Over the past several months markets have been fretting over the concentration of returns phenomenon where just a handful of stocks are responsible for the broader market gains. While 2024 is seeing bifurcation of these gains to other segments of the market, including pick-and-shovel AI stocks, small-cap companies and defensive equities, the fact remains that large-cap stocks with strong balance sheets are still attractive in the current volatile environment. Russell 1000 Growth Index, which tracks the top large- and mid-cap stocks in the US, returned 43% in 2023. In 2024 it’s up about 9% through May 9, compared to SPY’s 10% gain.
While it’s true that large-cap tech stocks like Nvidia and Apple have failed to perform as expected in the first quarter of 2024, it’s also a market reality that the large-cap universe offers immense opportunities for investors, and market gains keep rotating within this space. Investment management funds, ETFs, institutional investors as well as retail investors have all been pouring money into large-cap stocks in search of stability, dividends, AI-led stock price gains and other opportunities. Talking about the returns of its large-cap fund, Weitz Investment Management said in its Q1 report that Meta Platforms, Inc. (META), Berkshire Hathaway, Inc. (BRK/B), Amazon and MasterCard were among its top contributors.
Finding Cheap Stocks in the Current Environment
Investing in large-cap stocks doesn’t always mean you put your money into overvalued, buzzing stocks which everyone is talking about. There are still some undervalued plays in the market. For example, our research recently unlocked a few cheap AI plays better than NVDA. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Coming back to the buzzing stocks, JPMorgan Large Cap Leaders Strategy outperformed the S&P 500 index in the first quarter of 2024 as it returned about 12.8% in the quarter, compared to SPY’s 10.5% gain. The strategy’s returns got a boost from IT and consumer discretionary stocks, while they took a hit from detractors like Tesla, UnitedHealth and Consumer Staples segment. The Strategy invests in “attractively valued” large-cap stocks with earnings growth, strong management teams and business models.
While small-cap stocks offer strong growth potential in the long-term, investors are flocking to large-cap stocks amid as a higher-for-longer interest rate scenario realizes. When interest rates are high and volatility is rising, small-cap stocks do not perform well. The small cap-heavy Russell 2000 index is up just 3% year to date compared to the Russell 1000 index. Smaller companies are sensitive to interest rates. According to Goldman Sachs, about a third of the Russell 2000 debt is at a floating rate, compared with 6% for the S&P 500, the Wall Street Journal reported.
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Methodology
For this article we analyzed the top large-cap stocks American Senators and Congress members bought over the past few months. Why are we interested in the stocks that hedge funds and insiders 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. Enbridge Inc (NYSE:ENB)
Number of Hedge Fund Investors: 28
Enbridge Inc (NYSE:ENB) ranks 10th in our list of the large-cap stocks US politicians are buying. US Senator Tom Carper on April 11 bought Enbridge Inc (NYSE:ENB) shares worth between $1,000 to $15,000, at $34.55 per share. Since then through May 7 the stock has gained about 6%.
ClearBridge Dividend Strategy made the following comment about Enbridge Inc. (NYSE:ENB) in its Q3 2023 investor letter:
“The financials sector was our best contributor and the industrials sector our biggest detractor, each dominated by one stock. Our energy overweight was also a help, though this was offset by negative effects from our underexposure within energy to commodity-sensitive exploration and production companies, and by our holding Enbridge Inc. (NYSE:ENB), which sold off after announcing a large acquisition in the quarter.”
9. Tractor Supply Co (NASDAQ:TSCO)
Number of Hedge Fund Investors: 30
Tractor Supply Co (NASDAQ:TSCO) also came on Congresswoman Marjorie Taylor Greene’s radar last month as she bought a stake in Tractor Supply Co (NASDAQ:TSCO) worth anywhere between $1,000 to $15,000 on April 24. Since this transaction the stock is up 5%. Democratic Congressman Jared Moskowitz also bought a stake in Tractor Supply Co (NASDAQ:TSCO) in December, worth between $1000 to $15,000.
Wedgewood Partners stated the following regarding Tractor Supply Company (NASDAQ:TSCO) in its fourth quarter 2023 investor letter:
“Tractor Supply Company (NASDAQ:TSCO) was a bottom contributor to performance during the quarter. Sales grew just +4% due to adverse weather trends that affected their seasonal categories; however, earnings per share grew +11% as the Company has done an excellent job harvesting leverage from the large price and infrastructure investments made during Covid-19. Weather is impossible to predict in the short-term, however, over a longer time frame excellent businesses like Tractor Supply are able to adapt to and take advantage of the environment and still drive superior returns. For example, the Company has been dramatically expanding its selling floor space with minimal net investment, while aggressively investing in the areas of e-Commerce that have better profitability compared to traditional brick and mortar strategies such as “buy online, pick up in store.” The Company is consistently focused on a niche market of relatively higher-income rural landowners who need merchandise that is not as widely or conveniently available at big-box or storeless e-commerce sites. Their long-held strategy should continue to drive superior returns over the long-term, despite short-term variability in weather patterns.”
8. Energy Transfer LP Unit (NYSE:ET)
Number of Hedge Fund Investors: 34
Energy Transfer LP Unit (NYSE:ET) ranks 8th in our list of the top large-cap stocks American politicians are buying. On April 30, Congresswoman Virginia Foxx bought a stake in Energy Transfer LP Unit (NYSE:ET) worth anywhere between $1,000 to $15,000. Since this transaction the energy stock has gained about 2.5%. As of the end of the fourth quarter of 2023, 34 hedge funds tracked by Insider Monkey had stakes in Energy Transfer LP Unit (NYSE:ET).
Silver Beech Capital made the following regarding Energy Transfer LP (NYSE:ET) in its fourth quarter 2023 investor letter:
Energy Transfer LP (NYSE:ET) owns and operates the largest and most balanced collection of energy infrastructure assets in the United States. ET’s assets include 125,000 miles of oil and natural gas pipelines, export facilities on both the Gulf Coast and East Coast, and more than 1 million barrels per day of natural gas liquid fractionation capacity. ET accounts for 20% of worldwide natural gas liquid exports. Further, ET is uniquely connected to every major hydrocarbon basin in the United States.
By assembling energy infrastructure to gather, process, transport, and store hydrocarbons, ET connects exploration and production companies (“E&Ps”) with downstream end users such as gas stations, utilities, and export facilities. As an end-to-end midstream solution, ET enables its customers to focus on their portion of the value chain without the burden of significant but essential midstream logistics. ET’s services thus add tremendous value to all constituents of the energy marketplace.
Though natural gas is a relatively clean source of fuel, restrictive federal and state regulations and other permissions severely restrict the building of natural gas pipelines and other infrastructure in North America that would help facilitate abundant hydrocarbon production. Pipelines are by far the cheapest and greenest method of transporting hydrocarbons; pipelines reduce emissions from truck transport and reduce congestion on highways, rail, and shipping routes…” (Click here to read the full text)
7. Hershey Co (NYSE:HSY)
Number of Hedge Fund Investors: 46
Chocolate company Hershey Co (NYSE:HSY) is one of the large-cap stocks American politicians are buying. On April 24,Republican Congresswoman Marjorie Taylor Greene bought a stake in Hershey Co (NYSE:HSY) worth between $1,000 to $15,000 at $188.14 per share. Since then through May 7 the stock is up about 5%.
Heartland Mid Cap Value Fund stated the following regarding The Hershey Company (NYSE:HSY) in its first quarter 2024 investor letter:
“Consumer Staples. Another new position is The Hershey Company (NYSE:HSY), the leading chocolate confectionary company in North America with a growing presence in salty snacks and non-chocolate confections.
The maker of such popular brands as Hershey’s, Reese’s, Cadbury, and Jolly Rancher has historically traded at a premium to its consumer staples peers. But in an environment where consumer finances are stressed and input costs are climbing, that premium has disappeared. The stock is down 35% from its 2023 peak due to volume headwinds and margin pressures brought about by rising prices.
We believe Hershey simply needs to demonstrate to investors that these headwinds are cyclical and temporary in nature, while once again showcasing its ability to balance superior profitability with modest growth and stable market share. Cocoa prices, a key input for HSY, have seen a nearly unprecedented price spike on supply disruptions in West Africa (where the majority of global supply originates). While we cannot predict when cocoa prices deflate, we are confident HSY and its largest competitors will be slow to reverse price increases required to recoup the input cost squeeze. Encouragingly, after being hampered by supply chain constraints in the post-COVID-19 environment, HSY has a greater innovation slate and more capacity in place to grow in the coming years. The stock, meanwhile, now trades near historic lows relative to other blue chip consumer staples, the consumer staples sector as a whole, and the broad market.”
6. Deere & Co (NYSE:DE)
Number of Hedge Fund Investors: 54
Congressman Dan Newhouse bought shares of Deere & Co (NYSE:DE) on April 10, worth between $1,000 to $15,000. Since this transaction through May 7 the stock is down about 1.9%. Democratic Congressman Ro Khanna also bought a stake in Deere & Co (NYSE:DE) worth between $1K to $15K in January.
Oakmark Fund stated the following regarding Deere & Company (NYSE:DE) in its first quarter 2024 investor letter:
“Deere & Company (NYSE:DE) is a leading manufacturer of agricultural equipment with dominant market share in North America and Brazil. Despite its brand strength, technological capabilities and distribution advantages, the company’s stock price has recently fallen due to fears about a downturn in the agriculture business cycle. Longer term, world population and food demand are expected to increase annually yet land and labor devoted to agriculture are expected to decline. Deere seems well-positioned to benefit from this dynamic as farms will have to become more productive. We were pleased to purchase shares in Deere at a low double-digit multiple of our estimate of normal earnings power.”
5. Accenture Plc (NYSE:ACN)
Number of Hedge Fund Investors: 58
Republican Congressman Dan Newhouse on April 10 bought a stake worth between $1,000 to $15,000 in Accenture Plc (NYSE:ACN) at $324.4 per share. Since this transaction through May 7 the stock has declined by about 4%.
In March Accenture Plc (NYSE:ACN) posted fiscal Q2 results. Adjusted EPS in the quarter came in at $2.77 per share, surpassing estimates by $0.10. Revenue fell 0.1% year over year to $15.8 billion, missing estimates by $40 million. Accenture Plc (NYSE:ACN) also talked about AI-related opportunities in business during its earnings call:
“We are modernizing and consulting over 50 disparate enterprise data sources into a small integrated set forming Telstra’s governed and secure data and AI core, allowing Telstra to rapidly scale bespoke Generative AI capabilities in the future. Our work will also support the company’s efforts to develop responsible ethic and secure market leading AI frameworks, while helping their teams provide quicker, more effective and more personalized customer interactions. One of the areas of riches opportunities for our clients is customer experience transformation, including with Generative AI, which uses the unique capabilities of Song across creative customer insights and deep technology expertise.
Song grew low-single digits this quarter, we continue to help clients reimagine marketing to drive growth. We’re helping ExxonMobil, an energy super major transform and optimize its end-to-end fuels marketing operations to drive future growth. With our global capabilities, our managed services will leverage our SynOps platform to drive automation and deliver measurable efficiencies across the fuels marketing business. We are strengthening our partnership with Best Buy, a leading consumer electronics retailer across multiple fronts to reimagine the customer experience, optimize costs and drive growth. By leveraging data and Generative AI, we are helping to transform their contact center operations and improve customer and employee experience.”
Read the detailed earnings call transcript here.
Insider Monkey’s database of 933 hedge funds shows that 58 hedge funds had stakes in Accenture Plc (NYSE:ACN) as of the end of 2023.
Polen Global Growth Strategy stated the following regarding Accenture plc (NYSE:ACN) in its first quarter 2024 investor letter:
“We eliminated our position in Nestlé and trimmed our existing position in Accenture plc (NYSE:ACN). Finally, we added to our existing position in Globant with the proceeds from trimming back our Accenture position. We think this is prudent because Globant’s valuation isn’t much higher than Accenture’s, but it should be able to grow EPS faster at ~20%+ over the next five years. We see both as excellent businesses benefiting from similar tailwinds behind the increasing need for trusted third party IT services providers and continue to feel good about holding both companies for the long term.”
4. Analog Devices, Inc. (NASDAQ:ADI)
Number of Hedge Fund Investors: 62
Analog Devices, Inc. (NASDAQ:ADI) ranks 4th in our list of the large-cap stocks American politicians are piling into. Congressman Dan Newhouse on April 10 bought a stake in Analog Devices, Inc. (NASDAQ:ADI) at $196.33 per share. The total worth of this stake was between $1,000 to $15,000. Since then through May 7 the stock has gained about 4.21%.
Madison Investors Fund stated the following regarding Analog Devices, Inc. (NASDAQ:ADI) in its first quarter 2024 investor letter:
“At semiconductor manufacturer Analog Devices, Inc. (NASDAQ:ADI), end-market demand continues to decline as customers and distributors reduce inventory after building it up during the supply chain induced shortages a few years back. Despite these near-term trends, we remain confident that large parts of the global economy will continue to digitize over the long-term, thereby driving strong demand for analog semiconductor chips.”
3. Lowe’s Companies Inc (NYSE:LOW)
Number of Hedge Fund Investors: 68
Congressman Bill Keating from Massachusetts’s 9th congressional district on April 11 bought a stake in Lowe’s Companies Inc (NYSE:LOW) worth between $1,000 to $15,000. Since then the stock has decreased by 1.33%.
Of the 933 hedge funds in Insider Monkey’s database, 68 hedge funds had stakes in Lowe’s Companies Inc (NYSE:LOW) as of the end of 2023.
Aristotle Capital’s Value Equity Strategy stated the following regarding Lowe’s Companies, Inc. (NYSE:LOW) in its first quarter 2024 investor letter:
“During the quarter, we sold our positions in Phillips 66 and Sysco and invested in two new positions: Lowe’s Companies, Inc. (NYSE:LOW) and TotalEnergies.
Based in North Carolina, and with a history dating back to 1921, Lowe’s Companies is the world’s second-largest home improvement retailer (after Home Depot). The company operates more than 1,700 stores in the United States that offer a wide variety of products to enhance a home, from plants for the garden and house décor to hardware and appliances. Often located in suburban areas, Lowe’s stores primarily serve retail “do-it-yourself” customers (~75% of revenue) and sell products that are used for home maintenance and repair (over 60% of revenue). This contrasts with Home Depot, whose stores have a higher presence in metropolitan areas and cater more to professional customers.
We had previously been investors in Home Depot. Over much of the past decade Home Depot had, in our opinion, executed better than Lowe’s—expanding its presence with large professional customers and increasing its store productivity. However, with Lowe’s hiring of former Home Depot executive Marvin Ellison in 2018, we believe Lowe’s has started the process of closing the gap to better compete with its nearest rival…” (Click here to read the full text)
2. Goldman Sachs Group Inc (NYSE:GS)
Number of Hedge Fund Investors: 69
Republican Congresswoman Marjorie Taylor Greene on April 24 bought a stake worth between $1,00 t0 $15,000 in Goldman Sachs Group Inc (NYSE:GS). She bought shares of Goldman Sachs Group Inc (NYSE:GS) at $423.04 apiece. Since this transaction the stock has gained about 5%.
As of the end of the last quarter of 2023, 69 hedge funds had stakes in Goldman Sachs Group Inc (NYSE:GS).
On April 15, Goldman Sachs Group Inc (NYSE:GS) posted Q1 results. Adjusted EPS in the period came in at $11.58, beating estimates by $2.90. Revenue in the period jumped 16.3% year over year to $14.21 billion.
Ariel Focus Fund stated the following regarding The Goldman Sachs Group, Inc. (NYSE:GS) in its fourth quarter 2023 investor letter:
“Global investment bank, The Goldman Sachs Group, Inc. (NYSE:GS), also increased in the period on solid earnings results. The top-line came in strong led by elevated financing activity and an improvement in advisory revenues, despite weak transaction volumes within the investment banking segment. Should conditions remain conducive, management remains cautiously optimistic the business will experience continued recovery in both capital markets and strategy activity. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and an enhanced focus on driving profitability in Platform Solutions by 2025. With potential regulatory capital constraints from B3E, GS noted it will reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive at current levels, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.”
1. Danaher Corp (NYSE:DHR)
Number of Hedge Fund Investors: 90
Democratic Congressman Ro Khanna, who’s involved in regular stock trading, bought a stake in Danaher Corp (NYSE:DHR) back in February, worth between $1,000 to $15,000. Last month, Republican Congress member Dan Newhouse piled into Danaher Corp (NYSE:DHR) shares by buying a stake in Danaher Corp (NYSE:DHR) at $245.87 per share. The transaction took place on April 10. Since then the stock is up about 0.9%.
Cooper Investors Global Equities Fund stated the following regarding Danaher Corporation (NYSE:DHR) in its first quarter 2024 investor letter:
“On the funding side, the portfolio fully exited Danaher Corporation (NYSE:DHR) during the quarter. We no longer see compelling Risk Adjusted Value Latency today with the shares rebounding 35% since the October lows and once again trading at a significant relative premium (50-60%), despite tough operating trends in the bioprocessing market. Having owned Danaher continuously for the past 14 years this is ‘the end of an era’ and so bears a brief tribute.
Danaher was the longest held stock in the portfolio having been initially purchased in July 2010. Investing alongside the Rales brothers has been an incredible experience. In returns generation, Danaher was a true 10-bagger; purchased at USD$25 a share and sold at ~USD$255, generating a return over the holding period of over 1,300% and an IRR of approximately 18%.
Yet its value has not merely been as a winning stock but also as a teacher, a source of idea generation, and a spin-off machine. Danaher was the original ‘Capital Allocator Champion’, through which we learned about the margin-expansionary benefits of focused business systems operating with continuous improvement – Kaizens running concurrently on the lab or factory floor. We also built an understanding of how Danaher operates its M&A philosophy, a major driver of its success – what to buy, when to buy, who to buy from, how to integrate, and how much to pay. Studying this allowed us to develop Pattern Recognition of ‘what good looks like’ when meeting similar companies. Without Danaher, we may never have owned Domino Printing Sciences, Constellation Software, Halma, Roper, Ametek or Diploma, not to mention the spin- offs, some of which remain in the portfolio today. The business remains on our Watchlist through our continuous coverage of the Life Sciences cluster.”
If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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