In this article, we will take a look at the 14 best consulting stocks to buy now.
After the market rebounded in 2021 post-pandemic, the US consulting industry now faces a complex and uncertain landscape. Rising inflation, increased costs, talent shortages, and supply chain disruptions amid a volatile geopolitical climate are challenging the sector. Despite these hurdles, 66% of clients plan to increase their use of consultants over the next year. However, clients are becoming more cautious, opting for smaller, tactical projects to address immediate issues rather than engaging in lengthy, expensive transformation initiatives. This approach allows them to assess the impact of their investments before committing further. According to the 2023 report by Source Global Research, consulting firms must now deliver results within tighter timeframes amid heightened competition for smaller, sequential project components. Clients are increasingly seeking innovative and data-driven solutions, reflecting a desire for new and novel approaches throughout the project lifecycle. This shift highlights the need for consulting firms to adapt and excel in an environment where macroeconomic challenges have dampened post-pandemic optimism.
In 2021, the US experienced significant growth as clients invested in growth initiatives, buoyed by optimism and capital following the pandemic. However, by the end of 2022, the mood shifted due to rising inflation, energy prices, and political tensions, which hindered business operations and growth opportunities. Clients remain cautious, anticipating a potential global recession. Nevertheless, some clients remain hopeful, with around a third believing that current macroeconomic factors could positively impact their organizations. With technology being a top priority for clients, it’s no surprise that technology firms are leading the market. Clients are investing heavily in technology, which translates into significant consulting spend. Over the past year, two of the top three consulting areas were technology-related: 77% of clients invested in technology strategy and 71% in technology implementation. Productivity improvement, which often involves technology, ranked second at 73%. Although the market is crowded, technology firms are benefiting the most. Clients prefer these firms for their specialized technology solutions, which they believe offer more reliable outcomes compared to other providers, even if it means higher costs.
Uncertainty in the global economy is causing significant disruption in the US consulting industry, with firms dealing with project cancellations and clients pushing for lower fees, reported Financial Times. The report by Source Global Research highlights a major reassessment of consultants by US clients due to economic concerns. Over 75% of professional services buyers have cancelled or scrapped projects, and two-thirds have paused most existing work. The report forecasts 11% revenue growth in 2023, consistent with 2022, but notes increasing pressure on consultants’ fees, with clients now expecting lower rates compared to before the pandemic. Clients are more focused on getting value for money, with only about 50% believing firms provide value above their fees. Areas such as cybersecurity, HR consulting, and M&A for private equity firms are experiencing slowdowns. While IT consulting remains strong, it is targeted at projects that deliver quick financial benefits. The decline in hiring, initially observed in the Big Four accounting and consulting firms, has extended to smaller players as well. According to a survey by investment bank William Blair, job postings by US specialty consultants were down 57% in June 2023 compared to the previous year and have fallen below pre-pandemic levels. At the Big Four, job postings have decreased by 80% year-on-year.
There is one long-term trend that we haven’t talked yet affecting consulting firms positively. The rise of generative AI, a powerful new technology that can create realistic text and images, has sparked a gold rush for consulting firms. Companies like Reckitt Benckiser, unsure of how to leverage this technology, are turning to consultants for guidance. This has led to a surge in revenue for these firms, with some like McKinsey seeing 40% of their business coming from AI-related work. Consulting firms are among the early winners of the AI revolution which is why we believe this may be a good time to invest in consulting stocks. However, our conviction lies in the belief that some 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 consulting companies but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
A business manager consulting with a financial advisor in an office setting.
Our Methodology
We leveraged Insider Monkey’s comprehensive database of 920 prominent hedge funds to identify the top 14 consulting stocks with the highest level of hedge fund investment as of Q1 2024. These stocks are listed in order of increasing hedge fund ownership, providing insight into the most popular consulting stocks among elite investors.
14. Information Services Group, Inc. (NASDAQ:III)
Number of Hedge Fund Holders: 7
Information Services Group, Inc. (NASDAQ:III) operates as a technology research and advisory company in the Americas, Europe, and Asia Pacific, offering digital transformation services such as automation, cloud, and data analytics, as well as sourcing advisory, managed governance and risk, network carrier, and technology strategy and operations. In the latest quarter announced on May 9, the company reported an EPS of $0.01, missing by $0.05. Revenue was $64.27 million, missing expectations by $1.80 million. On May 13, Barrington trimmed the price target for Information Services Group, Inc. (NASDAQ:III) from $5 to $3.50 but maintained an “Outperform” rating. The stock’s year-to-date price return is -25.27%, compared to the S&P 500’s 13.84% gain.
During Q1, 2024 the count of hedge funds holding positions in Information Services Group, Inc. (NASDAQ:III) fell to 7 from 10 in the prior quarter, as reported by Insider Monkey’s database encompassing 920 hedge funds. These holdings collectively amount to around $0.02 billion. Gregg J. Powers’s Private Capital Management emerged as the leading shareholder among these hedge funds during this timeframe.
13. ASGN Incorporated (NYSE:ASGN)
Number of Hedge Fund Holders: 10
ASGN Incorporated (NYSE:ASGN) provides IT services and solutions in technology, digital, and creative fields for both commercial and government sectors in the US, Canada, and Europe, operating through two segments: Commercial and Federal Government. In the latest quarter, announced on July 24, ASGN Incorporated (NYSE:ASGN) reported an EPS of $1.36, beating expectations by $0.03. However, revenue was $1.03 billion, missing forecasts by $12.14 million. The company’s focus on high-end IT consulting, particularly in AI, is paying off with several contract wins. Net income was $47.2 million, bolstered by improved gross margins and share repurchases totaling $108 million, with $667 million remaining for future buybacks. Free cash flow was strong at $85.4 million, with $132.2 million in cash on hand. Canaccord Genuity Group reissued a “buy” rating with a $115.00 price target for ASGN Incorporated (NYSE:ASGN) on July 25.
In the first quarter of 2024, there were 10 hedge funds holding positions in ASGN Incorporated (NYSE:ASGN), as compared to 15 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $0.08 billion. Cliff Asness’s AQR Capital Management held the largest stake among these hedge funds during this period.
Baron Small Cap Fund made the following comment about ASGN Incorporated (NYSE:ASGN) in its Q4 2022 investor letter:
“ASGN Incorporated (NYSE:ASGN) is large staffing company providing IT workers and professional services to Fortune 500 companies. Shares fell this quarter over concerns about demand for future hirings in a slowing economy. The company had a strong third quarter, growing revenues 11.6% and EBITDA 9%. Its consulting segment, a relatively new venture, grew revenues 43% in the quarter and now is about a quarter of overall revenues. The government services segment was flat, but we expect growth going forward as bookings have been strong. The company announced a nice acquisition of a consulting business that will enhance its cyber capabilities. Its customers’ technology initiatives are mission critical, so we expect business to be resilient even if the economy slows. We believe the stock is really cheap for this high-quality, fast-growing business, trading at under 12 times our estimate for 2023 earnings.”
12. Forrester Research, Inc. (NASDAQ:FORR)
Number of Hedge Fund Holders: 16
Forrester Research, Inc. (NASDAQ:FORR) is an independent research and advisory company headquartered in Cambridge, Massachusetts. It operates in three segments: Research, Consulting, and Events. The company provides business and technology leaders with research services, consulting projects, and hosts events to foster growth through customer obsession. In a recent development, on July 22, Forrester Research, Inc. (NASDAQ:FORR) added Bob Bennett to its board, expanding it to nine members. Bennett, an experienced tech entrepreneur, joins following Cory Munchbach’s recent appointment and ahead of Gretchen Teichgraeber’s retirement in May. Despite economic challenges, Forrester Research, Inc. (NASDAQ:FORR) is confident in its strategy, forecasting revenue between $430 million and $450 million for 2024 and continuing investment in generative AI with the launch of its tool, Izola.
The number of hedge funds in Insider Monkey’s database owning stakes in Forrester Research, Inc. (NASDAQ:FORR) grew to 16 in Q1 2024, from 12 in the preceding quarter. The consolidated value of these stakes is nearly $0.09 billion. Among these hedge funds, Chuck Royce’s Royce & Associates was the company’s leading stakeholder in Q1.
Meridian Small Cap Growth Fund stated the following regarding Forrester Research, Inc. (NASDAQ:FORR) in its first quarter 2024 investor letter:
“Forrester Research, Inc. (NASDAQ:FORR) is an independent market research and consulting firm widely known for its publications and insights on topics such as cloud migration, AI, cybersecurity, and customer experience. We like the business for its potential to generate high margins through a sticky, subscription-based revenue model. The company acquired SiriusDecisions in 2019, expanding its expertise beyond its customer base. Over the last few years, however, the company implemented several changes that negatively impacted results. First, they migrated the product away from their legacy strengths and pushed customers to switch to a combined offering. These changes had the unintended consequence of forcing customers to reconsider their overall research spend and, in some cases, consolidate and reduce spending, causing a negative impact on revenue. Second, the company underwent a salesforce transition to target decision-makers higher up in the organization with its expanded offering. The stock declined during the quarter as new sales and revenue weakened through the transition. We believe that the market has been short[1]sighted and overly punitive. The company currently trades at an attractive valuation and, with an upgraded salesforce aligned with broadened capabilities, is well-positioned to improve results into 2025. We maintained our position in the company during the quarter.”
11. The Hackett Group, Inc. (NASDAQ:HCKT)
Number of Hedge Fund Holders: 17
The Hackett Group, Inc. (NASDAQ:HCKT), headquartered in Miami, Florida, offers executive advisory, strategic consulting, and digital transformation services globally. It operates through three segments: Global Strategy & Business Transformation, Oracle Solutions, and SAP Solutions. The company provides best practice research, benchmarking services, and business transformation practices, along with Oracle and SAP solutions for application deployment and support. On May 8, Barrington reduced its price target for The Hackett Group, Inc. (NASDAQ:HCKT) from $28 to $26, but maintained an Outperform rating. The analyst cited concerns that longer sales cycles will negatively impact the company’s revenue outlook in the second half of 2024, particularly in its Global Strategy and Business Transformation segment. As a result, Barrington lowered its estimates for 2024 and 2025.
In the first quarter of 2024, there were 17 hedge funds holding positions in The Hackett Group, Inc. (NASDAQ:HCKT), as compared to 14 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $0.13 billion. Douglas T. Granat’s Trigran Investments held the largest stake among these hedge funds during this period.
Ariel Small-Cap Value Strategy made the following comment about The Hackett Group, Inc. (NASDAQ:HCKT) in its Q4 2022 investor letter:
“We purchased The Hackett Group, Inc. (NASDAQ:HCKT), a niche IT consulting firm that provides benchmarking studies, IT advisory and software implementation services to help clients optimize business processes and resource efficiency. Over the last 30 years, HCKT has accumulated nearly 20,000 studies with major organizations, including 93% of the Dow Jones Industrials and 91% of the Fortune 100. We believe this deep repository of best practices data serves as a point of differentiation, resulting in expertise and cross-selling advantages relative to a fragmented and homogeneous peer set. Several years of declining on premise software demand, compounded by the disruption of the pandemic, created an opportunity to own an underappreciated beneficiary of both a secular shift toward digital transformation, as well as increasing demand for subscription benchmarking data services.”
