In this article, we will talk about the 8 most profitable new stocks to invest in.
IPO Market to Bounce Back in 2025
Convergence of significant macroeconomic events anywhere around the globe usually ends up triggering market volatility. Last week was marked by critical factors, including a potential port strike and major jobs reports, and created a perfect storm for short-term fluctuations. Of course, that means that these developments influence investor sentiment and market dynamics significantly.
But even before the heightened uncertainty from last week, geopolitical tensions and recent political debates were already and are still influencing market reactions. Bond prices have fluctuated due to uncertainties. With elections approaching, further market fluctuations are expected. Investors should reassess their portfolios, especially those heavily concentrated in equities. As October began, Tiffany McGhee, CEO and CIO at Pivotal Advisors highlighted the macro events that may spark market volatility at this time. With the potential port strike and major job reports scheduled for release, Tiffany’s opinion was covered in our article on the 7 Cheap New Stocks To Invest In Now. Here’s an excerpt from it:
“Tiffany pointed out that the ongoing conflict in the Middle East and the recent vice presidential debate are critical factors influencing market reactions. She observed that bond prices experienced a sell-off earlier in the week but stabilized as investors sought safety amid rising geopolitical tensions. As the election approaches, she anticipates further short-term volatility due to these developments.
In terms of strategy, Tiffany encouraged investors to reassess their portfolios, particularly those with a heavy concentration in equities. With the S&P 500 up 20% year-to-date and sectors like technology and consumer discretionary having performed well, she suggested that now is an opportune time to take some profits off the table and consider reallocating those funds into different areas of the market.”
In short, Tiffany emphasizes strategic asset allocation and proactive management in capital markets to make informed investment decisions. Later on October 4, Ashley MacNeill, Vista Equity’s head of equity capital markets, joined CNBC’s ‘Squawk on the Street’ to discuss her opinion on the IPO market’s potential to bounce back in 2025, given all the market volatility for the rest of 2024.
Ashley McNeill explained that her responsibilities at Vista include not only taking companies private but also re-IPOing them and engaging with public investors to understand their preferences and concerns. McNeill acknowledged that the market has yet to see a significant number of IPOs. For the IPO market to regain momentum, she emphasized 3 critical factors: a lack of market volatility, stable market conditions, and a risk-on appetite from investors. Most importantly, she highlighted the need for corporations to provide consistency and clarity regarding their business plans and execution strategies. This clarity emerged in 2023, leading her to believe that 2025 could be a promising year for IPOs.
McNeill also discussed the current status of private markets, noting that many companies are choosing to remain private longer due to the availability of capital. She pointed out that approximately 45% of US venture capital-backed firms are poised to go public, which translates to over 350 firms potentially looking to tap into the market. This backlog suggests that if the market returns to normalcy, it could take a decade to clear.
When asked about Vista’s portfolio companies, McNeill noted their resilience in the current high-cost capital environment. The implementation of GenAI has been transformative for many of these companies, positioning software firms to leverage this technology effectively. She characterized the sentiment around software versus AI as one where software is expected to benefit from AI advancements. However, she cautioned that it takes time to realize the measurable impacts of GenAI. She thinks investors need to be patient and look for tangible improvements in business performance attributable to GenAI technology. Growth areas, according to McNeill, include enhancing margins and efficiency and forming partnerships that integrate AI into existing operations. Many software companies are beginning to collaborate more closely to harness this technology effectively.
As we understand the current market conditions, given the macroeconomic events and geopolitical tensions influencing investor sentiment, we are here with a list of the 8 most profitable new stocks to invest in.
Methodology
We used the Finviz to compile an initial list of the top stocks that went public in the last 2 years. From that list, we narrowed our choices to 20 companies with positive TTM net income. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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).
8 Most Profitable New Stocks To Invest In
8. UL Solutions Inc. (NYSE:ULS)
TTM Net Income: $268 million
Number of Hedge Fund Holders: 30
UL Solutions Inc. (NYSE:ULS) is a global independent safety science company with more than a century of expertise in innovating safety solutions. It helps companies ensure that their products meet safety, quality, and sustainability standards. It’s known for its expertise in areas such as electrical safety, fire safety, and product performance while offering consulting services to help companies improve their overall safety and compliance programs.
The company serves over 80,000 customers globally, operating in 35 industries. In the second quarter of 2024, it made $730 million in revenue, while earning $0.44 per share. Revenue grew 6% year-over-year.
Industrial revenue increased by 7.5%. These gains were driven by value pricing initiatives, continued demand related to electrical products, renewable energy, and component certification testing, as well as increased laboratory capacity. Consumer revenue was up 4.2%, driven by electromagnetic compatibility testing and improved retail demand. Software and Advisory revenue was up 6.8% year-over-year, due to increased software and sustainability advisory revenue.
On September 24, UL Solutions Inc. (NYSE:ULS) and Eyesafe teamed up to create a program that verifies the effectiveness of blue light and privacy screen protectors. This program helps consumers choose products based on science-backed claims and provides a standardized measurement system (RPF) for easy comparison.
The company’s strong reputation for rigorous standards and comprehensive services positions it as a leader in the industry. As safety regulations tighten across sectors like consumer electronics, automotive, and industrial, the demand for UL Solutions Inc.’s (NYSE:ULS) certification and testing services is likely to increase significantly. Its pricing power, recent investments, and focus on emerging trends like energy transition and sustainability make it a compelling investment choice.
Conestoga Capital Advisors stated the following regarding UL Solutions Inc. (NYSE:ULS) in its Q2 2024 investor letter:
“UL Solutions Inc. (NYSE:ULS): Based in Northbrook, IL, UL Solutions is a leading global business services company focused on independent testing, inspection and certification. For Conestoga, ULS is one of the very few initial public offerings we have participated in but the strong brand recognition, strong business model and operating history made it a fit for the Conestoga small cap portfolio. The company has historically grown revenues between 6%-8%, and we believe ULS has attractive margins and free cash flow.”
7. CAVA Group Inc. (NYSE:CAVA)
TTM Net Income: $42.6 million
Number of Hedge Fund Holders: 33
CAVA Group Inc. (NYSE:CAVA) is a fast-casual restaurant chain specializing in Mediterranean cuisine offering a variety of dishes, including bowls, salads, and pita sandwiches, made with fresh, high-quality ingredients. It’s known for its healthy and flavorful menu options, as well as its vibrant and inviting atmosphere. It has been expanding rapidly in recent years and is considered a rising star in the fast-casual restaurant industry.
The company’s same-store sales were up 14.40% year-over-year in Q2 2024. Despite industry challenges, it maintained strong profitability, with a 27% profit margin in this quarter. Overall revenue surged 35.05% to $233.50 million, driven by a 9.5% increase in customer traffic.
It greatly expanded its US presence, opening 18 new restaurants in Q2. With plans for 54-57 more, the company’s growth is impressive. The recent launch of grilled steak has driven sales, and its expansion into Chicago has been successful. CAVA Group Inc. (NYSE:CAVA) offers high-quality, affordable Mediterranean cuisine.
On October 3, CAVA Group Inc. (NYSE:CAVA) introduced a new limited-time flavor of pita chips: Garlic Ranch. This new flavor joins the original pita chips and was to be available nationwide starting October 7. The company is also launching a new loyalty program and a new chef-curated steak bowl.
Analysts predict that this company will achieve an impressive 18.6% increase in earnings next year. This forecast reflects its strong market position and appeal to health-conscious consumers. The strategic focus on customer loyalty, operational efficiency, and team development positions it for continued growth and success.
Next Century Growth Small Cap Strategy stated the following regarding CAVA Group, Inc. (NYSE:CAVA) in its first quarter 2024 investor letter:
“CAVA Group, Inc. (NYSE:CAVA) is a fast casual restaurant chain serving authentic Mediterranean cuisine, featuring customizable bowls and pitas. CAVA currently owns and operates >300 stores, and the company targets a 15% plus new store growth rate. The intermediate goal is to have 1,000 stores by 2032 with plenty of opportunity to grow beyond that level. The company already delivers solid restaurant level margins >20% and they believe 3-5% same store sales growth is achievable over time. As the business matures, they should be able to leverage G&A expense which should lead to strong earnings growth over many years.”