In this article, we will discuss the best stocks to buy for medium term.
On September 18, the Federal Reserve reduced its policy rate by 50 basis points, lowering it to 4.75%–5.00% from 5.25%–5.50%. Following the announcement, stocks surged, with the broader market hitting a new intra-day all-time high and closing at its 39th record of 2024, marking the first since mid-July. The index has risen over 20% since the beginning of the year. The interest rate reduction has created new opportunities for investors, signaling a shift towards a more supportive monetary policy intended to boost economic activity. Lower interest rates generally result in reduced borrowing costs, encouraging both business expansion and consumer spending. This fosters a favorable environment, making medium-term investments, typically ranging from 3 to 5 years, more appealing.
To effectively execute this strategy, investors should evaluate several key factors in the companies they select. These include the stock’s performance over the past year, profitability, sales figures, debt levels, price-to-earnings ratio, and dividends. Additionally, assessing revenue growth and payout ratios can provide further insights.
Dividend stocks are often seen as good choices for medium-term investments, providing investors with passive income while they hold the stock. In addition, dividend-paying companies can be a smart investment during times of market volatility. A report by Hartford Funds showed that from 1940 to 2023, dividend income contributed an average of 34% to the total return of the broader market. The report also highlighted that in decades with total returns below 10%—such as the 1940s, 1960s, and 1970s—dividends made a significant impact on overall returns.
Dividend growth is the most favored approach within dividend investing, as it boosts investors’ income over time. Kirsten Cabacungan, an investment strategist in the Chief Investment Office for Merrill and Bank of America Private Bank, emphasized the significance of dividend growth strategies in investment planning. Here are some comments from the analyst:
“Generally, it’s larger, more mature companies that return capital to their shareholders in the form of dividends. Companies that have consistently increased their dividends tend to be more stable, higher quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently.”
A company’s dividend payout ratio is a crucial measure of its ability to maintain dividend flexibility. Firms that allocate most or all of their earnings to dividends may struggle under competitive pressure, as their cash flow might not be enough to sustain operations. A report by Nuveen highlighted that, historically, stocks with the highest payout ratios haven’t delivered the best long-term results. Instead, companies with moderate to moderately high payout ratios have tended to outperform over the past two decades among dividend-paying stocks. With this, we will now discuss some of the best stocks to buy for medium term.
Photo by Artem Beliaikin on Unsplash
Our Methodology:
For this list, we used a Finviz screener to to find dividend stocks with an average revenue growth of over 10% over the past five years, highlighting companies with consistent sales growth. From that selection, stocks with a five-year average payout ratio of under 40% were chosen, indicating a strong cash position. The final list includes 7 companies with the highest number of hedge fund investors, based on Insider Monkey’s Q2 2024 database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
7. Accenture plc (NYSE:ACN)
Number of Hedge Fund Holders: 68
5-Year Average Annual Revenue Growth Rate: 10.11%
5-Year Average Payout Ratio: 38.1%
Accenture plc (NYSE:ACN) is a multinational professional services company that offers consulting, technology, and outsourcing services to its consumers. The stock is down by over 3% since the start of 2024 because the consulting industry is currently facing challenges, mainly due to a reduction in spending by numerous businesses. Due to the ongoing situation, It’s not surprising that the company reduced its revenue forecast earlier this year. The company now anticipates a maximum revenue growth of 2.5% for the fiscal year, a significant drop from the previous projection of 5%.
That said, analysts are not completely bearish on Accenture plc (NYSE:ACN), believing that several factors could still play in the company’s favor. Aoris Investment Management also highlighted this in its Q2 2024 investor letter. Here is what the firm has to say:
“The largest detractors for the quarter were Accenture plc (NYSE:ACN) and CDW Corp, which both fell by around 14%. Accenture and CDW are currently experiencing flattish years in terms of revenue and earnings growth. This follows a period of post-pandemic elevated demand. We believe both companies continue to gain market share.
Accenture is the world’s largest IT outsourcing and consulting company. While earnings in its quarter ended May was essentially flat, we were very encouraged by underlying demand. This demand strength is reflected in a 22% year-on-year increase in client bookings for the quarter. Further, the number of $100m+ contracts signed in the nine months to May was 92, up from 85 in the same period a year earlier. All this bodes well for Accenture’s revenue and earnings in the next few years.”
In fiscal Q3 2024, Accenture plc (NYSE:ACN) reported revenue of $16.4 billion, which fell slightly by 0.6% from the same period last year. The company reported impressive new bookings exceeding $21 billion, reflecting a 22% increase compared to the previous year. It further advanced its strategy of becoming the preferred reinvention partner, securing 23 additional clients with quarterly bookings of over $100 million, bringing the total to 92 for the year so far.
Accenture plc (NYSE:ACN)’s cash position was also strong. The company’s operating cash flow and free cash flow for the quarter came in at $3.14 billion and $3.02 billion, respectively. It also returned $811 million to shareholders through dividends, which makes it one of the best stocks to buy. The company has been growing its dividends consistently since 2005. It currently pays a quarterly dividend of $1.29 per share and has a dividend yield of 1.54%, as of September 19.
Accenture plc (NYSE:ACN) was a popular stock among hedge funds at the end of Q2 2024 with hedge fund positions growing to 68, from 57 in the previous quarter, according to Insider Monkey’s database. These stakes are collectively valued at nearly $3.7 billion. With over 2.7 million shares, Generation Investment Management was the company’s leading stakeholder in Q2.
6. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
5-Year Average Annual Revenue Growth Rate: 11.34%
5-Year Average Payout Ratio: 27.6%
Costco Wholesale Corporation (NASDAQ:COST) is an American retail company that offers a wide range of products for its consumers. The company has always been profitable, with the stock returning nearly 215% in the past five years, outperforming the broader market, which returned nearly 91% during this period. The company has continually adjusted to evolving trends, which has drawn the attention of investors. It has successfully capitalized on the increasing move towards online shopping. The retailer anticipates that its vast range of competitively priced products will continue to attract customers, whether they shop online or in its physical stores. It is among the best stocks to buy for medium term.
Costco Wholesale Corporation (NASDAQ:COST) recently reported a 7.1% rise in monthly net sales, reaching $19.83 billion in August, up from $18.51 billion during the same period last year. This strong performance aligns with its ongoing solid fundamentals. Operating in a sector that is resilient to economic downturns, the company continues to grow steadily. In 2024, it plans to open 28 new stores worldwide, mostly in the US. As it expands its presence, both membership and revenue are expected to increase, contributing to sustained long-term sales and earnings growth.
Costco Wholesale Corporation (NASDAQ:COST) is also a strong dividend payer with 20 consecutive years of dividend growth under its belt. Its future dividend payouts are safe because of its low 5-year average payout ratio of 28%. Its quarterly dividend sits at $1.16 per share and has a dividend yield of 0.52%, as of September 19.
The number of hedge funds tracked by Insider Monkey owning stakes in Costco Wholesale Corporation (NASDAQ:COST) jumped to 71 in Q2 2024, from 65 in the previous quarter. The total value of these stakes is nearly $6 billion.
5. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 90
5-Year Average Annual Revenue Growth Rate: 14.83%
5-Year Average Payout Ratio: 31.7%
S&P Global Inc. (NYSE:SPGI) is a New York-based capital market company that specializes in financial information and analytics. The company’s performance remained strong in the second quarter of 2024, reporting $3.55 billion in revenues, up 14.5% from the same period last year. The company has raised its FY24 guidance across several key areas, particularly impressing investors with its cash flow outlook. It now anticipates generating $4.4 billion in operating cash flow, up from the previous estimate of $4.2 billion. In addition, it projects adjusted free cash flow to reach $4.7 billion, an increase from the earlier forecast of $4.5 billion. This revision is due to higher expected net income. The company also plans to maintain its commitment to shareholders, aiming to return about 85% of its adjusted free cash flow in 2024 through dividends and share buybacks.
It is clear why S&P Global Inc. (NYSE:SPGI) is confident in its cash flow outlook, as the company has already demonstrated strong cash generation in the first half of the year. Its operating cash flow for the period came in at $2.5 billion, which grew significantly from $1.36 billion in the prior year period. The company’s dividend history is also very strong as it has raised its payouts for 51 years in a row. With a 5-year average payout ratio of 31.7%, SPGI is one of the best stocks to buy for medium term. The company pays a quarterly dividend of $0.91 per share and has a dividend yield of 0.69%, as of September 19.
At the end of Q2 2024, 90 hedge funds tracked by Insider Monkey held stakes in S&P Global Inc. (NYSE:SPGI), compared with 97 in the previous quarter. These stakes are worth more than $10 billion in total. Among these hedge funds, TCI Fund Management was the company’s leading stakeholder in Q2.
4. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 108
5-Year Average Annual Revenue Growth Rate: 11.23%
5-Year Average Payout Ratio: 7.47%
Thermo Fisher Scientific Inc. (NYSE:TMO) ranks fourth on our list of the best stocks to buy for medium term. The American biotech and life sciences company offers a wide range of related products and services to its consumers. The stock has risen by 14% since the beginning of 2024, consistently benefiting from its acquisition strategy. Recently, it finalized its acquisition of Olink, a provider of advanced proteomic solutions. This acquisition enhances the company’s capabilities and strengthens its leadership in protein research. It allows customers to significantly speed up discoveries and scientific breakthroughs while advancing the goals of precision medicine.
In the second quarter of 2024, Thermo Fisher Scientific Inc. (NYSE:TMO) reported revenue of $10.5 billion, which showed a slight decline of 1.3% from the same period last year. However, the revenue beat analysts’ estimates by $23.4 million. The company’s steadfast focus on research has established it as a leading entity in the eyes of analysts. Generation Investment Management also highlighted this in its Q4 2023 investor letter:
“In each quarterly letter we share examples from the portfolio that bring our investment process to life. This quarter we focus on Thermo Fisher Scientific Inc. (NYSE:TMO), a provider of healthcare products.
In recent years advances have accelerated. The large-scale use of mRNA vaccines during the COVID pandemic – the first major application of these vaccines – is just one example. Similar advances in drug development have allowed medicines to be developed for hard-to-treat diseases like Alzheimer’s, as well as to treat and perhaps cure diseases that previously eluded treatment.
To push innovation forward, researchers need tools to ask the right questions, run experiments to test hypotheses and in turn draw insights. These tools encompass high-specification instruments, high-purity reagents, powerful software and a variety of specialised services. An ecosystem has developed of companies that specialise in providing these tools. We often think of them as providing the ‘picks-and-shovels’ to researchers who are mining for the gold once obscured by nature…” (Click here to read the full text)
Thermo Fisher Scientific Inc. (NYSE:TMO)’s balance sheet is strong and has solid cash generation. In Q2 2024, the company reported an operating cash flow of $1.96 billion, up from $1.54 billion in the prior year period. Its free cash flow also grew to $1.7 billion, from $1.26 billion in the same period last year. On July 11, the company declared a quarterly dividend of $0.39 per share, which was in line with its previous dividend. The stock’s dividend yield on September 19 came in at 0.25%.
Thermo Fisher Scientific Inc. (NYSE:TMO) was a part of 108 hedge fund portfolios at the end of Q2 2024, compared with 110 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a total value of over $8.56 billion. Ken Fisher’s Fisher Asset Management was the company’s leading stakeholder in Q2.
3. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 114
5-Year Average Annual Revenue Growth Rate: 10.32%
5-Year Average Payout Ratio: 34.5%
UnitedHealth Group Incorporated (NYSE:UNH) is a Minnesota-based health insurance company that offers related services to its consumers. Over the past ten years, the company has demonstrated itself as an exceptional investment, yielding nearly 570% returns and consistently exceeding the broader market, providing investors with significant gains. This track record underscores that investing in a top healthcare firm can be a dependable strategy for achieving strong and consistent returns, particularly as spending in the sector is projected to keep rising in the future.
UnitedHealth Group Incorporated (NYSE:UNH) has successfully attracted investors through its expansion strategies. In recent years, the company has expanded into related sectors, including home healthcare and analytics, to further diversify its operations. These initiatives are designed to provide greater value to both its partners and patients. Andvari Associates highlighted the strengths of the company in its Q2 2024 investor letter. Here is what the firm wrote:
“UnitedHealth Group Incorporated (NYSE:UNH) is one of the largest providers and distributors of services in the $5 trillion U.S. healthcare market. The company provides services to employers, individuals, and those eligible for Medicare and Medicaid. United’s Optum segment provides pharmacy benefit services and a slate of other insights and services to the major players in the healthcare space: physicians, hospitals, government agencies, and life science companies.
This is a company that provides essential services and has a strong wind at its back. Over two million people are enrolling in Medicare and Medicare Advantage every year. With the increase of healthcare spending every year, the value of the services and insights provided by Optum will only increase. United is a solid business with a high teens returns on its capital. After reinvesting in its businesses, United will likely return $16 billion in 2024 in the form of dividends and share repurchases off a revenue base of ~$380 billion.”
These initiatives have greatly contributed to the growth of UnitedHealth Group Incorporated (NYSE:UNH) over the years. Since 2011, the company’s revenue has more than tripled, increasing from just over $101 billion to nearly $372 billion by 2023. In the second quarter of 2024, UnitedHealth reported revenue of $98.8 billion, marking a 6.41% increase compared to the same period last year. In addition, its operating cash flow reached $6.7 billion, which is 1.5 times its net income.
UnitedHealth Group Incorporated (NYSE:UNH), one of the best stocks to buy, has been growing its dividends for 15 consecutive years. The company currently pays a quarterly dividend of $2.10 per share and has a dividend yield of 1.46%, as of September 19. It has a low 5-year average payout ratio of 34.5%.
According to Insider Monkey’s database of Q2 2024, 114 hedge funds, growing from 104 a quarter earlier, owned stakes in UnitedHealth Group Incorporated (NYSE:UNH). These stakes have a consolidated value of over $12.5 billion. Orbis Investment Management was one of the company’s leading stakeholders in Q2.
2. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 163
5-Year Average Annual Revenue Growth Rate: 10.1%
5-Year Average Payout Ratio: 22.4%
Visa Inc. (NYSE:V) is an American credit card service corporation that specializes in electronic funds transfers throughout the world. The stock has risen by almost 10% since the beginning of 2024, despite facing challenges such as inflation, reduced consumer spending, and pressure from merchants to decrease its swipe fees. One of the main reasons for its success is its business model. Visa does not issue its own credit cards; instead, it collaborates with banks and other financial institutions to provide Visa-branded cards. The company processes payments through its network, charging a swipe fee, which it splits with card issuers while retaining the rest as revenue.
This business approach has worked well for Visa Inc. (NYSE:V), as the company has delivered a 5-year average annual revenue growth of over 10%. Over the years, the company has created new segments that are growing faster than its traditional business. While these segments are still smaller in scale, they are helping to alleviate some of the pressures facing the overall business. In fiscal Q3 2024, the company reported revenue of nearly $9 billion, which showed a 10% increase from the same period last year. Its essential business metrics showed stability, with a 7% increase in payment volume, a 14% rise in cross-border transactions, and a 10% growth in processed transactions. Additionally, during the quarter, the company enhanced its global partnerships and launched several innovations designed to influence the future of commerce.
In the most recent quarter, Visa Inc. (NYSE:V) remained committed to its shareholder commitment, returning $5.8 billion to investors through dividends and share repurchases. In addition to this, the company has raised its payouts for 15 years in a row. The company’s quarterly dividend payment comes in at $0.52 per share for a dividend yield of 0.73%, as of September 19.
As of the close of Q2 2024, 163 hedge funds held stakes in Visa Inc. (NYSE:V), compared with 166 in the previous quarter, as per Insider Monkey’s database. These stakes are worth nearly $25 billion in total. With over 16.7 million shares, TCI Fund Management was the company’s leading stakeholder in Q2.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
5-Year Average Annual Revenue Growth Rate: 14.26%
5-Year Average Payout Ratio: 28.30%
Microsoft Corporation (NASDAQ:MSFT) tops our list of the best stocks to buy for medium term. The Washington-based multinational technology company is best known for its wide range of innovative software products. The stock has surged by over 18% in 2024 so far because of its strong business momentum. In fiscal Q4 2024, the company generated $64.7 billion in revenues, up 15% from the same period last year. Its net income also showed a 10% YoY growth at $22 billion. The company’s strong performance this fiscal year highlights its innovation and the continued confidence of its customers. As a platform-focused organization, it is committed to meeting critical customer needs through its extensive platforms, while positioning itself as a leader in the AI era.
The company’s AI segment was also appreciated by Fred Alger Management in its Q2 2024 investor letter. Here is what the firm said:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
Microsoft Corporation (NASDAQ:MSFT) declared a 10.7% hike in its quarterly dividend on September 17 to $0.83 per share. This was the company’s 19th consecutive year of dividend growth, which makes it one of the best stocks to buy. As of September 19, the stock supports a dividend yield of 0.68%.
Microsoft Corporation (NASDAQ:MSFT) was one of the most popular stocks among hedge funds tracked by Insider Monkey at the end of Q2 2024. Of the 912 elite money makers in our database, 279 hedge funds owned stakes in the company, worth over $89 billion in total. With nearly 35 million shares, Bill & Melinda Gates Foundation Trust was the company’s leading stakeholder in Q2.
Overall, Microsoft Corporation (NASDAQ:MSFT) ranks first on our list. While we acknowledge the potential for MSFT to grow, 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
