In this article, we discuss the 11 best fundamental stocks to buy. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Fundamental Stocks to Buy.
The United States economy is one of the most resilient in the world. This is aptly illustrated by the fact that the US economy has grown by around 5.4% since the COVID-19 pandemic brought life to a standstill around the globe. By comparison, the economies of France, the United Kingdom, Germany, Japan, Italy, and Canada – G7 countries – have only grown by about 1.4% during this time. The growth numbers are all the more impressive for the US considering inflationary pressures since late 2021 and global turmoil due to wars in Ukraine and Israel.
According to non-profit Organization for Economic Cooperation and Development (OECD), the United States real GDP is expected to grow by 1.6% in 2023 and 1% in 2024, even as growth in private consumption and investment moderates. Per the non-profit body, US exports and imports in 2023 are projected to decline from last year. Despite these figures, economic experts believe that the US economy will continue to battle challenges heading into 2024, chief among them being the rise in debt-to-GDP ratio.
According to a report by Forbes magazine, the debt-to-GDP ratio in the US will climb above 200% in the next two decades and is projected to reach a staggering 566% by the end of the century at the current date factoring in the aging population and lower long-term real growth. Getting this under control would require several expenditure restrictions and substantial increase in revenue for the government. Economic experts are of the view that spending in the manufacturing and tech sectors would help advance the long-term growth of the US economy.
Investors eager to profit from the boom in the US should consider investing in US stocks with strong fundamentals, like NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms, Inc. (NASDAQ:META), and Amazon.com, Inc. (NASDAQ:AMZN). Andy Jassy, the CEO of Amazon.com, Inc. (NASDAQ:AMZN), recently highlighted the importance of innovation and artificial intelligence to the ecommerce firm and the border business sector in general, outlining some of the steps taken in this regard.
“Beyond AWS, all of our significant businesses are working on generative AI applications to transform their customer experiences. There are too many for me to name on this call, but a few examples include, in our stores business, we’re using generative AI to help people better discover products they want and more easily access the information needed to make decisions. We use generative AI models to forecast inventory we need in our various locations and to derive optimal last mile transportation routes for drivers to employ. We’re also making it much easier for our third-party sellers to create new product pages by entering much less information and letting the models do the rest.
In advertising, we just launched a generative AI image generation tool, where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love. And in Alexa, we built a much more expansive LLM and previewed the early version of this. Apart from being a more intelligent version of herself, Alexa’s new conversational AI capabilities include the ability to make multiple requests at once, as well as more natural and conversational requests without having to use specific phrases. We continue to be convinced that the vision of being the world’s best personal assistant is a compelling and viable one and that Alexa has a good chance to be one of the long-term winners in this arena.
Every one of our businesses is building generative AI applications to change what’s possible for customers, and we have a lot more to come. We’re also encouraged by the progress we’re making in our newer initiatives. Just to name a few, we’re pleased with what we’re seeing in Prime Video. Prime Video continues to be an integral part of the Prime value proposition where it’s often one of the top 2 drivers of customers signing up for Prime.”
Our Methodology
For this article, we selected fundamental stocks based on subjective criteria and ranked them based on hedge fund sentiment. Fundamental stocks are companies with stable businesses, established product lines, and a demonstrated history of performing well even during economic slowdowns. A database of around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to quantify the popularity of each stock in the hedge fund universe. 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.
A graph plotting the trends and performance of stocks on the public equity markets.
Best Fundamental Stocks to Buy
11. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 50
Caterpillar Inc. (NYSE:CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. On November 8, investment advisory Tigress Financial maintained a Buy rating on Caterpillar Inc. (NYSE:CAT) stock and raised the price target to $295 from $282.
At the end of the third quarter of 2023, 50 hedge funds in the database of Insider Monkey held stakes worth $4.8 billion in Caterpillar Inc. (NYSE:CAT), the same as in the previous quarter worth $2.5 billion.
Just like NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms, Inc. (NASDAQ:META), and Amazon.com, Inc. (NASDAQ:AMZN), Caterpillar Inc. (NYSE:CAT) is one of the best fundamental stocks to buy.
In its Q3 2023 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Caterpillar Inc. (NYSE:CAT) was one of them. Here is what the fund said:
“Caterpillar Inc. (NYSE:CAT), the world’s leading manufacturer of construction and mining equipment, also performed well this quarter. Caterpillar has managed to leverage increased capital investment from various end markets, contributing to better than expected fiscal results for Q2. The company is poised to be one of the largest beneficiaries of several government funding initiatives, including the IRA (Inflation Reduction Act) bill, CHIPS Act and fundamental bill. These measures are expected to support construction spending for several years, providing a robust backdrop for Caterpillar’s continued growth.”
10. Emerson Electric Co. (NYSE:EMR)
Number of Hedge Fund Holders: 53
Emerson Electric Co. (NYSE:EMR) provides various solutions for customers in industrial, commercial, and residential markets. On November 10, Stephens analyst Tommy Moll maintained an Overweight rating on Emerson Electric Co. (NYSE:EMR) stock and lowered the price target to $105 from $120.
Among the hedge funds being tracked by Insider Monkey, Washington-based firm Citadel Investment Group is a leading shareholder in Emerson Electric Co. (NYSE:EMR) with 2 million shares worth more than $194 million.
9. Deere and Company (NYSE:DE)
Number of Hedge Fund Holders: 55
Deere and Company (NYSE:DE) manufactures and distributes various equipment worldwide. On November 22, investment advisory Goldman Sacha maintained a Buy rating on Deere and Company (NYSE:DE) stock with a price target of $466.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Deere and Company (NYSE:DE) with 984,500 shares worth more than $371 million.
8. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 57
The Coca-Cola Company (NYSE:KO) is a beverage company that manufactures, markets, and sells various non-alcoholic beverages worldwide. On December 13, investment advisory Citi maintained a Buy rating on The Coca-Cola Company (NYSE:KO) stock and raised the price target to $67 from $65.
Among the hedge funds being tracked by Insider Monkey, Omaha, Nebraska-based firm Berkshire Hathaway is a leading shareholder in The Coca-Cola Company (NYSE:KO) with 400 million shares worth more than $22 billion.
In its Q2 2022 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and The Coca-Cola Company (NYSE:KO) was one of them. Here is what the fund said:
“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, The Coca-Cola Company (NYSE:KO) trades at ~30x P/E despite having the same earnings as 10 years ago.
Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.
I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Coca-Cola is facing disruption risk from consumers shifting to new, heathier beverage brands.
But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.”
Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”
7. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 75
The Procter & Gamble Company (NYSE:PG) provides branded consumer packaged goods worldwide. On November 13, investment advisory Jefferies initiated coverage of The Procter & Gamble Company (NYSE:PG) stock with a Buy rating and a price target of $177.
At the end of the third quarter of 2023, 75 hedge funds in the database of Insider Monkey held stakes worth $5.7 billion in The Procter & Gamble Company (NYSE:PG), compared to 74 in the preceding quarter worth $5.3 billion.
In its Q3 2023 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and The Procter & Gamble Company (NYSE:PG) was one of them. Here is what the fund said:
“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, Coca-Cola trades at ~30x P/E despite having the same earnings as 10 years ago. The Procter & Gamble Company (NYSE:PG) is likewise at ~27x P/E, with earnings only ~12% higher than a decade ago (or a ~1% annual growth rate). This equates to a mere 3.3% – 3.7% earnings yield.
Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.
I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Proctor & Gamble is facing disruption from direct-to-consumer brands that offer their products for a fraction of the price.
But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.
Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”
6. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 84
Johnson & Johnson (NYSE:JNJ) makes and sells healthcare products. On December 12, investment advisory Morgan Stanley maintained an Equal Weight rating on Johnson & Johnson (NYSE:JNJ) stock and lowered the price target to $171 from $170.
At the end of the third quarter of 2023, 84 hedge funds in the database of Insider Monkey held stakes worth $4.1 billion in Johnson & Johnson (NYSE:JNJ), compared to 88 in the previous quarter worth $4 billion.
Alongside NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms, Inc. (NASDAQ:META), and Amazon.com, Inc. (NASDAQ:AMZN), Johnson & Johnson (NYSE:JNJ) is one of the best fundamental stocks to buy.
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Disclosure. None. 11 Best Fundamental Stocks to Buy is originally published on Insider Monkey.