In this piece, we will take a look at 12 best extremely profitable stocks to buy. If you want to skip our economic and market analysis and jump ahead to the top five stocks in the list, take a look at 5 Best Extremely Profitable Stocks to Buy.
The macroeconomic outlook in the U.S., which has dominated both headlines and the stock market for more than two years now is rapidly shifting. At this time last year, all investors could worry about was related to interest rates and high inflation. The Russian invasion of Ukraine and the resulting commodity shock coupled with stimulatory spending during the pandemic forced the Federal Reserve to rapidly hike interest rates. So, in July 2022, all investors could ask was ‘how high’ the Fed would go, what impacts its decisions would have on the economy, and when it will stop.
There were no certain answers to these questions, and as a result, the stock market sank and recorded some of the worst losses in history. However, the Fed’s big ticket approach to interest rate hikes is finally clearing the fog as the market enters the second half of 2023. June was the first month when it finally started to become clear that the economy might be cooling down. The first indication of this came as the jobs data for May revealed that the unemployment rate was going up. However, at the same time, the jobs added also jumped, leaving investors looking for more as a sign that the economy is slowing down. The economic outlook cleared up a bit more when the jobless claims data for the week ending on June 3rd showed that the figure had grown. As counterintuitive as it sounds, this was ‘good’ news, since it hinted that the labor market (perhaps the most critical indicator of the Fed’s interest rate hike decision process) was slowing down and paving the way for fewer hikes down the road.
The real cherry came later when the Labor Department’s inflation data for May revealed that price growth might also be slowing down. This dataset showed that in May, inflation dropped to 0.1% from 0.4% in the previous month. Annually, this translated into 4% – less than half of the peak inflation of 9.1% in June 2022.
Building up on this, two additional economic data points – one from the Labor Department and another from the Institute of Supply Management (ISM) can provide some small insights on what to expect from the stock market later this year. Starting from the negative indicator, the Labor Department posted fresh jobless claims for the week ending on June 24 as the month ended. Claims for the week stood at 239,000 – a 26,000 drop over the previous week’s level. However, the government body shared that the four week moving average for the claims data sits at 257,500 – the highest level in more than a year. At the same time, for the week ending on June 17th, the unemployment rate stood at 1.2% – remaining unchanged. On the surface, it appears that the longer term trend for this data shows that the labor market is slowing down, as the drop in the latest week’s claims can potentially be a mere fluctuation. On the claims side at least, it can be quite a while before the pace picks up to sufficiently indicate that the labor market is slowing down.
Our second fresh data point is the ISM’s Purchasing Manager’s Index (PMI). As of the Fourth of July holiday, this is the latest data for the U.S. economy since it was released just a day before. The June index showed that it dropped by 0.9% over the month, the lowest reading since the coronavirus was really making its mark felt on industries in May 2020. Crucially, this data also indicates that inflation might be dropping, as the Prices Index dropped by a stronger 2.4% monthly in June to sit at 41.8%. This can potentially be due to weaker demand from the lower activity as well as supply chain bottlenecks that have persisted in one form or the other for years finally easing out. Manufacturing prices are often an indicator of consumer prices down the road, so the inflation data for July and August will be particularly interesting to watch.
So what does this mean for markets? Well, the first half of 2023 has seen major U.S. stock markets jump by as much as 40% with the broader NASDAQ market marking some of its best returns in years. This has led many to firmly believe that we are now in a bull market. So how does one navigate this market? Well, here’s what Ken Fisher of Fisher Investments believes:
In the bounce, called the bounce effect, that typically lasts about eight to about fifteen months, about eleven months on average; we’re about eight months now into this bull market. So there ought to be a few more months ahead. I could put some qualifiers on it that might apply this time, might not. That’s about opinion, not about fact. Typically, you get a longer bounce when you’ve had a longer, bigger decline. The decline last time, the 2020 bear market ending in the end of September, beginning in October wasn’t as big a bear mark–it was what I call a cub bear market, it qualified as a bear market but just by a little bit. And it wasn’t very long for a bear market, starting beginning of January and ending in the end of September, about nine months long. So therefore maybe we don’t have quite as long a bounce, maybe we’re on the short end of how long the bounce effect can last. What happens after that? Well, after that, other fundamentals take over and push the stocks. You may remember, and consistent with the bounce effect, that in 2022, tech stocks got clobbered and were among the worst performing categories. Value stocks, particularly driven by energy, did best.
In the bounce, it’s been the reverse. Energy stocks have lagged, tech stocks have led, growth had led, including places like France and Italy with non tech growth. And value stocks have led. After this, we have to come to some fundamental features. Will the Fed get to where they stop raising rates? Weill we see short rates being cut? Will we see the yield curve be less steep, maybe unsteepening to the point yield curve being short term rates being above long term rates. Will that yield curve inversion go away? Usually, those things continue to favor growth and tech. Will they this time? I think so. How long? I don’t know. But I would expect categories that have done the best in this particular bounce to continue to lead at least for a good period of time after the bounce effect is over.
With these details in mind, let’s take a look at some highly profitable stocks, out of which some top names are New York Community Bancorp, Inc. (NYSE:NYCB), MGIC Investment Corporation (NYSE:MTG), and Immersion Corporation (NASDAQ:IMMR).
Photo by Karolina Grabowska: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968630/
Our Methodology
To compile our list of the most profitable stocks, we first narrowed down a list of the forty companies with the highest net profit margin. Then, the number of hedge fund investors that had owned their shares as of Q1 2023 was determined via Insider Monkey’s database and out of these, the top 12 most profitable stocks are as follows.
12 Best Extremely Profitable Stocks to Buy
12. Enact Holdings, Inc. (NASDAQ:ACT)
Number of Hedge Fund Investors in Q1 2023: 13
Enact Holdings, Inc. (NASDAQ:ACT) is an insurance company headquartered in Raleigh, North Carolina. The average share price target for the firm sits at $26.92 – higher than the current price of $25.72.
13 of the 943 hedge funds part of Insider Monkey’s database had bought Enact Holdings, Inc. (NASDAQ:ACT)’s shares as of March 2023. Out of these, the firm’s largest shareholder is Mathew Barrett’s Glendon Capital Management with a $29 million stake.
Along with MGIC Investment Corporation (NYSE:MTG), New York Community Bancorp, Inc. (NYSE:NYCB), and Immersion Corporation (NASDAQ:IMMR), Enact Holdings, Inc. (NASDAQ:ACT) is a highly profitable stock on the hdge fund radar.
11. Essent Group Ltd. (NYSE:ESNT)
Number of Hedge Fund Investors in Q1 2023: 15
Essent Group Ltd. (NYSE:ESNT) is another insurance company. It expanded its operating footprint in May 2023 when a subsidiary invested in a real estate technology company.
After digging through 943 hedge funds for this year’s first quarter, Insider Monkey discovered that 15 had invested in the company. Out of these, the largest shareholder is Brian Ashford-Russell and Tim Woolley’s Polar Capital with a $118 million investment.
10. Radian Group Inc. (NYSE:RDN)
Number of Hedge Fund Investors in Q1 2023: 15
Radian Group Inc. (NYSE:RDN) provides mortgage insurance, contract underwriting, and other services. Like other insurers, its margins have benefitted from the Federal Reserve’s interest rate hikes.
By the end of this year’s first quarter, 15 out of the 943 hedge funds part of Insider Monkey’s database had bought Radian Group Inc. (NYSE:RDN)’s shares. James Morrow’s Callodine Capital Management is the biggest shareholder through owning a stake that is worth $21 million.
9. Westamerica Bancorporation (NASDAQ:WABC)
Number of Hedge Fund Investors in Q1 2023: 16
Westamerica Bancorporation (NASDAQ:WABC) is a regional bank headquartered in California and set up in 1884. The bank’s shares have consistently been rated as Market Perform by multiple analysts.
For their Q1 2023 investments, 16 out of the 943 hedge funds part of Insider Monkey’s database had bought Westamerica Bancorporation (NASDAQ:WABC)’s shares. Israel Englander’s Millennium Management is the biggest investor with a $13 million stake.
8. Texas Pacific Land Corporation (NYSE:TPL)
Number of Hedge Fund Investors in Q1 2023: 17
Texas Pacific Land Corporation (NYSE:TPL) is a land company that manages oil and gas land. The firm has grown its earnings per share in the double digits on a compounded rate over the last three years.
After digging through 943 hedge funds for their Q1 2023 investments, Insider Monkey found out that 17 had invested in the firm. Texas Pacific Land Corporation (NYSE:TPL)’s largest hedge fund shareholder is Murray Stahl’s Horizon Asset Management by owning a $2.4 billion stake.
7. Innoviva, Inc. (NASDAQ:INVA)
Number of Hedge Fund Investors in Q1 2023: 18
Innoviva, Inc. (NASDAQ:INVA) is a biotechnology company headquartered in Burlingame, California. The firm received FDA approval for its bacterial pneumonia treatment in May 2023.
By the end of March 2023, 18 of the 943 hedge funds part of Insider Monkey’s database had bought a stake in Innoviva, Inc. (NASDAQ:INVA). The firm’s largest hedge fund investor in our database is Alex Denner’s Sarissa Capital Management with a $74 million stake.
6. SandRidge Energy, Inc. (NYSE:SD)
Number of Hedge Fund Investors in Q1 2023: 20
SandRidge Energy, Inc. (NYSE:SD) owns interests in oil and gas wells in America. The firm is headquartered in Oklahoma City, Oklahoma. The firm’s shares are mostly owned by institutional investors, who account for nearly two thirds of the holdings.
Insider Monkey dug through 943 hedge funds for their Q1 2023 shareholdings to discover that 20 had invested in the firm. Out of these, the largest shareholder is Carl Icahn’s Icahn Capital LP since it owns a stake worth $69 million.
New York Community Bancorp, Inc. (NYSE:NYCB), SandRidge Energy, Inc. (NYSE:SD), MGIC Investment Corporation (NYSE:MTG), and Immersion Corporation (NASDAQ:IMMR) are some extremely profitable stocks.
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Disclosure: None. 12 Best Extremely Profitable Stocks to Buy is originally published on Insider Monkey.
