In this article, we discuss 5 stocks to buy before interest rate hikes. If you want our detailed analysis of the stock market, go directly to 10 Stocks to Buy Before Interest Rate Hikes.
5. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 58
Headquartered in Atlanta, Georgia, The Home Depot, Inc. (NYSE:HD) is the leading home improvement retailer in the United States, supplying home appliances, tools, hardware, lumber, building materials, paint, plumbing, flooring, garden supplies, and plants. The Home Depot, Inc. (NYSE:HD) beat market consensus estimates for earnings and revenue in the third quarter of 2021.
Truist analyst Scot Ciccarelli on January 12 upgraded The Home Depot, Inc. (NYSE:HD) to Buy from Hold with a price target of $448, up from $420. The analyst is positive on key industry drivers including supply/demand imbalances in the housing market, pandemic-driven behavioral changes, and aging housing infrastructure driving significant incremental home improvement growth. He further stated that The Home Depot, Inc. (NYSE:HD) will continue to gain market share from its size and scale benefits, as well as enhanced supply chain capabilities.
On November 18, The Home Depot, Inc. (NYSE:HD) declared a $1.65 per share quarterly dividend, in line with previous. The dividend was distributed on December 16, to shareholders of record on December 2.
A total of 58 hedge funds in the third quarter database of Insider Monkey were long The Home Depot, Inc. (NYSE:HD), with stakes equaling $4.38 billion. Ric Dillon’s Diamond Hill Capital is one of the prominent stakeholders of the company, owning a $355.1 million position.
Here is what Ensemble Capital Management has to say about The Home Depot, Inc. (NYSE:HD) in its Q4 2021 investor letter:
“On the more positive side, we saw notable performance contribution from Home Depot. In the midst of a housing shortage and rising home prices, Americans turned to home improvement projects with Home Depot’s startlingly fast growth in 2020 continuing throughout 2021. With each quarter that passed showing a continuation of strong growth rather than the slowdown that many investors expected, the stock led the S&P 500 for most of the year and turned in a heady 27% rally in the fourth quarter to close out the year. Notably, while Do It Yourself homeowners did indeed shop at Home Depot less than they did during record setting 2020, almost half of the company’s revenue comes from Pro contractors where strong growth continues.”
4. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 60
Tesla, Inc. (NASDAQ:TSLA) is an American electric vehicle manufacturer, specializing in electric cars, storage batteries, clean energy, and solar panels. Billionaire Elon Musk’s Tesla, Inc. (NASDAQ:TSLA) also offers services including vehicle servicing, charging, insurance, software updates and upgrades, and premium connectivity.
Tesla, Inc. (NASDAQ:TSLA) published its Q4 financial results on January 26, posting earnings per share of $2.54, exceeding estimates by $0.16. Revenue jumped approximately 65% from the prior-year quarter, reaching $17.72 billion, surpassing estimates by $1.08 billion.
Jefferies analyst Philippe Houchois on January 27 observed that Tesla, Inc. (NASDAQ:TSLA)’s Q4 not “only met a fast rising consensus” but also noted that its free cash flow “beat handsomely” and argues that the company’s operating metrics “remain exceptional and a threat to legacy OEMs.” There will however be a lack of new products in 2022, the analyst told investors in a research note. He sees sufficient growth in the Model 3 and Y in 2022 to support estimates and Tesla, Inc. (NASDAQ:TSLA) reaching 2% global share. He maintains a Buy rating on Tesla, Inc. (NASDAQ:TSLA) shares with a $1,400 price target.
Cathie Wood’s ARK Investment Management is one of the largest Tesla, Inc. (NASDAQ:TSLA) stakeholders as of Q3 2021, holding approximately 4 million shares, amounting to over $3 billion. Overall, 60 hedge funds were bullish on Tesla, Inc. (NASDAQ:TSLA) in the third quarter, with stakes totaling $10.6 billion.
Here is what Alger Spectra Fund has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q4 2021 investor letter:
“Tesla is an electric vehicle (EV) manufacturer with a significant technology lead in its large and rapidly growing addressable market. Tesla is a consequential transportation company because it is setting the pace for industry innovation over the foreseeable future. It has potential to maintain its lead as it ramps up auto production and battery capacity. We are optimistic about EV innovation, adoption and Tesla’s growth prospects. The shares contributed to portfolio performance as Tesla successfully increased production of new model S and X units driving a richer revenue mix as the prices of these vehicles are higher and the cost to produce lower than earlier versions. Earnings estimates climbed for Tesla as pricing for vehicles in the backlog has increased. Further, as Tesla’s newer, more efficient factories increase production, unit costs may potentially decline relative.”
3. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 60
Lowe’s Companies, Inc. (NYSE:LOW) is an American home improvement retailer, operating its retail outlets in the United States and Canada. Headquartered in North Carolina, supplying home appliances, builders hardware, building materials, plumbing accessories, and housewares. Lowe’s Companies, Inc. (NYSE:LOW) announced on December 15 a share buyback program of $13 billion.
On November 12, Lowe’s Companies, Inc. (NYSE:LOW) declared a $0.80 per share quarterly dividend, in line with previous. The dividend will be distributed on February 2, for shareholders of record on January 9.
Baird analyst Peter Benedict kept an Outperform rating and $285 price target on Lowe’s Companies, Inc. (NYSE:LOW) on January 27. The management “struck a positive tone on current demand”, and although risks around rates and labor productivity bear watching, Lowe’s Companies, Inc. (NYSE:LOW)’s FY22 operating plan offers “more upside than downside”, the analyst tells investors in a research note.
In Q3 2021, 60 hedge funds were long Lowe’s Companies, Inc. (NYSE:LOW), with stakes equaling roughly $5 billion. Bill Ackman’s Pershing Square is the largest Lowe’s Companies, Inc. (NYSE:LOW) stakeholder in the third quarter of 2021, with 10.2 million shares worth more than $2 billion.
Here is what Pershing Square Holdings has to say about Lowe’s Companies, Inc. (NYSE:LOW) in its Q2 2021 investor letter:
“Since the onset of the COVID-19 pandemic, Lowe’s has experienced a significant acceleration in demand driven by consumers nesting at home, higher home asset utilization and the reallocation of discretionary spend. In the three years since Marvin Ellison became CEO, the company has executed a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities. This transformation has allowed Lowe’s to meet consumers’ needs during this highly elevated period of demand, and positioned the company for continued success and accelerated earnings growth.
In the second quarter, Lowe’s reported U.S. same-store-sales growth of 2.2%. Growth was bolstered by strength from the critical Pro consumer, where Lowe’s reported growth of 21%, off setting moderating do-it-yourself (“DIY”) demand. While DIY demand has receded from peak-COVID-19 periods, Pro customer demand has accelerated as consumers engage Pro’s for larger renovation projects.
Notwithstanding the headline growth figure, which is impacted by comparisons to COVID-19-affected months from spring of 2020, demand remains extremely elevated relative to baseline 2019 levels. July same-store-sales, the most recent full month for which the company has provided disclosure, were up 31.5% on a two-year basis and management indicated August month-to-date results are substantially similar. More significantly, Lowe’s reported Pro growth of +49% on a two-year basis in Q2, evidence that Lowe’s focus on the Pro is bearing fruit. Share gains with the critical Pro customer will provide a tailwind to growth that should allow Lowe’s to outperform market-level growth going forward.
Even as the robust demand experienced during the height of COVID-19 stabilizes at a new base, the medium and longer-term macro environment remain very attractive for the home improvement sector and Lowe’s in particular. This favorable context for the sector is evidenced by consumers’ enhanced focus and appreciation of the importance of the home, higher home asset utilization, rising home prices, historically low mortgage rates, an aging housing stock, strong consumer balance sheets, and the general lack of new housing inventory.
Against this backdrop, Lowe’s is focused on taking market share and expanding margins. Pro penetration today is still only 25% of revenue as compared to Lowe’s medium-term target of 30% to 35%, providing a runway for continued above market growth. Management continues to execute against various operational initiatives (Lowe’s “Perpetual Productivity Improvement” program) designed to improve the customer experience while enhancing the company’s margins and long-term earnings power. The company’s long-term outlook implies significant opportunity for continued margin expansion and earnings appreciation as it executes its business transformation.
Lowe’s Companies, Inc. (NYSE:LOW) currently trades at approximately 17 times forward earnings. Home Depot, its closest competitor, trades at approximately 22 times forward earnings despite Lowe’s superior prospective earnings growth. We find this valuation disparity to be anomalous in light of Lowe’s strong execution and potential for further operational optimization.”
2. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 72
Bank of America Corporation (NYSE:BAC) is based in North Carolina, and it is a financial services company and investment bank that delivers services including asset management, commodities, credit cards, equities trading, insurance, investment management, mutual funds, private equity, and risk management.
On October 20, Bank of America Corporation (NYSE:BAC) declared a $0.21 per share quarterly dividend, in line with previous, which was paid on December 31.
In April, Bank of America Corporation (NYSE:BAC) announced plans to repurchase up to $25 billion in common stock over time. Through the end of the third quarter of 2021, approximately $14 billion in stock had been repurchased under that program.
Bank of America Corporation (NYSE:BAC) published its Q4 results on January 19, posting earnings per share of $0.82, exceeding estimates by $0.06. Revenue for the period jumped 9.14% year-over-year to $22.06 billion, but missed estimates by $131.21 million.
Argus analyst Stephen Biggar raised the price target on Bank of America Corporation (NYSE:BAC) on January 20 to $55 from $50 and kept a Buy rating on the shares after its Q4 earnings beat. Bank of America Corporation (NYSE:BAC)’s net interest margins should begin to improve in 2022 as interest rates start to rise, the analyst tells investors in a research note. He believes that at 14.5-times his expected 2022 EPS, the stock is “attractively valued”.
In Q3 2021, 72 hedge funds were bullish on Bank of America Corporation (NYSE:BAC), with stakes totaling $46.4 billion. Warren Buffett’s Berkshire Hathaway is the biggest Bank of America Corporation (NYSE:BAC) stakeholder as of the third quarter of 2021, holding more than 1 billion shares worth $42.8 billion.
Here is what Oakmark Funds has to say about Bank of America Corporation (NYSE:BAC) in its Q3 2021 investor letter:
“Earlier this year, one of our holdings, Bank of America, announced that it was raising its minimum hourly wage from $15 to $20 and would increase it to $25 by 2025. The company received great press for placing the well-being of its employees above profits. But was it really either/or? Bank of America’s chief human resources officer spoke to the bigger picture: “A core tenet of responsible growth is our commitment to being a great place to work…that includes providing strong pay and competitive benefits to help them and their families, so that we continue to attract and retain the best talent.” Bank of America understood that engaged, high-caliber employees are more productive, less prone to turnover and, therefore, less expensive in the long run. Increasing the pay for employees wasn’t elevating employees above shareholders; it was the right thing to do for employees and for shareholders.
If an increase to $20 was good, why stop there? Why not $50 per hour? Because the benefits the business receives at $50 don’t justify the expense. The bank would no longer be able to price its products competitively and would lose business. The employees would “win” in the short term, but eventually the lost business would lead to job cuts, meaning both employees and shareholders would lose. The negative effects of stakeholder overreach are no different than when CEOs overreach to inflate short-term profits. Both hurt shareholders and stakeholders.”
1. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 74
The Goldman Sachs Group, Inc. (NYSE:GS) is an investment banking company based in New York, offering securities underwriting, asset management, investment management, and prime brokerage, among an array of financial services to customers worldwide.
On January 18, The Goldman Sachs Group, Inc. (NYSE:GS) posted its Q4 earnings. The company reported an EPS of $10.81, missing estimates by $1.12. Revenue for the period came in at $12.64 billion, up 7.65% from the prior-year quarter, exceeding estimates by $508.18 million.
The Goldman Sachs Group, Inc. (NYSE:GS) on January 18 declared a $2.00 per share quarterly dividend, in line with previous. The dividend is payable on March 30, to shareholders of record on March 2.
Citi analyst Keith Horowitz lowered the price target on The Goldman Sachs Group, Inc. (NYSE:GS) to $455 from $480 and kept a Buy rating on the shares on January 20. After a series of large earnings beats, The Goldman Sachs Group, Inc. (NYSE:GS) missed Wall Street estimates in Q4 due to higher expenses, the analyst told investors in a research note. However, the quarter showed the company gaining share across its legacy businesses and signs of progress on new initiatives with strong flows. He sees “strong potential” for upward earnings revisions “plus an attractive valuation” for The Goldman Sachs Group, Inc. (NYSE:GS).
Among the hedge funds monitored by Insider Monkey, 74 funds were long The Goldman Sachs Group, Inc. (NYSE:GS), with stakes totaling $5.45 billion. Eagle Capital Management is the largest stakeholder of The Goldman Sachs Group, Inc. (NYSE:GS), with 3.6 million shares worth $1.38 billion.
Here is what Ariel Investments has to say about The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2021 investor letter:
“Goldman Sachs Group Inc. (GS) returned +16.45%. Goldman has posted a series of excellent quarterly results. Merger and equity offering activity has been robust with trading profits bolstered by strong capital market volumes. Goldman’s asset management business has also performed well. Regulators recently moved to allow most large investment banks to return capital to shareholders through dividends and share repurchases. Fundamentally, we think Goldman Sachs is attractively priced at approximately 11 times earnings and a very reasonable multiple of book value.”
You can also take a look at Top 10 Dividend Increases of 2021 and 10 Jim Cramer Stocks to Buy in January.
