the biggest banks in the world backed a COP28 goal to triple global nuclear power generation capacity by 2050.
Focusing on the broader clean energy sector which has been quite distressed in the era of high rates with the S&P’s clean energy index down by 3.19% over the past year, analysts continue to be bullish about the sector’s future. Estimates from the International Energy Agency (IEA) suggest that global clean energy demand is slated to grow by 3.4% annually until 2026. Within the US, the Energy Information Agency (EIA) expects that renewable energy deployment will grow by 17% in the US this year to potentially account for 25% of American energy production by touching 42GW. Government spending has played a key role in this optimism, as these initiatives have led to private companies announcing $82 billion in investments for clean energy manufacturing and infrastructure.
While clean energy has lagged amidst investor worries of high rates sapping investments, other sectors have prospered. One such sector is the telecommunications sector. As we live in the information age, humanity’s data consumption has touched levels no one would have thought were possible when the internet was growing in popularity during the 1990s. Estimates show that while global data consumption already sat at a remarkable 3.4 million petabytes (PB – 1 PB = 1,048,576 GB), it is expected to grow to 9.7 million PB by 2027. Simultaneously, telecommunications companies are expected to invest a whopping $342 billion in network upgrades by 2027, while the number of Internet of Things (IoT) gadgets is expected to surge to 25.1 billion by the same year. Telecommunications stocks have performed well over the past twelve months as well since the S&P’s telecommunications index is up by 40.48%.
Mid September also saw a status quo change on Wall Street as the Federal Reserve cut interest rates by 50 basis points. While this is great for industrial, real estate, and clean energy stocks, it’s also beneficial for financial services firms and banks in particular. While banks have the opportunity to earn more money through interest from loans generated when rates are high, their deposit costs also increase to dent the overall net interest income. As a result, since the Fed’s rate cut announcement, the S&P’s bank stock index has gained 5.8%. As a whole, the financial services industry is expected to grow at a compounded annual growth rate (CAGR) of 7.7%, or from $31 trillion in 2023 to $33.5 trillion by the end of this year.
Crucially, lower rates also mean that alternative securities become more attractive to investors. When it comes to stocks, dividend stocks are particularly favored as their yield becomes lucrative compared to low interest rates. The Dividend Aristocrat Index is up by 2.3% since the rate cut. Investors, it seems, are attracted to dividends again, which is unsurprising considering that the S&P’s dividend stocks paid out $153 billion in dividends in Q2 2024 to mark a 7% annual and 1.2% sequential growth.
So, as some sectors of the stock market continue to impress investors and with the narrative on Wall Street shifting to an era of low interest rates, we decided to look at the best stocks to buy in each sector.
A Nuclear power plant with all its safety & security protocols in place.
Our Methodology
To make our list of the best stocks to buy in each sector, we used our coverage of the best stocks in infrastructure, materials, clean energy, telecommunications, financial services, dividends, artificial intelligence, real estate, consumer defensive, and healthcare to pick out the top stocks. The stocks are ranked by the number of hedge funds that bought the shares during Q2 2024.
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. Liberty Broadband Corporation (NASDAQ:LBRDK)
Number of Hedge Fund Holders in Q2 2024: 55
Liberty Broadband Corporation (NASDAQ:LBRDK) is one of the biggest cable companies in America. This provides it with a double edge sword in today’s fast paced environment. The firm also owns a sizeable stake in Charter Communications, which means that cable and broadband usage are the two key determinants of Liberty Broadband Corporation (NASDAQ:LBRDK)’s hypothesis. Consequently, the firm’s shares are down by 5.48% year to date as the expiration of government subsidies has led to a drop in subscribers. Liberty Broadband Corporation (NASDAQ:LBRDK)’s subscribers dropped by 149,000 during the second quarter, which followed a massive 26% share price drop in February after Charter revealed that it lost 61,000 subscribers during Q4 and used its free cash flow to repurchase stock. Consequently, the stock’s future depends on its ability to compete in a broadband market that is facing pricing pressures and alternatives such as satellite internet and a cable industry struggling to compete with streaming services. However, Liberty Broadband Corporation (NASDAQ:LBRDK) soared by 26% in September after it made progress with an offer to merge with Charter and consolidate resources. Further progress on the deal could translate into tailwinds.
Alluvium Asset Management mentioned Liberty Broadband Corporation (NASDAQ:LBRDK) in its Q2 2024 investor letter. Here is what the fund said:
“Liberty Broadband was down 4.4%. It owns cable assets across the US, principally via its investment in Charter Communications. Both reported first quarter earnings, and there was little to add from prior news. Internet subscribers continued to fall due to competitor offerings, and the looming end of the Affordable Connectivity Program (ACP) adds uncertainty. We estimate that around one in six of Charter’s residential customers benefited from the ACP subsidies that expired in June. With internet now a basic utility, the risk is not that these customers abandon the product, but rather that they source it elsewhere. We are hopeful that by offering inducements (like free mobile for a year) Charter will mitigate customer losses. On a more positive note, Charter has added nearly half a million mobile subscribers over the year, its churn rate is at record lows, and the rural build out is progressing ahead of schedule. Whereas the ACP effects will be felt in the short term, it will take some time before the growth initiatives (like the rural rollout and mobile convergence strategy) shine through. We also expect the fixed wireless competitors to eventually increase pricing as their capacity is absorbed. This will all take time. We are prepared to wait. We bought a little more Liberty, and it now comprises 5.4% of Fund assets.”
9. American Tower Corporation (NYSE:AMT)
Number of Hedge Fund Holders in Q2 2024: 63
American Tower Corporation (NYSE:AMT) is a specialty real estate investment trust that caters to the needs of the communications, broadcasting, and data center industries. It is one of the biggest companies of its kind that has a presence in 25 countries. This exposure makes it unsurprising that American Tower Corporation (NYSE:AMT)’s shares are up by 43% over the past 12 months despite the fact that the broader Dow real estate index has gained 28% over the same time period. American Tower Corporation (NYSE:AMT)’s data centers cater to the needs of the artificial intelligence industry, particularly in the edge segment of the data center market. This segment typically caters to consumer needs, and if the consumer use cases of AI grow, then American Tower Corporation (NYSE:AMT) could see additional tailwinds. Additionally, the firm operates on a 5 to 10 year contract model which makes its revenues more predictable than others. American Tower Corporation (NYSE:AMT) has also been busy improving margins by selling its Indian operations, and given the lower rate environment in the future, it could see further gains. However, economic weakness can hit the shares hard.
Baron Funds mentioned American Tower Corporation (NYSE:AMT) in its Q1 2024 investor letter. Here is what the fund said:
“Following a more than 30% rebound in the fourth quarter of 2023, shares of American Tower Corporation lagged in the first quarter of 2024. The uncertainty around the timing and ultimate financial impact of American Tower’s India business sale, ongoing lower overall spending by wireless carriers, and higher interest rates weighed on the company’s shares. Please refer to our “Top Net Purchases” section for our rationale for acquiring additional shares.”