Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks

5. Eaton Corporation PLC (NYSE:ETN)

Number of Hedge Fund Investors: 85

Barclays’ analyst Venu Krishna added Eaton in his list of stocks to offset the tech concentration risk.

As more and more companies deploy data centers to power their AI software, the demand for sustainable power solutions is rising, helping company like Eaton Corp Plc (NYSE:ETN). Bank of America recently said in a note that data centers, manufacturing and AI would cause demand growth from an “already-tight electrical grid.” BofA analysts believe solar and wind energy cannot meet this growing appetite and investors are currently incorporating energy sources that might not be there in the future. To profit from this growing energy demand, BofA recommended some stocks, and Eaton Corp Plc (NYSE:ETN) was one of them. During the first quarter, Eaton’s backlog jumped 20% year over year, driven by Aerospace and Electrical segments.

However, Eaton’s valuations has sparked concerns among analysts recently. The stock’s forward P/E is 34.25, much higher than the industry average of 20.1. The stock has gained about 67% over the past one year. The stock is trading at 30X FY24 consensus EPS estimate of $10.50 and 28x FY25 EPS estimate of $11.70. This is much higher than the stock’s 5-year average forward P/E of 22.32x. While Wall Street expects Eaton Corp Plc (NYSE:ETN) earnings to grow 10% next year, the stock price growth could remain capped given the already strong bull run the company saw.

Carillon Eagle Growth & Income Fund stated the following regarding Eaton Corporation plc (NYSE:ETN) in its first quarter 2024 investor letter:

“Eaton Corporation plc (NYSE:ETN) traded higher after announcing better than expected quarterly results as well as providing guidance that was ahead of expectations for the fiscal year. The electrical power equipment company also announced a proactive multi-year restructuring program, enabling Eaton to continue growing while also reducing costs.”