In this article, we discuss the 10 most promising stocks to buy before they take off. To skip the detailed analysis of the current earnings week, go directly to the 5 Most Promising Stocks to Buy Before They Take Off.
Meta Grows Revenue by 27% in Q1, Provides Weak Outlook for FY ’24
The market started the week on a positive note, showing an upward trajectory on April 22 and 23. However, there was a slight temporary dip in the market, especially for tech stocks after Meta Platforms, Inc. (NASDAQ:META) provided a disappointing outlook despite better-than-expected earnings. On April 24, the company reported Q1 2024 GAAP EPS of $4.71, ahead of consensus estimates by $0.39, and the revenue of $36.46 billion was up over 27% year-over-year and outperformed the forecasts by $240 million.
Meta Platforms, Inc. (NASDAQ:META) provided weak outlook, showing increased expenses for the year and revenue expectations for the second quarter below analyst estimates. The company anticipates full-year 2024 capital expenditures to be between $35-40 billion, up from the prior guidance of $30-37 billion, and expects revenue of $36.5-39 billion in the second quarter. In addition, Meta Platforms, Inc.’s (NASDAQ:META) metaverse division, Reality Labs continues to lose cash and reported losses of $3.85 billion on a $440 million revenue.
Nevertheless, Meta Platforms, Inc. (NASDAQ:META) mentioned some positives too about its AI offerings at its latest earnings call. The CEO, Mark Zuckerberg said:
“We’re building a number of different AI services, from Meta AI, our AI assistant that you can ask any question across our apps and glasses, to creator AIs that help creators engage their communities and that fans can interact with, to business AIs that we think every business eventually on our platform will use to help customers buy things and get customer support, to internal coding and development AIs, to hardware like glasses for people to interact with AIs, and a lot more.
Last week we had the major release of our new version of Meta AI that is now powered by our latest model, Llama 3. And our goal with Meta AI is to build the world’s leading AI service both in quality and usage.
The initial rollout of Meta AI is going well. Tens of millions of people have already tried it. The feedback is very positive and, when I first checked in with our teams, the majority of feedback we were getting was people asking us to release Meta AI for them, wherever they are.”
Performance Spotlight: Cyclical Stocks Excel
As we mentioned in our earlier article, the performance of cyclical stocks is directly proportional to the market conditions (check out undervalued cyclical stocks). The recent performance of stocks such as Hilton Worldwide Holdings Inc. (NYSE:HLT) and Ford Motor Company (NYSE:F) might show some optimism around the market. On April 24, Hilton Worldwide Holdings Inc. (NYSE:HLT) reported earnings for the first quarter of fiscal 2024. The company reported Q1 non-GAAP EPS of $1.53, outperforming the consensus estimates by $0.11 and revenues showed an increase of 12.2% at $2.57 billion, beating the forecasts by $40 million. The company also gave its outlook for the second quarter of 2024 and the full year.
For Q2 2024, Hilton Worldwide Holdings Inc. (NYSE:HLT) expects system-wide comparable revenue per available room (RevPAR) to increase by 2% to 4% year-over-year on a currency-neutral basis. For the full year, the system-wide comparable RevPAR is also set to increase by 2% to 4%, and net income is expected to be between $1.586 billion and $1.621 billion. Furthermore, the company expects adjusted EBITDA of $3.375 billion and $3.425 billion, up from its previous record of $3.1 billion in 2023. Finally, the company’s capital returns are expected to be $3 billion. At its latest earnings call, Hilton Worldwide Holdings Inc.’s (NYSE:HLT) CEO, Chris Nassetta made the following comments:
“In the quarter, we signed 30,000 rooms, increasing our pipeline to a record 472,000 rooms, up 2% from last quarter and up 10% year-over-year. Signings meaningfully outperformed our expectations driven by strength in international markets. In Asia-Pacific, we signed agreements for 4 new Conrad properties, further strengthening our luxury pipeline. Globally, an interest in Hilton Garden Inn remained particularly strong with the brand achieving the highest quarter of signings in its history.
System-wide construction starts also outperformed expectations, up roughly 45% versus last year, with all major regions meaningfully higher. Approximately half of our pipeline is under construction and we continue to have more rooms under construction than any other hotel company, accounting for more than 20% of industry share and nearly 4x our share of existing supply.”
Ford Adapts: Mitigating EV Losses
Ford Motor Company (NYSE:F) outperformed earnings estimates and provided a strong outlook for the rest of the year. On April 24, the company reported earnings for the fiscal first quarter of 2024. Ford Motor Company (NYSE:F) reported a non-GAAP EPS of $0.49 vs $0.42 estimates, and revenues of $42.78 billion were up 3.2% year-over-year, outperforming market estimates by $1.31 billion. The company’s EBIT outlook remained the same and is expected at the high end of the range of $10 billion to $12 billion. Ford Motor Company (NYSE:F) raised its adjusted free cash flow (FCF) outlook to the range of $6.5 billion and $7.5 billion from the prior guidance range of $6 billion and $7 billion. On top of that, the company decreased its capital expenditures outlook from $8 billion to $9.5 billion to a lower range of $8 billion to $9 billion. Ford Motor Company’s (NYSE:F) president and CEO, Jim Farley made the following comments during the latest earnings call:
“I wanted to highlight four key strategic areas: how our growth drivers are changing, our progress in quality, the resilient Ford Pro business, and what we’re learning on the electrification journey in Quarter 1. On growth, the portfolio changes we made and the restructuring we’ve done in our geographic footprint has really paid off for Ford. Several years ago, we normally would be reducing our volume and our mix and having good news on pricing.
What’s changed in the last year and especially in Q1, you could see, is our top-line and bottom-line profitability are increasing, driven by improved volumes and mix, and we’re actually seeing pricing headwinds. And that new portfolio and geographic footprint is really tremendous to see at Ford. There is no better example for this than the portfolio changes we’ve made in our truck and van business. Ford is the No.
1 best-selling pickup manufacturer in the world. And our Ford Transit cargo van is the best-selling in the world. It’s now our second best-selling nameplate at Ford. And our midsized Ranger, not our most affordable pickup, is the third best-selling vehicle at Ford and together with the Everest makes up our profits outside of China, North America and Europe.”
Seeing the strong performance of cyclicals could be a sign of a strong economy ahead, and in such cases, investors could look toward stocks that have experienced a pullback and have significant upside to them. For people looking to invest in stocks that might be trading cheaply, the most promising stocks to buy before they take off include Li Auto Inc. (NASDAQ: LI), ON Semiconductor Corporation (NASDAQ:ON), and BeiGene, Ltd. (NASDAQ:BGNE).
Our Methodology
For this article, we used the Finviz stocks screener to identify 20 stocks with year-to-date declines of over 20% and average analyst price target upside of over 30%, as of April 23. Next, we narrowed down our list to 10 stocks with the highest average analyst price target, which was taken from TipRanks. The companies are listed in ascending order of their average price target upside.
Hedge fund sentiment around each stock has also been added. The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds as of the fourth quarter of 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
10 Most Promising Stocks to Buy Before They Take Off
10. Prologis, Inc. (NYSE:PLD)
Performance (YTD) as of April 23: -22.40%
Average Upside Potential as of April 23: 40.46%
Number of Hedge Fund Holders: 46
Prologis, Inc. (NYSE:PLD) is a real estate investment trust that offers logistics real estate solutions. In the fourth quarter of 2023, 46 hedge funds held positions in Prologis, Inc. (NYSE:PLD), with positions worth $678.297 million. As of December 31, 2023, AEW Capital Management is the most prominent shareholder in the company and has a position worth $325.576 million.
Prologis, Inc. (NYSE:PLD) is down by 22.40% year-to-date, as of April 23. According to TipRanks, the stock has a consensus rating of Strong Buy according to 13 Wall Street analysts and the average price target of $146.29 has an upside of 40.46% from the current levels.
Prologis, Inc. (NYSE:PLD) is one of the most promising stocks to buy before they take off. Other such stocks include Li Auto Inc. (NASDAQ: LI), ON Semiconductor Corporation (NASDAQ:ON), and BeiGene, Ltd. (NASDAQ:BGNE).
Third Avenue Management stated the following regarding Prologis, Inc. (NYSE:PLD) in its fourth quarter 2023 investor letter:
“Prologis, Inc. (NYSE:PLD) (a U.S.-based Industrial and Logistics REIT) held a capital markets forum, where the management team reviewed the evolution of the business and highlighted their “customer focus”. The team also covered several material value-drivers, including: (i) the “loss-to-lease” opportunity within the existing portfolio with market rents approximately 60% above in-place leases, thus representing nearly $3.0 billion of incremental cash flow3 that can be realized as leases renew, (ii) a 12k acre landbank that can accommodate more than 200 million square feet of additional properties, which is increasingly being used to deliver datacenters given the higher capital values relative to industrial properties, and (iii) its Essentials segment, including the addition of rooftop solar panels at many facilities, which currently account for 555 Megawatts (“MW”) of installed capacity (and generates $40 million of operating profits) but is expected to comprise 7000 MW of capacity by 2030 (and generate approximately $800 mm of annual profits).”
9. Snowflake Inc. (NYSE:SNOW)
Performance (YTD) as of April 23: -20.78%
Average Upside Potential as of April 23: 40.76%
Number of Hedge Fund Holders: 86
Snowflake Inc. (NYSE:SNOW) is a Montana-based company that offers a cloud-based data platform. The stock has declined by 20.78% year-to-date, as of April 23.
Snowflake Inc. (NYSE:SNOW) has a consensus rating of Moderate Buy from 24 analysts and the average price target of $211.26 represents an upside of 40.76% from the current levels, as of April 23.
On April 24, Snowflake Inc. (NYSE:SNOW) launched its new large language model (LLM) called Snowflake Arctic. It is part of the Snowflake Arctic model family and users can build enterprise-grade AI models and applications using the LLM.
Snowflake Inc. (NYSE:SNOW) was part of 86 hedge funds’ portfolios in Q4 of 2023 with a total stake value of $7.01 billion. Altimeter Capital Management is the biggest shareholder in the company and has a position worth $2.47 billion as of Q4 2023.
8. Zillow Group, Inc. (NASDAQ:Z)
Performance (YTD) as of April 23: -23.82%
Average Upside Potential as of April 23: 44.04%
Number of Hedge Fund Holders: 65
Zillow Group, Inc. (NASDAQ:Z) is a tech real estate marketplace company that offers its services through various brands, including Zillow Premier Agent, Zillow Home Loans, and Trulia, among others. Hedge fund sentiment was positive toward Zillow Group, Inc. (NASDAQ:Z) in the fourth quarter of 2023 as hedge funds with investments in the stock were 65 in the quarter, with positions worth $1.076 billion. This is compared to 52 funds with positions worth $820.969 million in the preceding quarter. As of December 31, 2023, Dorsal Capital Management is the most dominant shareholder in the company with a position worth $176.473 million.
On April 10, Jefferies analyst John Colantuoni chose Zillow Group, Inc. (NASDAQ:Z) as his “Top Pick” and has a Buy rating with a $75 price target on the shares. Additionally, the stock’s performance was down 23.82% year-to-date, as of April 23.
Zillow Group, Inc. (NASDAQ:Z) has received Buy ratings from 3 Wall Street analysts and the average price target of $62.50 has an upside of 44.04% from the last price of $43.39, as of April 23.
7. Zoetis Inc. (NYSE:ZTS)
Performance (YTD) as of April 23: -24.77%
Average Upside Potential as of April 23: 45.64%
Number of Hedge Fund Holders: 50
Zoetis Inc. (NYSE:ZTS) is a New Jersey-based company that discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products and services. As of April 23, the stock has a share price return of -24.77% year-to-date.
Zoetis Inc. (NYSE:ZTS) has a consensus rating of Strong Buy, as per the coverage of 14 Wall Street analysts and the average price target of $215.43 implies an upside of 45.64% from the last price of $147.92.
The company takes the seventh position on our list of the most promising stocks to buy before they take off. In the fourth quarter of 2023, 50 hedge funds held positions in Zoetis Inc. (NYSE:ZTS) worth nearly $1.35 billion. As of Q4 of 2023, Cantillon Capital Management is the top shareholder in the company with a position worth $280.3 million.
Baron Funds stated the following regarding Zoetis Inc. (NYSE:ZTS) in its first quarter 2024 investor letter:
“Zoetis Inc. (NYSE:ZTS) is a global leader in medicines and vaccines for companion and farm animals, operating in more than 120 countries across eight core species and five major product categories. Shares fell after the company reported mixed fourth quarter results that fell short of high market expectations and issued below-consensus 2024 guidance. While revenue beat Street forecasts primarily on higher sales in the livestock category, EPS missed consensus due to FX headwinds, costs associated with an acquired asset, and investments related to the U.S. launch of canine arthritis drug Librela. Investor concerns about new parasiticide competition and inefficiencies with the Librela ramp also weighed on the share price. Zoetis remains an attractive holding given its consistent above-market growth, diverse portfolio and rich pipeline, new and innovative product flow, and attractive end-markets that have proven resilient in periods of heightened economic uncertainty.”
6. Biogen Inc. (NASDAQ:BIIB)
Performance (YTD) as of April 23: -27.36%
Average Upside Potential as of April 23: 47.08%
Number of Hedge Fund Holders: 51
Biogen Inc. (NASDAQ:BIIB) is engaged in the discovery, development, manufacturing, and delivery of therapies for the treatment of neurological and neurodegenerative diseases. 51 hedge funds held positions in Biogen Inc. (NASDAQ:BIIB) at a stake value of $1.547 billion in Q4 of 2023. OrbiMed Advisors has increased its stake in the company by 49% to 827,600 shares worth $214.158 million and is the most significant shareholder, as of the fourth quarter of 2023.
Biogen Inc.’s (NASDAQ:BIIB) performance has declined by 27.36% year-to-date, as of April 23. 17 Wall Street analysts keep a Buy rating on the stock and the average price target of $285.86 implies an upside of 47.08% from the current levels, as of April 23.
Biogen Inc. (NASDAQ:BIIB) is one of the most promising stocks to buy before they take off, in addition to Li Auto Inc. (NASDAQ: LI), ON Semiconductor Corporation (NASDAQ:ON), and BeiGene, Ltd. (NASDAQ:BGNE).
Patient Capital Management stated the following regarding Biogen Inc. (NASDAQ:BIIB) in its first quarter 2024 investor letter:
“We started a position in Biogen Inc. (NASDAQ:BIIB) during the quarter, a global biopharmaceutical company focused on multiple sclerosis, spinal muscular atrophy, and most recently Alzheimer’s disease. The company has been on a roller coast since the approval of Aduhelm, for the treatment of Alzheimer’s disease, in June 2021. At the time, the approval was highly criticized given the limited efficacy of the treatment. Following the fallout, the company stands today with a new highly regarded CEO, Christopher Viehbacher, a more efficacious approved Alzheimer’s treatment in Leqembi, a rationalized cost structure and a more disciplined investment approach. While the uptake in Leqembi has been slow, we still see strong long-term potential for a patient population that is dramatically underserved. We believe you are getting the opportunity to buy a high performing health care asset, with a strong track record of delivering superior products all while only paying for the current value of their assets on the market today. At the current valuation, we think you are getting a call option on the pipeline and the Leqembi roll-out. It is not often that you see this sort of risk/reward skew in the market, and we opportunistically took advantage.”
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Disclosure. None. 10 Most Promising Stocks to Buy Before They Take Off is originally published on Insider Monkey.
