We recently compiled a list of the 8 Best US Stocks For Foreign Investors Right Now. In this article, we are going to take a look at where Adobe Inc. (NASDAQ:ADBE) stands against the other US stocks.
Optimism Amid Market Strength
Despite previous recession predictions, the market has shown resilience and continued to rise, largely due to multiple expansions rather than just earnings growth. Current market valuations are trading at approximately 22 times earnings during an easing cycle, raising questions about future earnings growth. There seems to be a disconnect between expectations for significant easing and projected strong earnings growth.
Investors are encouraged to remain vigilant and consider the evolving economic landscape as they navigate potential market shifts. Earlier in October, Jason Trennert, Strategas Research Partners chairman and CEO, joined CNBC to discuss the latest market trends and the state of the economy, highlighting that the bar is high to get bearish now. We covered his opinion in our article about the 8 High Growth High Margin Stocks to Invest In Now in much more detail. Here’s an excerpt from that discussion:
“Despite the challenges of 2022 and early 2023, which made it difficult to envision a market recovery, he noted that the market has defied expectations and continued to rise. Trennert attributed a significant portion of this upward movement to multiple expansions rather than just earnings growth. He marked a pivotal moment in 2023 as the failure of Silicon Valley Bank, which led to increased liquidity in the market and a subsequent rally. He recalled that around eleven months ago, the S&P 500 briefly hit 4,100 when ten-year yields reached 5%, suggesting that market dynamics have shifted considerably since then.
….He expressed skepticism about future earnings growth, as expectations for a 14% increase in S&P earnings next year seem inconsistent with the anticipated six rate cuts from the Fed. He emphasized that if the market is expecting such significant easing while also projecting strong earnings growth, there may be a disconnect.
…Despite these concerns, Trennert acknowledged that it is challenging to adopt a bearish outlook given current market conditions. He noted that ten-year treasury yields above 4.5% typically lead to market indigestion, while yields below this threshold make it hard to remain pessimistic.”
On October 16, J.J. Kinahan, IG North America CEO, joined CNBC’s ‘Squawk Box’ to discuss the latest market trends, highlighting that he has never seen investors this afraid of a market that’s doing so well. J.J. Kinahan noted that the upcoming weeks would be particularly interesting due to the convergence of earnings reports and the impending election, alongside uncertainty surrounding the Fed’s next moves. He remarked on the market’s resilience, highlighting that there have been 46 new highs for the S&P 500 this year, despite a general sentiment of skepticism among investors. He expressed that it is unusual for a market to perform so well while simultaneously being viewed with caution and fear.
Kinahan pointed out that many investors are hesitant, particularly those in their mid-30s and younger, who have not experienced a significant downturn in the market. He explained that this demographic often perceives any market decline as temporary, lasting only a few days. He emphasized the importance of taking risks when young and noted that many younger investors are excited about their opportunities in the current market environment. This positive sentiment is particularly significant given their parents’ experiences during the financial crisis of 2008-2009.
He also speculated that part of the reason for the market’s strong performance might be attributed to older investors who have been burned in previous downturns and are now waiting for a pullback that has yet to materialize. Kinahan suggested that as these investors gradually capitulate, they may start to invest more actively in the market.
Discussing interest rates, Kinahan acknowledged that while the Fed is in a massive easing cycle, there seems to be a disconnect with the bond market recently. He mentioned a study indicating that volatility during election years is not significantly greater than in non-election years. Currently, volatility is relatively low, hovering around a historical average of 20, and only recently rising to this level. He explained that typically, volatility tends to increase after elections, when political changes begin to take effect and policies, are implemented. He anticipated that January would bring more clarity regarding how these changes might impact the markets.
Kinahan’s insights reflect a complex interplay between investor sentiment, market performance, and external economic factors as they navigate through earnings season and an election year. His perspective underscores a cautious optimism about the market’s ability to maintain its upward trajectory despite prevailing uncertainties.
Methodology
To find the best US stocks for foreign investors, we used Insider Monkey’s proprietary database to find US stocks that were the most popular among elite and that analysts were bullish on. We then selected the top 8 stocks with the highest average analysts’ upside potential. The stocks are ranked in ascending order of their average analysts’ upside potential, as of October 16.
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).
A team of engineers and scientists collaborating at a workstation surrounded by their applications and solutions.
Adobe Inc. (NASDAQ:ADBE)
Average Upside Potential: 24.99%
Number of Hedge Fund Holders: 107
Adobe Inc. (NASDAQ:ADBE) is a global software company that provides a range of creative tools and digital marketing solutions and is best known for its Adobe Creative Cloud suite, which includes popular applications like Photoshop, Illustrator, InDesign, Premiere Pro, and After Effects. These tools are used for graphic design, photography, video editing, and web development, among other use cases.
The company’s 80%+ market share in graphic design reflects years of product development. In FQ3 2024, total revenue grew 10.59% from a year-ago period, with Digital Media and Digital Experience segments increasing by 12%, with total subscription revenues representing 96% of total revenue. The company’s profitability improved with operating income increasing 17% year-over-year and net income increasing 20%. AI features like Adobe Firefly have enhanced customer engagement and retention. Document Cloud sales reached $807 million in FQ3 2024, up 18%.
It is monetizing GenAI innovations through strategies like embedding AI into existing products, offering add-ons, tiered offerings, and stand-alone AI services, as told by CFO Dan Durn. While it has made progress in integrating AI into its Creative Cloud, Document Cloud, and Experience Cloud businesses, investors are concerned about the company’s ability to translate these innovations into significant revenue growth. The stock price has fluctuated in recent months, reflecting both optimism about its AI potential and concerns about its financial performance. The recent MAX conference showcased innovative new products that solidify their unique position in AI-powered content creation.
The company’s strong brand and subscription-based business model generate high-margin revenue. While economic conditions impact subscriptions, the focus on AI products and services has driven growth. Despite recent setbacks, Adobe Inc.’s (NASDAQ:ADBE) long-term prospects remain positive, supported by its AI innovations and strong market position.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
Overall ADBE ranks 3rd on our list of the best US stocks for foreign investors right now. While we acknowledge the growth potential of ADBE, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADBE 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.