11 Best Cyclical Stocks to Buy Now

Published on October 3, 2022 at 8:18 am by Hamna Asim in Hedge Funds, News

In this article, we discuss 11 best cyclical stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Cyclical Stocks to Buy Now.

JPMorgan analysts, who have been staunch equity bulls for most of the year, believe that a soft landing is a plausible scenario for the global economy, and this will provide positive catalysts for risky assets. Marko Kolanovic and Nikolaos Panigirtzoglou of JPMorgan said in mid-September that latest data highlights abating inflation and employment pressures, recovery in economic growth, and a rebound in consumer confidence. These factors lead the analysts to believe that a global recession can be avoided. The analysts stated:

“Economic data and investor positioning are more important factors for risky asset performance than central bank rhetoric. We maintain a pro-risk stance.”

JPMorgan further noted that a measured easing in inflation will be an optimistic catalyst for cyclical stocks and small-cap companies. The investment firm favors cyclicals and small-caps, as well as emerging-market names and Chinese securities as compared to “expensive” defensive plays. JPMorgan is bullish on energy and commodities as well. Explaining its stance further, the firm reiterated:

“We maintain that inflation will resolve on its own as distortions fade and that the Fed has over-reacted with 75bps hike. We will likely see a Fed pivot, which is positive for cyclical assets.”

Some of the best cyclical stocks to buy now include General Motors Company (NYSE:GM), Boyd Gaming Corporation (NYSE:BYD), and Advance Auto Parts, Inc. (NYSE:AAP).

Our Methodology

We carried out an extensive assessment of cyclical industries, including restaurants, hotels, airlines, furniture, high-end fashion retailers, and automobile manufacturers. We selected the following stocks based on positive analyst coverage, resilient demand despite a difficult macro environment, and strong hedge fund sentiment.

We have arranged the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.

Image by Sergei Tokmakov Terms.Law from Pixabay

Best Cyclical Stocks to Buy Now

11. Sweetgreen, Inc. (NYSE:SG)

Number of Hedge Fund Holders: 15

Sweetgreen, Inc. (NYSE:SG) is a California-based operator of fast-casual restaurants serving healthy foods prepared from seasonal and organic ingredients. On September 13, Sweetgreen, Inc. (NYSE:SG) announced that it will open its first restaurants in Indiana and Minnesota. This move will bolster Sweetgreen, Inc. (NYSE:SG)’s Midwest presence.

On September 9, Cowen analyst Andrew Charles raised the price target on Sweetgreen, Inc. (NYSE:SG) to $23 from $20 and maintained an Outperform rating on the shares. The analyst said he remains confident in Sweetgreen, Inc. (NYSE:SG)’s path to profitability and the company’s goals to double its store outlets in 3 years to 330 locations and to 1,000 locations by 2030.

Among the hedge funds tracked by Insider Monkey, 15 funds reported owning stakes in Sweetgreen, Inc. (NYSE:SG), up from 12 funds in the prior quarter. Kevin Michael Ulrich and Anthony Davis’ Anchorage Advisors is the leading position holder in the company, with 4.8 million shares worth $55.8 million.

In addition to General Motors Company (NYSE:GM), Boyd Gaming Corporation (NYSE:BYD), and Advance Auto Parts, Inc. (NYSE:AAP), Sweetgreen, Inc. (NYSE:SG) is one of the best cyclical stocks to buy now.

Here is what Baron Small Cap Fund has to say about Sweetgreen, Inc. (NYSE:SG) in its Q4 2021 investor letter:

“This quarter we participated in the IPO of Sweetgreen. Sweetgreen is one of the fastest growing restaurant chains in the U.S. and sits at the intersection of health and wellness, plant-based food consumption, digital adoption, and purpose-driven brands. As of the third quarter of 2021, the company operated 140 restaurants in 13 states, with the goal of being as ubiquitous as traditional fast food.

Sweetgreen’s menu is designed to be a delicious, customizable, and convenient way to empower customers to make healthier choices for both lunch and dinner. They currently offer signature salads, warm bowls, and plates that are complemented by a seasonal menu that changes five times a year. Sourced from over 200 domestic food partners, Sweetgreen’s assortment of roughly 40 freshly prepared or cooked ingredients allows customers to create millions of unique, customized orders to accommodate almost any flavor profile or dietary preference and allows for high frequency of use. The company utilizes a multichannel approach with 68% of revenue via digital channels and 47% of revenue coming through their own App. This is one of the highest digital penetration rates among restaurant companies, which gives Sweetgreen a valuable data and customer relationship advantage relative to peers. Digital customers tend to come more often and spend 20% more on average. Also, this data helps assess market density and viable new store locations.

With just 140 restaurants in 13 states there is considerable whitespace for the company to expand and we believe the company can grow units at a 25% CAGR over the next five years as they enter new markets, densify existing regions, and introduce new restaurant formats such as drive-thru and pick-up only. Historically concentrated in large urban markets, Sweetgreen should benefit from a recovery in those markets as the effects of COVID recede, driving outsized same-store sales, and potentially over 40% revenue growth over the next two years. Sweetgreen has also been planning for future growth by intentionally building additional capacity in existing restaurants to handle more order volume without adding more costs or square footage. Unit economics are already strong with new restaurants expected to generate revenues of approximately $3 million, with a healthy restaurant-level profit margin of 18%-plus, and year two cash-on-cash returns of over 40%. (Click to read full text)

10. ChargePoint Holdings, Inc. (NYSE:CHPT)

Number of Hedge Fund Holders: 17

ChargePoint Holdings, Inc. (NYSE:CHPT) is a California-based company that provides electric vehicle charging networks and charging solutions in the United States and internationally. In Q2 2022, ChargePoint Holdings, Inc. (NYSE:CHPT) reported revenue that was meaningfully ahead of estimates and reaffirmed guidance despite the tough macro environment. ChargePoint Holdings, Inc. (NYSE:CHPT) is one of the best cyclical stocks to buy now.

On September 7, Credit Suisse analyst Maheep Mandloi assumed coverage of ChargePoint Holdings, Inc. (NYSE:CHPT) with an Outperform rating and a $22 price target. The analyst is “positive on ChargePoint” as he thinks it has an advantageous capital-light growth model, first-mover advantage with integrated solutions, and an attractive valuation.

According to Insider Monkey’s data, 17 hedge funds were bullish on ChargePoint Holdings, Inc. (NYSE:CHPT) at the end of June 2022, with collective stakes worth $22.8 million, compared to 16 funds in the earlier quarter worth $34.7 million.

9. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)

Number of Hedge Fund Holders: 18

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) was incorporated in 1969 and is headquartered in Lebanon, Tennessee. The company develops and operates the Cracker Barrel Old Country Store concept in the United States, which comprises restaurants and decorative gift shops. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) expects total revenue growth in fiscal 2023 between 7% and 8% compared to the prior year, versus a 3.3% growth consensus. The company projects opening 3 or 4 new Cracker Barrel units and 15 to 20 new Maple Street Biscuit Company units. It is one of the best cyclical stocks to buy now, considering the growth forecasts.

On September 28, Deutsche Bank analyst Brian Mullan raised the price target on Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) to $106 from $100 and kept a Hold rating on the shares after the fiscal Q4 results. While the quarter was a little challenged, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) offered initial fiscal 2023 revenue guidance in the range of 7% to 8%, which compared favorably to the earlier consensus, the analyst wrote to investors in a research note.

According to Insider Monkey’s data, 18 hedge funds were long Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) at the end of June 2022, compared to 19 funds in the last quarter. Cliff Asness’ AQR Capital Management is the leading position holder in the company, with 370,840 shares worth $30.5 million.

8. DraftKings Inc. (NASDAQ:DKNG)

Number of Hedge Fund Holders: 27

DraftKings Inc. (NASDAQ:DKNG) is an American fantasy sports contest and sports betting company. On September 29, the firm was added as a new best long idea at Hedgeye, given that the company now seems to be making progress on repairing some of its issues and reclaiming lost market share. While the macro backdrop is negative for the sector, DraftKings Inc. (NASDAQ:DKNG) seems to be on track to benefit from some secular tailwinds. It is one of the best cyclical stocks to invest in.

On September 14, Guggenheim analyst Curry Baker raised the price target on DraftKings Inc. (NASDAQ:DKNG) to $34 from $31 and reiterated a Buy rating on the shares after the favorable week one outcomes in the NFL, resilient downloads, and comparatively better DAU performance based on third-party app data, the focus on cost control, and a more rational promotional environment.

Among the hedge funds tracked by Insider Monkey, 27 funds were bullish on DraftKings Inc. (NASDAQ:DKNG) at the end of the second quarter of 2022, with combined stakes worth $682 million. Parag Vora’s HG Vora Capital Management is a significant stakeholder of the company, with 2.5 million shares valued at $29 million.

In its Q4 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and DraftKings Inc. (NASDAQ:DKNG) was one of them. Here is what the fund said:

“Shares of DraftKings Inc. (NASDAQ:DKNG) fell in the quarter, as stocks of online gaming companies were under pressure. Sports betting and i-gaming are rolling out with great fanfare and success across the country; however, investors seem concerned about competition and margins. Most participants are spending heavily on marketing and promotions, which is cutting into margins. We see this as a worthy investment in customer acquisition at a moment in time when revenues are just building. We continue to believe that online sports betting and gaming will be enormous industries, and that DraftKings will be a leading player. We think the business will have high margins as it matures. We believe we are underwriting the business conservatively and see much upside in the long term.”

7. Hasbro, Inc. (NASDAQ:HAS)

Number of Hedge Fund Holders: 30

Hasbro, Inc. (NASDAQ:HAS) is an American multinational conglomerate holding company, and its products include toys, puzzles, board games, sports equipment, and electronic games. Hasbro, Inc. (NASDAQ:HAS)’s prominent brands include Monopoly, Nerf, Playskool, My Little Pony, Transformers, Peppa Pig, PJ Masks, Power Rangers, Littlest Pet Shop, and Tonka.

On August 18, BofA analyst Jason Haas reinstated coverage of Hasbro with a Buy rating and a $96 price target. As per the analyst, Hasbro, Inc. (NASDAQ:HAS) has one of its top content lineups ahead with Black Panther this holiday season, and Ant-Man, Dungeons & Dragons, Guardians of the Galaxy, Spider-Man, Transformers, and Star Wars coming next year. The analyst forecasted toy spending to be resilient despite consumers broadly pulling back on other discretionary purchases.

According to Insider Monkey’s data, 30 hedge funds were bullish on Hasbro, Inc. (NASDAQ:HAS) at the end of Q2 2022, compared to 38 funds in the prior quarter. Connor Haley’s Alta Fox Capital Management is the leading position holder in the company, with 3.14 million shares worth over $257 million.

Like General Motors Company (NYSE:GM), Boyd Gaming Corporation (NYSE:BYD), and Advance Auto Parts, Inc. (NYSE:AAP), elite hedge funds are monitoring Hasbro, Inc. (NASDAQ:HAS) in the current market environment.

Here is what ClearBridge Large Cap Growth ESG Strategy has to say about Hasbro, Inc. (NASDAQ:HAS) in its Q2 2022 investor letter:

“In addition to finding value in engaging on climate risks, net-zero targets and new technologies, we also add value to our investment process with engagements on a variety of governance topics. For example, we have long supported toy and game maker Hasbro’s (NASDAQ:HAS) management and board on strategic, operational and ESG-related topics; the company ranks highly on almost all areas of ESG evaluation, including diversity at board and all-employee levels. We maintain long-term relationships with Hasbro management, and in April 2022, after an activist shareholder started pushing for strategic change at the company, we stepped up our dialogue with senior management and the board.

While we appreciate some of the concerns raised by the activist, we were against most of its suggestions, which we believed would be destructive to long-term shareholder value. We did not believe it was in our best interest to replace three board members with activist-nominated board members – the existing board is replete with talent from the media, technology, content, gaming, entertainment and social media industries.

Over multiple meetings with Hasbro’s CEO and CFO and as many as three board members, our strong relationships helped us better understand what changes would be made where appropriate, and what strategies would remain intact. We had frequent opportunities to share our thoughts on board composition, long-term strategic priorities, compensation, capital allocation and disclosures. All of these became important topics for review during this time. In June 2022 the activist’s proposals were rejected by shareholders. We remain in support of management as it continues on its path of brand-building and growing digital content for its customers.”

6. Advance Auto Parts, Inc. (NYSE:AAP)

Number of Hedge Fund Holders: 33

Advance Auto Parts, Inc. (NYSE:AAP) is an American automotive aftermarket parts company. On September 15, Advance Auto Parts, Inc. (NYSE:AAP) declared a $1.50 per share quarterly dividend, in line with previous. The dividend was paid to shareholders on September 30. The company delivered a dividend yield of 3.84%. Although the stock dropped notably after its Q2 earnings release, the long-term growth thesis seems to be intact. It is one of the best cyclical stocks for dividend growth investors.

On August 25, Raymond James analyst Bobby Griffin reiterated a Strong Buy rating on Advance Auto Parts, Inc. (NYSE:AAP) but lowered the price target on Advance Auto Parts, Inc. (NYSE:AAP) to $220 from $250. While he trimmed FY22 estimates primarily on the back of lower-than-expected comp sales performance for Q2 and lowered forecasts for DIY demand in the second half, the analyst expects Advance Auto Parts, Inc. (NYSE:AAP)’s margin expansion to remain robust. He views Advance Auto Parts, Inc. (NYSE:AAP) as “uniquely positioned to perform well in this environment” relative to most retailers due to the internal margin improvement opportunities that are entirely dependent on revenue.

Among the hedge funds tracked by Insider Monkey, 33 funds were long Advance Auto Parts, Inc. (NYSE:AAP) at the end of Q2 2022, compared to 29 funds in the last quarter. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 1.25 million shares worth close to $218 million.

Here is what ClearBridge Investments Large Cap Growth Strategy has to say about Advance Auto Parts, Inc. (NYSE:AAP) in its Q4 2021 investor letter:

“Several encouraging macro trends are emerging in support of two areas outside tech: consumer spending and industrial production. Unlike in past recessions and recoveries, consumer balance sheets have actually improved dramatically since the onset of the pandemic. We expect the supply chain constraints contributing to inflation and goods shortages will begin to lessen with an ambitious rebuilding of inventories. This should be a multi-year phenomenon beneficial to quality industrials with high levels of organic growth like distributors such as Advance Auto Parts.”

Click to continue reading and see 5 Best Cyclical Stocks to Buy Now.

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