In this piece, we will take a look at ten stocks that will bounce back according to hedge funds.
With 2024 coming to a close, investors have left several unknown variables behind them. They started out the year wondering when and if the Federal Reserve would start cutting interest rates. Then, as the year progressed, uncertainty about the outcome of the 2024 US Presidential Election came to the forefront due to the significantly different policy objectives of the two candidates.
Now, with President-elect Donald Trump waiting to be sworn in and the Fed’s interest rate cut cycle having kicked off in September, Wall Street is now focused on the impact of tariffs on global trade and the speed and depth of the interest rate cutting cycle. After the results of the election were clear, several sectors fluctuated in response.
Since this post is about stocks that can bounce back based on hedge fund holdings, it’s relevant to see which stocks tumbled in November. One of the hardest hit sectors was clean energy. The S&P’s clean energy stock index lost 10.4% in the days following the election as investors were worried about the rollback of clean energy subsidies rolled out during the Biden Administration and the incoming Trump Administration’s focus on traditional energy stocks and oil drilling.
While clean energy as a sector took the hardest hit, other stocks linked to China and the German automotive industry did not do well either. Shares of the Chinese stock that is known to have been a part of Warren Buffett’s investment portfolio fell by 4.8%, while shares of German car companies fell by as much as 6.6%. The drops were natural as investors were worried about tariffs against China impacting the car company’s business and tariffs against all countries that export to the US hampering the German car industry.
Along with the outcomes of a change in government, investors have also spent 2024 positioning themselves for the Fed’s monetary easing. The central bank started its rate cut cycle in September through a jumbo 50 basis point rate cut. In December, investors were greeted by the first set of economic data free of election worries in the form of the consumer price index. The CPI data was a mixed bag of results since while inflation grew at the fastest pace since April, two key inflationary components that have long held up strong against interest rates finally fell.
In numerical terms, US inflation sat at 0.3% in November and 2.7% in the twelve months ending in November. Additionally, core CPI, which removes the impact of volatile food and energy prices from the data, jumped by 0.3% in November to stay at the same level since August. Within this data, rents jumped by 0.2% and decelerated to levels last seen in July 2021. This marked a deceleration over the 0.3% reading for October, and the overall core CPI for the twelve months through November sat at 3.3%. This was lower than the three-month annualized average of 3.7%. This inflation data is crucial as it helps investors determine whether the Federal Reserve will cut interest rates thrice in 2025 or increase the number of cuts to four.
Shifting gears, while artificial intelligence has caught the market and public’s attention throughout 2024 and allowed investors to push the broader economic weakness to the background, not all stocks have performed well. Sectors such as oil shipping, biotechnology, industrials, and non-AI information technology have all struggled to impress in 2024. Some stocks, such as this oil tanker firm, are close to 52-week lows as 2024 ends after having lost 26% year-to-date. Sectors like biotechnology, as evidenced by the NASDAQ’s index of biotechnology stocks have gained a modest 2.6% year-to-date. Others, such as this Brazilian oil and fuel distribution stock have bled 60% of their value so far in 2024.
It’s safe to say that not all sectors of the market have performed well. However, as any prudent investor knows, not all stocks at the bottom of the barrel have to be shunned. Therefore, in this piece, we will look at those stocks that are trading at low levels but attract hefty hedge fund interest during the third quarter.
An executive gazing over a trading floor with illuminated screens tracking stock market movement.
Our Methodology
To make our list of stocks that can bounce back according to hedge funds, we ranked the 40 most valuable stocks with a market cap greater than $300 million that are down 50% or more year-to-date by the number of hedge funds that had bought the shares in Q3 2024. Out of these, we picked the top ten stocks with the highest number of hedge fund investors.
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. Teladoc Health, Inc. (NYSE:TDOC)
Year-To-Date Loss: 52.49%
Number of Hedge Fund Investors In Q3 2024: 32
Teladoc Health, Inc. (NYSE:TDOC) is a new-age company that uses the Internet to provide people with healthcare options. Since it operates on primarily a software-based model, the firm’s narrative is dependent on its membership size, margins, and customer acquisition costs. Teladoc Health, Inc. (NYSE:TDOC) is also a high-growth stock due to the nascent nature of its market. The fact that its shares sank by 20% in February and to a record low in August after the firm cut down annual guidance and withdrew it entirely is unsurprising. Teladoc Health, Inc. (NYSE:TDOC) has struggled with low site visits in 2024, which has impacted its revenue and led to surging customer acquisition costs. However, the firm enjoys a wide moat in its industry, particularly through businesses such as the BetterHealth division which is one of the biggest virtual mental health care providers in America.
Teladoc Health, Inc. (NYSE:TDOC)’s management commented on its BetterHealth business during the Q3 2024 earnings call. Here is what they said:
“We expect to further invest in our International Integrated Care business, as a core priority as well to support our growth agenda. With respect to BetterHelp, our current focus is on running it effectively, by balancing top line growth with profitability, and evaluating initiatives aimed at generating greater value from the business.
BetterHelp has become the largest direct-to-consumer virtual therapy business of its kind, by addressing an unmet need and serves over 1 million people per year, and with a consumer Net Promoter Score of over 70. With that said, challenges remain, including declining revenues, when compared to prior periods. Solid progress is being made towards stabilizing results in the U.S. and growing internationally. Mala will comment more on that in a moment. BetterHelp is also making progress on an initiative, to provide consumers with the ability to access their coverage benefits. Capability milestones are on track, and exploratory discussions have begun with select health plans, and other potential partners. As I mentioned in the second quarter call, a measured approach is being taken with this initiative, and the primary focus remains on improving direct-to-consumer results.”
9. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Year-To-Date Loss: 61%
Number of Hedge Fund Investors In Q3 2024: 33
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is one of the biggest pharmaceutical retailers in America. It also has global operations and a presence in the care industry. 2024 has been a tumultuous year for Walgreens Boots Alliance, Inc. (NASDAQ:WBA), and reports suggest that the firm might be taken private. The firm’s troubles have stemmed from the fact that it has had to operate in a constrained consumer economy and has struggled with prescription reimbursements. As a result, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is on track to close 1,200 stores over the next three years as part of its bid to cut down its operating footprint. Therefore, the keys to its hypothesis lie in the firm’s ability to either turn around its struggling pharmacy business or execute a successful deal to be taken private for a cash injection to help stabilize the ship.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA)’s management shared its outlook during the Q3 2024 earnings call. Here is what they said:
“Looking ahead, one of our key priorities is to strengthen the balance sheet condition of the company. We are focused on improving our cash flow generation and net debt position through a combination of operational actions and asset monetization activities. These priorities have significant influence on our expectations for this upcoming fiscal year, which I will detail now. As Tim underscored, our priorities for fiscal 2025 is to stabilize our core operations while we made progress on the longer-term strategic and operational turnaround. This view is reflected in our adjusted EPS guidance of $1.40 to $1.80. This guidance is based on three central assumptions. First, in US pharmacy, we anticipate continued pressure on reimbursement rates. We have negotiated approximately 80% of the contract volume for calendar year 2025.
Due to the multiyear nature of these contracts, there is still more progress to be made but believe we are taking incremental steps towards our goal of reducing the impact of reimbursement pressure on pharmacy margin. The second major assumption is that our customer is likely to remain under pressure and continue to demonstrate the same price-sensitive shopping behavior that we experienced in fiscal ’24. In response to this dynamic, we’re executing on a number of retail initiatives over multiple periods. In the near term, we’re taking cost actions to improve our operating leverage, including the accelerated optimization of our fiscal footprint. We expect these closures to be accretive to our cash flows in fiscal 2025. Lastly, we expect growth in our Healthcare segment and in the International segment.”
8. Mobileye NV (NYSE:MBLY)
Year-To-Date Loss: 57.64%
Number of Hedge Fund Investors In Q3 2024: 33
Mobileye NV (NYSE:MBLY) is an Israeli firm that develops autonomous driving technology. Its products make it unsurprising that the shares are down 59.6% year-to-date. The share price drop is due to a slowdown in the electric vehicle industry which has also impacted other sectors such as lithium mining. Global EV demand has slowed down amidst high interest rates and inflation. As a result, Mobileye NV (NYSE:MBLY) has seen slowing sales, which has also led it to shut down its LiDAR development unit earlier this year. The firm’s hypothesis depends on its industry partnerships through which it sells its autonomous driving system. Mobileye NV (NYSE:MBLY) benefits from key competitive advantages such as its products enabling assisted driving at speeds greater than 100 kmh. It also scored a win in November by inking a deal with Lyft for robotaxi fleets.
Baron Funds mentioned Mobileye NV (NYSE:MBLY) in its Q3 2024 investor letter. Here is what the fund said:
“Shares of Mobileye Global Inc. (NASDAQ:MBLY), a provider of ADAS and autonomous driving technologies for the automotive industry, detracted from performance. Excess inventory among key customers proved to be a headwind to growth earlier in the year. Mobileye also experienced a significant decline in market share in China as local original equipment manufacturers shifted to domestic suppliers and in-house technology. Although this was an embedded risk, it materialized faster than expected and included market share losses at key customers. While we maintain our belief in the size and strategic importance of the autonomous vehicle market (see Tesla above), we decided to exit our Mobileye position during the quarter and book a tax loss.”
7. Moderna, Inc. (NASDAQ:MRNA)
Year-To-Date Loss: 62.82%
Number of Hedge Fund Investors In Q3 2024: 34
Moderna, Inc. (NASDAQ:MRNA) is a biotechnology company that rose to prominence because of its coronavirus vaccine. While the virus does not dominate the conversation anymore, the majority of Moderna, Inc. (NASDAQ:MRNA)’s revenue comes through its respiratory vaccines. Additionally, the draw-down in global demand for coronavirus vaccines has also meant that the firm has had to invest aggressively in research and development to develop new products. The aggressive R&D spending is also visible in Moderna, Inc. (NASDAQ:MRNA)’s trailing twelve-month R&D expenses of $4.8 billion are just $200 million shy of its $5 billion revenue over the same time period. Consequently, the firm’s hypothesis depends not only on its respiratory vaccine sales but also on next-generation vaccines such as mRNA-1283 and mRNA-1083.
Moderna, Inc. (NASDAQ:MRNA) is also developing a vaccine for norovirus, also called viral gastroenteritis. This vaccine could unlock additional revenue for the firm, and here’s what management had to say about it during the Q3 2024 earnings call:
“On Slide 22 is the design of our Phase III study for our norovirus vaccine candidate. As a reminder, norovirus is a gastrointestinal disease with high unmet need and no approved vaccines on the market. The Phase III study is designed to test the efficacy, safety and immunogenicity of our vaccine in 25,000 adults aged 18 and older. It is randomized one-to-one, observer blind, and placebo controlled.”
6. Evolent Health, Inc. (NYSE:EVH)
Year-To-Date Loss: 65.55%
Number of Hedge Fund Investors In Q3 2024: 36
Evolent Health, Inc. (NYSE:EVH) is a mid-sized company that offers healthcare plans and benefits management services. As is the case with most firms of its kind, the majority of its revenue comes from Medicare and Medicaid. During the nine months ending in September, Evolent Health, Inc. (NYSE:EVH) earned $1.9 billion in revenue out of which the two care plans accounted for 75%. Since the firm has a sizable presence in the specialty pharma and cancer care market, it has to absorb large costs since these pharma markets are among the costliest in the industry. The impact of this presence was clear in November when Evolent Health, Inc. (NYSE:EVH)’s shares sank by a whopping 41% after its third-quarter earnings saw the firm post a 35% annual profit drop which missed its prior midpoint guidance of $64 million and analyst estimates of $62.7 million.
Another factor that drives Evolent Health, Inc. (NYSE:EVH)’s is its claim partnerships. Here’s what management had to say about these during the Q3 2024 earnings call:
“First, new claims data we received and processed from September through early November from some of our partners that included much higher pay claims expense from prior quarters. This factor drove $24 million in higher net expenses in the quarter related to prior periods versus our expectations. And second, we experienced an acceleration in medical costs in August and September after a period of relatively flat experience between March and July. This new acceleration drove an additional $18 million in increase in medical expense for the third quarter compared to our expectations. On an incurred basis in the quarter, some markets with a small number of customers had medical expense ratios of over 100%. We believe the unusually high medical costs inflation in the third quarter in our specialty performance suite was driven by a confluence of factors, including significant increases in disease prevalence, Medicaid redetermination-driven adverse selection, rapid increases in unit costs, post-COVID acuity increases, and provider coding intensity.
We are not alone in experiencing significant spikes in medical expenses in our industry. As many of the country’s largest insurers noted, a third quarter acceleration in specialty pharmaceutical costs where the majority of our company’s oncology capitation risk lies. This quarter’s spike in medical expenses is unlike anything we’ve experienced since launching the performance suite offering six years ago. We’re moving rapidly to take four actions to address this issue. First, we’re working closely with our partners to update reimbursement rates according to our contractual provisions. We successfully negotiated and captured incrementally higher rates of approximately $35 million relative to our initial expectations for the year, consistent with what we communicated on the August call, and 100% of those increases were signed by the end of August.”
5. Five Below, Inc. (NASDAQ:FIVE)
Year-To-Date Loss: 51.77%
Number of Hedge Fund Investors In Q3 2024: 36
Five Below, Inc. (NASDAQ:FIVE) is a mid-sized American retailer headquartered in Philadelphia, Pennsylvania. The firm sells a wide variety of products ranging from apparel to beauty products, board games, and consumer technology accessories. Five Below, Inc. (NASDAQ:FIVE) benefits from some diversification in its revenue base. For the 39 weeks ending on November 2nd, 45% of the firm’s revenue came through leisure products while the remainder was accounted for by fashion, seasonal, and other products. Like any retailer, Five Below, Inc. (NASDAQ:FIVE) depends on high volumes for robust margins and same-store sales for market penetration. Additionally, the firm is reliant on consumer spending strengths, which have played a large role in its 52% year-to-date share price drop.
Polen Capital mentioned Five Below, Inc. (NASDAQ:FIVE) in its Q3 2024 investor letter. Here is what the fund said:
“We exited our position in Five Below, Inc. (NASDAQ:FIVE), the dollar store concept for tweens and teens. The business has struggled fundamentally with weaker consumer spending and lower margins, partially due to a problem with shrink (shoplifting). While many companies struggle with elevated shrink, Five Below’s problems were compounded by. a large investment in self-checkout, which made matters worse. The issue was in the process of being fixed, but the company was further hampered by growing pressure on consumers. We believe these issues may prove temporary but were surprised when the CEO was terminated. For now, we prefer to wait on the sidelines to ensure we fully understand the extent of the issues and how the CEO transition plays out.”
4. Dollar Tree, Inc. (NASDAQ:DLTR)
Year-To-Date Loss: 50.83%
Number of Hedge Fund Investors In Q3 2024: 40
Dollar Tree, Inc. (NASDAQ:DLTR) is a mega American discount retail store operator. On the face of it, its business model would benefit the firm in today’s tight consumer environment where buyers have struggled with high prices. However, the reality is the opposite since Dollar Tree, Inc. (NASDAQ:DLTR)’s shares are down 51% year-to-date. The share price drop has been driven by the fact that a prolonged tightness in the consumer environment has spurred competition in the discount retail industry. Dollar Tree, Inc. (NASDAQ:DLTR)’s shares sank by 22% in September after it cut down full-year profit per share to a midpoint of $5.40 from an earlier $6.75. The firm, along with rival Dollar General, has faced off with big players such as Walmart and others such as Temu who have offered low-price products of their own during the tough economy. Amidst this environment, Dollar Tree, Inc. (NASDAQ:DLTR) has embarked on a multi-price strategy instead of a single-dollar price, and it has also started to offer higher-priced items to compete with general retailers.
Chartwell Partners mentioned Dollar Tree, Inc. (NASDAQ:DLTR) in its Q3 2024 investor letter. Here is what the fund said:
“Dollar Tree, Inc. (NASDAQ:DLTR) operates a chain of discount stores under the Dollar Tree and Family Dollar banners. Results fell short of expectations amid pressure on the lower-end consumer, which prompted management to reduce its outlook for the year.”
3. Sirius XM Holdings Inc. (NASDAQ:SIRI)
Year-To-Date Loss: 56.08%
Number of Hedge Fund Investors In Q3 2024: 49
Sirius XM Holdings Inc. (NASDAQ:SIRI) is an American entertainment company that streams audio content through software applications and satellites. The firm has had a tumultuous year so far as it has struggled to maintain its paid user base primarily due to shifts in the car market. Sirius XM Holdings Inc. (NASDAQ:SIRI) depends to a large extent on vehicle subscriptions, and according to the firm, higher new car sales have pushed a large chunk of its users into unpaid trial services. Its subscriber churn rate during Q1, Q2, and Q3 was 1.7%, 1.5%, and 1.6% for its self-pay users. The drops have caused Sirius XM Holdings Inc. (NASDAQ:SIRI) to reduce its full-year revenue guidance to $8.68 billion from an earlier $8.75 billion. Over the long term, the firm’s hypothesis depends on its 2027 target of $1.5 billion through $200 million in cost savings.
Weitz Investment mentioned Sirius XM Holdings Inc. (NASDAQ:SIRI) in its Q3 2024 investor letter. Here is what the fund said:
“This quarter, Liberty SiriusXM successfully completed its merger with SiriusXM, simplifying a complicated ownership structure by transforming our holdings of Liberty’s tracking stock into a direct interest in the satellite radio business. Unfortunately, the merger comes as investors are concerned with recent, negative subscriber trends and diminished cash flow that have pressured shares of both entities this year. As a result, the new Sirius XM Holdings Inc. (NASDAQ:SIRI) is on detractors list for the quarter. At current prices, we believe investors are overly pessimistic about SiriusXM’s future cash flows, and modestly added to our position. There were no new businesses added to the portfolio this quarter, nor any exits (our shares of Liberty SiriusXM were converted into shares of the new SiriusXM Holdings in the merger).”
2. Capri Holdings Limited (NYSE:CPRI)
Year-To-Date Loss: 57.54%
Number of Hedge Fund Investors In Q3 2024: 57
Capri Holdings Limited (NYSE:CPRI) is a luxury British apparel brand. This makes it unsurprising that the firm has struggled in 2024, a year characterized by weak consumer spending across the world and weak economic performance in key regions such as Europe and China. The firm operates primarily through its three key brands, Michael Kors, Versace, and Jimmy Choo. As of H1 2024, Michael Kors accounted for 66% of Capri Holdings Limited (NYSE:CPRI)’s sales, while The Americas accounted for 55%. Sales in all regions dropped annually, and the weak performance has also been due to the firm’s strategic missteps such as weak implementation of an eCommerce platform for Michael Kors. Capri Holdings Limited (NYSE:CPRI)’s shares sank by a tremendous 46% in October after a deal for it to be acquired by Tapestry fell through and the premium that investors were expecting was priced out. Looking ahead, the firm’s hypothesis depends on successful brand execution, a potential split-up, and economic recovery in key regions such as Europe, China, and Japan.
Conventum-Alluvium Global Fund mentioned Capri Holdings Limited (NYSE:CPRI) in its Q3 2024 investor letter. Here is what the fund said:
“As we await the judge’s deliberations in the Federal Trade Commission (FTC) case regarding Tapestry’s acquisition of Capri Holdings Limited (NYSE:CPRI), (up 28.3%) the evidence from Capri’s first quarter earnings release again suggests the fundamentals are weak, particularly in the Michael Kors division (interestingly a point stressed during the FTC hearings). There was no reason to change our Capri analysis, as we had fully factored such weakness after we updated it post the full year results. Tapestry’s results were far more impressive. Tapestry’s management also stressed its commitment to the Capri deal and highlighted that over the prolonged acquisition period (due to the FTC case) it had identified more synergies. Interestingly, whilst we slashed our Capri valuation by 26% last quarter, when we look at the value of Tapestry (on a combined entity basis), and not having any regard for those additional synergies, our valuation has increased as a result of the better than expected core Tapestry earnings stemming from its Coach, Kate Spade and Stuart Weitzman brands.”
1. Intel Corporation (NASDAQ:INTC)
Year-To-Date Loss: 57.45%
Number of Hedge Fund Investors In Q3 2024: 68
Intel Corporation (NASDAQ:INTC) is 2024’s horror story in the semiconductor industry. The close of the year is seeing a dramatic shift in the firm’s fortunes with its CEO Patrick Gelsinger having left and executives wondering whether the firm’s status as an integrated chip manufacturer is key to its future. Intel Corporation (NASDAQ:INTC) is among the few integrated chip manufacturers in the world, a model that allows it to design and manufacture its chips. However, a slowdown in the consumer PC market and a loss of technology leadership to the Taiwanese TSMC has placed the firm on the back foot and raised doubts about its future. These factors mean that Intel Corporation (NASDAQ:INTC)’s hypothesis is dependent on its 18A manufacturing process entering production in 2025 and a potential split up of its manufacturing and chip design businesses to cut costs and inject cash.
ClearBridge Investments mentioned Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter. Here is what the fund said:
“While the market environment clearly was a headwind in the third quarter, several of our large positions also faced challenging conditions, which negatively impacted results. In the information technology (IT) sector, Intel Corporation (NASDAQ:INTC) has come under additional pressure due to continued softness in the company’s core PC and server markets as well as concerns on the company’s longer-term competitive position. While Intel’s turnaround is not happening overnight, we are constructive on the outlook into 2025: the company’s product positioning should be much improved and it should be positioned to gain market share in a cyclical upswing in which it has strong earnings power. A somewhat adverse spending environment due to AI myopia has weighed on shares, but we still think the market is undershipping PCs and general servers following a COVID normalization period that saw demand get pulled ahead and then languish as companies froze IT budgets. The installed base is now getting older, and we expect a strong refresh cycle into next year. The delay is actually beneficial to Intel, whose product positioning will be all the more improved. While our investment case is not predicated on an M&A transaction, and we believe one is unlikely, the expression of interest in the company speaks to the value of the assets, which we think still trade at a meaningful discount to fair value.”
INTC is a stock that might bounce back given hedge fund sentiment. While we acknowledge the potential of INTC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than INTC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure. None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
