In this piece, we will take a look at Goldman Sachs top mutual fund manager stock picks.
With September and the third quarter of 2024 ending, Wall Street is now focused on two things. These are the economy and the earnings season. The former will guide investors on the impact of the Federal Reserve’s highly welcomed 50 basis point interest rate cut while the latter will let them determine whether the artificial intelligence sector is delivering profits.
The penultimate and the final month of the quarter have been quite eventful. Markets started out in August fearful after a poor showing from the labor market and the manufacturing sector. The labor market has been one of the primary drivers of the Fed’s interest rate policies, as the central bank has been eager to ‘cool’ it down to reduce payroll growth and inflation. However, investors worried at the August start that perhaps the central bank had been too restrictive.
Starting with the manufacturing weakness, the Institute of Supply Management’s (ISM) manufacturing Purchasing Managers Index (PMI) dropped to 46.8 from the previous month’s 48.5. On its own, this wasn’t particularly worrying as the Fed’s data for Q2 had shown a 3.4% annualized growth in factory production. However, the next data release for the labor market saw nonfarm payrolls jump by just 114,000 for a 101,000 drop for the preceding 12 months’ monthly additions. Additionally, unemployment jumped to 4.3%, for the highest level since September 2021. Investors were already wary of the job market as job openings had dropped by 46,000 in June. Consequently, they sold and led the flagship S&P index to drop by 6% and the broader NASDAQ index to shed 7.9% during the first week of August. These drops led the Magnificent 7 group of stocks to lose a stunning $800 billion in value.
Shifting gears, the volatility in the markets also merits a look at how mutual funds are performing. Like hedge funds, mutual fund managers are financial professionals with often decades of experience in managing money under their belt. Insider Monkey made a list of the 20 Best Mutual Funds in 2023 last year. This list was compiled in April, and naturally, it was dominated by mutual funds with significant investments in the technology sector. In this list, the five best performing mutual funds of 2023 were variants of a fund that invested in the semiconductor industry. The next five all had investments in the big tech sector, and with the two groups, the two top performing mutual funds had made 23% in trailing year to date returns for the technology funds and 28% for the semiconductor funds.
But what about 2024? After all, not only has the global geopolitical climate made gold shinier than usual, but rate cuts are also increasing the investor itch to diversify holdings from large caps to small and medium cap stocks. Well, while semiconductor mutual funds have delivered strong returns so far, others have also joined the list. Taking a closer look reveals that 5 star mutual funds focusing on spinoff companies or those being restructured, those investing in underappreciated businesses with long product cycles, companies investing in capital markets, gold mutual funds, and small cap funds have all surpassed semiconductor funds. In respective order, the top performing mutual funds in these categories have delivered 51%, 49%, 44%, 42%, and 42% in year to date trailing returns while the flagship S&P index has gained 21.4% through price appreciation year to date.
2024 has been a good year for mutual funds overall. Data from BofA shows that in Q1 2024, actively managed mutual funds delivered their best set of performance in 17 years. As per the bank, 64% of these funds had beaten their benchmarks which was a sizeable increase over the 38% that had eked out similar performance in 2023. BofA speculated that a broader equity outperformance might have led to the improved mutual fund performance, with analysts stating that while “healthier market breadth should give managers better odds of selecting stocks that will outperform, a shift in leadership away from mega cap Tech poses a risk to those still betting on last year’s winners.”
The shift in market trends due to the Fed’s interest rate cut has also shaken up investment advisors’ perception of low risk mutual funds called money market funds. Data shows that retail investor assets in these mutual funds sat at a whopping $2.6 trillion as of September 18th, 2024. This marks an equally stunning growth of 80% since 2022’s start as retail investors piled in $951 billion in the funds to benefit from a rate hike cycle that would eventually culminate at 24 year high interest rates in the US. The shifts in mutual fund sentiment coupled with strong fund performance at a time when the SEC has approved new rules, which will go into effect in 2026 if adopted, which will require mutual funds with net assets less than $1 billion to file monthly portfolio holding reports as opposed to quarterly reports.
Before the rate cut, Goldman Sachs took a look at the recession odds in America. A recession will be the key driver of index performance after rate cuts especially when we consider historical data. Mind you, GS was one of the few banks that stood against the broader analyst predictions of a recession in 2022, and as of early September, its analysts had a 12 month ahead US recession probability of 20%. This was still lower than the Bloomberg consensus of 30%, and in its report, the bank added that the US economy should continue to grow at 2%.
With these details in mind, let’s take a look at top stocks that mutual fund managers are overweight on as per Goldman Sachs.
JMiks / Shutterstock.com
Our Methodology
To make our list of Goldman Sachs’ favorite mutual fund manager stocks, we ranked the bank’s recent list of 50 stocks where large cap, growth, and value mutual fund managers had positions overweight with respect to the benchmark index. Out of these, the stocks that were the most overweight were selected. For a list of hedge fund stocks, you can read Goldman Sachs’ Best Hedge Fund Stock Picks: Top 20 Stocks.
For these stocks, we also mentioned the number of hedge fund investors. 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).
25. Amdocs Limited (NASDAQ:DOX)
Number of Hedge Fund Holders In Q2 2024: 32
Overweight Percentage: 0.09%
Amdocs Limited (NASDAQ:DOX) is a diversified software company that provides customer relationship management, product lifecycle management, billing management, and application management services. The firm’s shares are flat year to date, as it has failed to meet investor expectations of growth. Amdocs Limited (NASDAQ:DOX) belongs to the SaaS industry, where a premium is placed on growth, cost control, contract size, sales conversion, and recurring revenue. The company’s second quarter earnings disappointed investors on several of these fronts as it cut revenue guidance for the full year. Amdocs Limited (NASDAQ:DOX) expects to grow revenue at a high end of 3.6% compared to an earlier 5.1% and bring in $700 million in free cash flow compared to an earlier estimate of $750 million. Consequently, on the day of the second quarter earnings release, Amdocs Limited (NASDAQ:DOX)’s shares dropped by 4.90% the day after the earnings release. Over the long term, the firm can grow revenue since it has contracts with some of the biggest companies in the world such as AT&T and Charter. Yet, during Q3, while the firm reiterated the FCF guidance, it further slashed the high end revenue growth guidance to 2.7%.
Palm Valley Capital mentioned Amdocs Limited (NASDAQ:DOX) in its Q2 2024 investor letter. Here is what the fund said:
“Amdocs, a leading software and services provider to wireless, cable, and media companies, reduced its full year revenue guidance by 0.5% and trimmed its adjusted EPS forecast by 1%. While this was immaterial to us, the market was less forgiving. The company is still modeling 7-11% EPS growth for the fiscal year. It’s possible that investors may be misinterpreting the company’s exposure to artificial intelligence. Amdocs has been occasionally mislabeled as a glorified call center cousin, when in fact it is a mission critical service provider to the world’s most important communications enterprises, including AT&T, Bell, BT, Charter, Comcast, dish, Globe, T-Mobile, Telefonica, and Vodafone. Amdocs does everything from providing customer facing portals to handling the details of billing to helping ensure that networks are operating at peak efficiency. We like to increase our exposure to Amdocs when its valuation doesn’t reflect its quality.”
24. Johnson Controls International plc (NYSE:JCI)
Number of Hedge Fund Holders In Q2 2024: 46
Overweight Percentage: 0.09%
Johnson Controls International plc (NYSE:JCI) is a sizeable building products company that sells products such as heating and ventilation, fire suppression, building management, security, and other systems. Despite the fact that the firm’s exposure to the construction industry means that it is vulnerable to high interest rates, Johnson Controls International plc (NYSE:JCI)’s shares are up by 36% year to date. This rise is particularly noteworthy as the firm has also been the target of activist investors this year. Activist fund Elliot built a $1 billion stake in the firm in H1, and after Johnson Controls International plc (NYSE:JCI)’s CEO announced its retirement following discussions with Elliot, the stock soared by 8%. The firm currently aims to target sustainable energy use in buildings, and given the billions of dollars in infrastructure spending earmarked in the US, it could benefit from the growing demand for such infrastructure. Johnson Controls International plc (NYSE:JCI) has been focusing its attention on its core construction business, and one important factor in determining its potential catalysts is looking at the HVAC order backlog.
Johnson Controls International plc (NYSE:JCI)’s management shared details for the backlog during the Q3 2024 earnings call:
“Orders in North America increased 5% in the quarter, with mid-single-digit growth in both systems and services. As a reminder, our quarterly order growth can fluctuate based on the timing of certain large projects, particularly in the data center vertical. We remain confident in our competitive position in the data center and our pipeline remains quite robust. Sales in North America were up 8% organically, with continued strength across HVAC & Controls, up over 20% year-over-year. Overall, our system business grew 9%, while service grew 6%. Segment margin expanded 150 basis points year-over-year to 15.9%, driven by the continued execution of higher-margin backlog, improved productivity and solid service contribution.
Total backlog ended the quarter at $9 billion, up 14% year-over-year.”
23. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders In Q2 2024: 83
Overweight Percentage: 0.09%
Danaher Corporation (NYSE:DHR) is a diversified medical products supplier that caters to the needs of the diagnostics, biotechnology, life sciences, and other industries. The key to the firm’s hypothesis, and one that can deliver either tailwinds or headwinds to the shares is its bioprocessing business. Danaher Corporation (NYSE:DHR) is one of the few large scale companies in the world, and with bioprocessing thought to lead to the creation of novel healthcare products such as gene therapies, the company has a wide moat in this sector. Danaher Corporation (NYSE:DHR) is an acquisition driven firm that relies on retained earnings to expand into new industries. These include potential treatments for Alzheimer’s and Duchenne dystrophy, and any blockbuster treatments created with Danaher Corporation (NYSE:DHR)’s help could lead to sizeable catalysts for the firm. On the flip side, with the narrative now dependent quite a bit on bioprocessing, any weakness on the inventory front or a demand slowdown can spell trouble for Danaher Corporation (NYSE:DHR)’s stock.
L1 Capital mentioned Danaher Corporation (NYSE:DHR) in its Q2 2024 investor letter. Here is what the fund said:
“We divested our remaining holding in Danaher. Danaher is one of the leading providers of equipment and services to the life sciences and diagnostics industries and is one the best run industrial businesses in the world. Many companies aim to emulate the ‘Danaher Business System’ of continuous improvement. We have no concerns with the quality of Danaher, the share price simply increased above our view of fair value. A core principle of our investment process is to maintain valuation discipline and we divested our investment, purely on valuation grounds. Danaher has moved to our Bench of potential future investments. Danaher’s share price has fallen around 10% since we sold our investment, and if it continues to drift down, we may have the opportunity to reinvest in a very high-quality business at a more attractive valuation.”
22. Kenvue Inc. (NYSE:KVUE)
Number of Hedge Fund Holders In Q2 2024: 58
Overweight Percentage: 0.09%
Kenvue Inc. (NYSE:KVUE) is a sizeable health and well being firm that sells well known products such as Tylenol, Nicorette, Neutrogena, Band-Aid, and others. Consequently, the firm has a sizeable moat in the industry not only because of brand recognition but also because of margins achieved through economies of scale. As of Q2, Kenvue Inc. (NYSE:KVUE) had cash and equivalents of $1 billion and gross and operating margins of 60% and 17.8%. It is a former J&J business, and the shares are up 7.8% year to date courtesy of a massive 14.8% jump in August. This came on the back of strong second quarter earnings, with Kenvue Inc. (NYSE:KVUE)’s EPS and revenue of $0.32 and $4 billion beating Wall Street estimates of $0.28 and $3.93 billion. Management also reiterated a high end full year sales growth guidance of 3%, and Kenvue Inc. (NYSE:KVUE)’s stock was also helped by the fact that August start was also marked by investor worries of a recession which saw consumer staples stocks hold their ground when compared to high growth stocks. Looking ahead, could see additional tailwinds if beauty spending kicks up in a growing economy.
Oakmark Funds mentioned Kenvue Inc. (NYSE:KVUE) in its Q2 2024 investor letter. Here is what the fund said:
“Kenvue became the largest standalone consumer health company following its split-o from Johnson & Johnson in May 2023. The company’s highly recognizable brands, such as Neutrogena, Listerine, Tylenol and Band-Aid, have been market share leaders in their respective categories for generations. However, Kenvue’s rst year as a public company was clouded by litigation and market share losses in certain categories. As a result, Kenvue now trades for just 16.5x trailing earnings, a substantial discount to the market and other consumer health and packaged goods companies. We see an opportunity for the company to improve eciency and re-invest the cost savings into increased product development and marketing, which should help improve its growth and brand equity.
21. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Holders In Q2 2024: 88
Overweight Percentage: 0.10%
Dell Technologies Inc. (NYSE:DELL) is a diversified computer hardware firm that caters to the needs of businesses and consumers. The firm sells workstations, notebooks, server racks, and other computing equipment. Dell Technologies Inc. (NYSE:DELL) is one of the most well recognized brand names in the industry, and its shares have soared by 61% year to date on the back of market optimism for artificial intelligence. AI systems rely on large scale server racks and other equipment, and Dell Technologies Inc. (NYSE:DELL)’s decades old presence and experience in the industry provide it with key advantages. These have grown this year after short seller allegations have suggested that the firm’s competitor Super Micro might face trouble on the regulatory front. Server revenue accounts for roughly 46% of Dell Technologies Inc. (NYSE:DELL)’s revenue, and the firm benefits from increased business IT spending even if AI specific spending slows down. However, the stock remains vulnerable to AI tepidness, as evidenced by a 20% share price drop in May because of a Q2 guidance miss by 13%.
Scout Investments mentioned Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter. Here is what the fund said:
“Dell Technologies was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
20. Fiserv, Inc. (NYSE:FI)
Number of Hedge Fund Holders In Q2 2024: 73
Overweight Percentage: 0.10%
Fiserv, Inc. (NYSE:FI) is a sizeable payment technology company that enables businesses to conduct transactions. Along with Jack Dorsey’s Square, it is one of the few large players in the industry which offers the company a wide moat. Fiserv, Inc. (NYSE:FI) is one of the few companies of its kind that is able to target both financial institutions and small and medium businesses. It targets small businesses through its Clover platform, and the target market also makes the firm vulnerable to economic downturns as small businesses are often hit the hardest during such macroeconomic conditions. Fiserv, Inc. (NYSE:FI)’s partnerships with financial institutions are evident through its partnership with banking giant Wells Fargo. Through this deal, the firm provides payment processing services to the merchant customers of one of America’s largest domestic banks. Additionally, Fiserv, Inc. (NYSE:FI) has also been busy offering new services such as cash flow management software which further bolsters its competitive position.
Broyhill Asset Management mentioned Fiserv, Inc. (NYSE:FI) in its Q2 2024 investor letter. Here is what the fund said:
“Fiserv is the premier provider of financial technology services, supporting banks, credit unions, and financial institutions with innovative banking solutions, payment processing, and data analytics to streamline and secure financial transactions. The company’s shares slid 7% during the quarter before rallying 10% in July to fresh all-time highs. Clover remains the company’s crown jewel, generating over $300 billion in annualized GPV (Gross Payment Volume) with better monetization, driving 28% revenue growth in the recently reported quarter, and three new hardware products plus pilot programs in Mexico and Brazil going live in the coming months. Simply put, there are few businesses in this industry executing even close to the same level, and fewer still with Fiserv’s scale, distribution, and collection of assets. In our initial write-up, we highlighted the embedded distribution advantages often enjoyed by incumbents, noting that “Fiserv can cross-sell products through its large, engrained distribution channels, driving faster growth than even its most rapidly growing peers. And with Clover and Square accounting for less than 10% of a fragmented market, we think there is plenty of room for both to run.” Notably, Jack Dorsey, Chief Block Head, Square Head, Chairman, and Cofounder, recently came to the same conclusion, admitting as much on the company’s most recent earnings call: “I would state that our product quality is far above the majority of our competitors. Where we have been weaker in the past is how we mirror that with our go-to-market strategy and just updating our approach there, especially given what our competitors have done.“ We wonder which competitors come to mind.”
19. Texas Pacific Land Corporation (NYSE:TPL)
Number of Hedge Fund Holders In Q2 2024: 21
Overweight Percentage: 0.10%
Texas Pacific Land Corporation (NYSE:TPL) is an oil royalty company based in Texas. The firm has ownership in oil producing land in West Texas. Its business model, which relies primarily on royalty payments as opposed to extracting oil means that Texas Pacific Land Corporation (NYSE:TPL) benefits from a margin heavy business. The company’s trailing twelve month operating margin is 79%, indicating the vast sums of money that are available to management to distribute among shareholders. Texas Pacific Land Corporation (NYSE:TPL)’s annual dividend yield is currently 0.53%. On the flip side, since it has significant exposure to the oil industry, and the only way to grow is by acquiring more land or raising existing royalties, Texas Pacific Land Corporation (NYSE:TPL)’s shares are also troubled when the US oil industry isn’t performing well or when prices are low. Consequently, if we exclude the 33.5% share price jump in June when the firm was added to the S&P midcap index, Texas Pacific Land Corporation (NYSE:TPL)’s stock is up by just 8.8% year to date on the back of weaker oil prices. The post S&P jump might also mean that valuations are stretched and the stock has limited room to grow further.
Scout Investments mentioned Texas Pacific Land Corporation (NYSE:TPL) in its Q2 2024 investor letter. Here is what the fund said:
“Texas Pacific Land Corp. rounds out the top five contributors. Standard & Poor’s announced in early June that the company will join the S&P MidCap 400® Index. Texas Pacific Land has relatively illiquid stock, so this announcement created significant buying pressure as traders sought to get ahead of index funds’ upcoming forced ownership. At the end of the quarter we maintained a small allocation to the company because we like the oil and gas mineral rights business model.”
18. Elevance Health, Inc. (NYSE:ELV)
Number of Hedge Fund Holders In Q2 2024: 73
Overweight Percentage: 0.10%
Elevance Health, Inc. (NYSE:ELV) is a diversified American healthcare services provider that provides benefits management and operational services to healthcare facilities. As per the American Medical Association, the company was the second biggest health insurance provider in America in 2023 since it commanded a 12% market share of the commercial market. This provides Elevance Health, Inc. (NYSE:ELV) with a wide moat, key margin advantages, economies of scale, and a sizeable customer base of 47.5 million members. However, the reliance on the healthcare insurance industry also means that Elevance Health, Inc. (NYSE:ELV) remains vulnerable to government regulations on the sector that can limit the fees that insurance providers charge. This has been evident in the stock as well, as Elevance Health, Inc. (NYSE:ELV)’s shares closed 8% lower in 2023 because of a drop in the number of Medicaid memberships in the US following a bump during the coronavirus pandemic. To help diversify its business, the healthcare firm is currently working with a private equity firm to grow its share in the primary care market. If successful, the deal could help create tailwinds for the stock.
Artisan Partners mentioned Elevance Health, Inc. (NYSE:ELV)’s care delivery business Carelon in its Q2 2024 investor letter. Here is what the fund said:
“Elevance shares rose 5% during the quarter. The business has been performing well and has delivered good profit growth this year, despite a flat top line. It has largely navigated the challenges related to Medicaid redeterminations, which have caused temporary volatility in membership and health care utilization levels. Its vertical integration strategy is gaining traction, with strong revenue and profit growth at its Carelon Services business. Elevance’s shares are trading at 13X earnings, which is a very attractive investment proposition for a durable business that expects long-term earnings growth of over 12%.”
17. Intuitive Surgical, Inc. (NASDAQ:ISRG)
Number of Hedge Fund Holders In Q2 2024: 67
Overweight Percentage: 0.10%
Intuitive Surgical, Inc. (NASDAQ:ISRG) is one of the biggest companies in the global medical robotics industry. The firm is known primarily because of its Da Vinci platform, which has enabled the company to capture 57% of the global market. Intuitive Surgical, Inc. (NASDAQ:ISRG) also benefits from earning stable recurring revenue akin to that enjoyed by SaaS companies. This is because after a firm has closed the sale of its expensive robots, it also provides related services to users over the course of the product’s lifetime. This is an important factor for Intuitive Surgical, Inc. (NASDAQ:ISRG)’s hypothesis since it means that the firm can earn stable revenue even during an economic downturn when budgets are tight for hospitals and others to buy expensive surgery robots. Yet, since the firm is a pure play medical robot developer, its hypothesis also solely rests on the state of the market and any potential customers threatening market share. Therefore, Intuitive Surgical, Inc. (NASDAQ:ISRG) has to continually innovate, and simultaneously balance high development costs with steady margins. On the former front, the firm launched the Da Vinci 5 robot earlier this year, with the product offering 150 design upgrades and 10,000 times the computing power over its predecessors. Looking ahead, Intuitive Surgical, Inc. (NASDAQ:ISRG) has to deliver strong profit and operating margins to generate additional tailwinds for investors.
During the Q2 2024 earnings call, Intuitive Surgical, Inc. (NASDAQ:ISRG)’s management shared key details about customer feedback for Da Vinci 5. Here is what they said:
“Just starting with some of the feedback that we’ve discussed before, you look at what customers are immediately appreciating and some of the things you would expect around ergonomics, increases in precision and vision, the head in UI, onscreen graphics and other things. And so taken together, each one of those features are leading to some efficiency gains in particular in sort of console time. And that has been kind of noticed across the customer base. And I think that’s where we’re starting — we’re hearing a little bit about what can that mean in terms of adding a procedure a day, increasing utilization of the system. And so that’s what both our surgeon customers and our executive customers are noticing as a result of their investment in da Vinci 5.
You know, some of the other features, Case Insights, Force Feedback, we’re excited to work with customers and we know that’s going to take time to develop and really quantify some of those impacts. In terms of pushback, today what we are seeing is a little bit what Jamie talked about. We are starting, customers will have to evaluate the value of da Vinci 5. We have these early adopters that are excited about what it can be. And as we move in through our measured launch, we will continue to have to underscore, and reinforce the value that it brings, and communicate that to executives and their teams.”
16. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders In Q2 2024: 59
Overweight Percentage: 0.10%
FedEx Corporation (NYSE:FDX) is one of the biggest operators in the American courier and logistics industry. The firm caters to the needs of both businesses and consumers, and it offers shipping by land, air, and sea. Because of the fact that it covers most of the US freight market, FedEx Corporation (NYSE:FDX) is more vulnerable to broader disruptions in the industry as opposed to smaller firms that are regionally focused. This has also been the case in 2024, which has been a roller coaster of a year for the courier’s stock. In June, FedEx Corporation (NYSE:FDX)’s shares soared by 15.5% as the firm’s midpoint fiscal 2025 EPS guidance of $21 was slightly higher than Wall Street’s estimate of $20.92. EPS is key for courier companies as they often face tough competition to keep prices low and retain or capture market share and are constrained on the margin front if volumes are low. FedEx Corporation (NYSE:FDX) expects to further improve margins in the near future by reducing costs associated with the Postal Services’ overnight delivery contract. The share price gain was short lived, as the stock dropped by 15.2% in September after FedEx Corporation (NYSE:FDX)’s fiscal year 2025 operating income guidance was cut to a midpoint of $20.5 from an earlier $21. Its results also saw the firm’s daily volumes, daily shipments, and freight shipments drop annually, which ignited investor concerns of macroeconomic sluggishness. Looking ahead, cost savings improving the bottom line and an uptick in priority shipments could create tailwinds for the stock.
Longleaf Partners mentioned FedEx Corporation (NYSE:FDX) in its Q2 2024 investor letter. Here is what the fund said:
“Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) 4 increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
15. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders In Q2 2024: 72
Overweight Percentage: 0.11%
ConocoPhillips (NYSE:COP) is an American oil exploration and production company with significant exposure to the US shale oil industry. This means that the firm’s stock is more in tune with the broader state of the US shale oil industry. Consequently, ConocoPhillips (NYSE:COP)’s shares are down 11% year to date as weaker oil prices due to a sluggish Chinese economy have translated into headwinds for the stock. For instance, ConocoPhillips (NYSE:COP)’s shares dropped by 3.7% at the September start after growth in OPEC production and slower Chinese demand pushed Brent crude prices below $75 and West Texas Intermediate below $71. Subsequently, ConocoPhillips (NYSE:COP)’s performance depends on the broader state of the oil industry, and with the oil sector remaining weak, market focus has increased on business and cost management. On this front, the firm could benefit from lower operating costs once it fully absorbs Marathon Petroleum in its portfolio following the closure of the mega $22.5 billion merger. Analysts expect that the deal can improve ConocoPhillips (NYSE:COP)’s EPS/Cash Flow Per Share by as much as 7% and bump the free cash flow per share by 11%. Pressure is high on ConocoPhillips (NYSE:COP) to deliver with the deal due to its expensive price tag.
ConocoPhillips (NYSE:COP)’s management commented on the deal during the Q2 2024 earnings call:
“Now regarding our planned acquisition of Marathon Oil, we remain very excited about this transaction and integration planning activities are underway to ensure a seamless transition upon close.
The Marathon Oil shareholder vote has been set for August 29, and we are working through the FTC’s second request that we received in mid-July. We still expect to close the transaction late in the fourth quarter. On return of capital, we remain committed to distributing at least $9 billion to shareholders this year on a stand-alone basis. As we said back in May, we will be incorporating our VROC into our base dividend starting in the fourth quarter, representing a 34% increase in the ordinary dividend. And consistent with our long-term track record, we are confident that we can grow this dividend at a top quartile rate relative to the S&P 500. Finally, as we previously announced with the Marathon acquisition, we will be increasing our annualized buyback run rate by $2 billion upon closing with a plan to retire the equivalent amount of newly issued equity in 2 to 3 years.”
14. CRH plc (NYSE:CRH)
Number of Hedge Fund Holders In Q2 2024: 75
Overweight Percentage: 0.12%
CRH plc (NYSE:CRH) is one of the biggest building and construction materials firms in the world. The firm sells a variety of products such as aggregates, beams, and pipes. Consequently, the stock is exposed to the condition of the broader industry, and CRH plc (NYSE:CRH) has struggled since 2022 when the Federal Reserve started an interest rate hiking cycle that eventually led to 24 year high rates in the US. Therefore, the stock’s sharp 24.6% decline in 2022 was unsurprising as investors rotated out of construction and materials stocks. However, this doesn’t mean that there aren’t any long term catalysts for CRH plc (NYSE:CRH). The US government has earmarked billions of dollars in spending for chip factories, infrastructure, and clean energy investments, and naturally, these will increase the demand for the firm’s products. CRH plc (NYSE:CRH) is quite well positioned to benefit from these tailwinds as 75% of its operating income is generated from North America. The firm is also diversifying its business and completed an acquisition of an Australian company in July. US aggregate prices have also performed well in some regions this year, with Montana experiencing a 22.4% increase in July. Depending on its ability to target states with high aggregate demand, CRH plc (NYSE:CRH) could unlock additional headwinds.
L1 Capital mentioned CRH plc (NYSE:CRH) in its Q2 2024 investor letter. Here is what the firm said:
“In our view, measuring the performance of investments over short time horizons such as three months is meaningless. While CRH and Eagle Materials detracted from the Fund’s returns this quarter, they were both leading positive contributors in the prior quarter. Since Inception of the Fund over 5 years ago, both companies have been top ten contributors to the Fund’s returns.
Recently, there has been some negative data that is causing a sell-off in the share price of CRH and Eagle Materials. Both these companies supply building products to the infrastructure, residential and commercial construction sectors. CRH has around 75% exposure to North America, with the remainder principally Europe (CRH has also recently acquired the majority of Adbri in Australia). Eagle Materials solely operates in the U.S.
Demand from the U.S. infrastructure sector is likely to remain robust for the medium term due to increased Federal and State spending, supported by the $1.2 trillion Infrastructure Investment and Jobs Act. Short term activity has been disrupted by bad weather – we think this is complete noise and is just slightly delaying projects, although CRH and Eagle Materials’ June 2024 quarterly results will likely be impacted.
Housing activity has recently softened a little, with affordability remaining an issue. Demand for housing remains strong, and the housing construction industry is responding through incentives such as subsidising mortgage rates for buyers, and building slightly smaller, cheaper homes.
While there will always be short term fluctuations in activity levels and we do expect softening in apartment construction, over time we expect solid new housing construction as well as repair and renovation activity levels to support demand for CRH and Eagle Materials’ products, with potential for meaningful upside in a lower interest rate environment. Commercial activity remains mixed, with pockets of strength such as data center construction and resilient areas such as hospital and education construction, offset by weakness in areas such as office construction.
In our view the market is not always efficient. Back in our December 2022 Quarterly Report we were pounding the table on Amazon.com (Amazon), stating that the share price had been oversold and offered compelling value. Since then, Amazon’s share price has increased nearly 140%. Over recent months, the share price of Eagle Materials and CRH have fallen 20% and 15% respectively from their recent highs. Now trading on a P/E ratio of 13x to 14x, we consider both companies are trading at attractive valuations for investors with a longer-term investment horizon, willing to look through short term pressures.”
13. Marvell Technology, Inc. (NASDAQ:MRVL)
Number of Hedge Fund Holders In Q2 2024: 74
Overweight Percentage: 0.12%
Marvell Technology, Inc. (NASDAQ:MRVL) is a semiconductor company that caters to the needs of the data center industry. The firm provides products such as network adapters, switches, signal processors, and storage controllers. As a result, the fact that Marvell Technology, Inc. (NASDAQ:MRVL)’s stock is up by 65% since November 2022 is unsurprising due to the favorable catalysts for the data center industry due to artificial intelligence. The firm also has sizeable advantages when it comes to designing application specific integrated circuits (ASICs). These are use case specific specialty chips that can create tailwinds for Marvell Technology, Inc. (NASDAQ:MRVL) if the firm is able to provide AI chip alternatives to NVIDIA’s pricey and limited supply GPUs. The chip company is already making inroads into this front, as it is working with three firms for volume production of its custom AI accelerator chip.
Marvell Technology, Inc. (NASDAQ:MRVL)’s management provided details about these chips during the Q2 2025 earnings call:
“Our AI custom silicon programs are progressing very well, with our first two chips now ramping into volume production.
Development for new custom programs we have already won, including projects with a new Tier 1 AI customer we announced earlier this year, are also tracking well to key milestones. Looking ahead to the third quarter of fiscal 2025 for our data center end market, we are forecasting revenue growth to accelerate into the high teens sequentially on a percentage basis. We expect the largest contributor to this growth will be our AI custom silicon programs as they begin to ramp meaningfully in the third quarter, further augmented by ongoing growth from our optics portfolio.”
12. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders In Q2 2024: 114
Overweight Percentage: 0.12%
UnitedHealth Group Incorporated (NYSE:UNH) is the biggest health insurance company in America. Estimates show that it has a customer base of 50 million people, which provides it with a wide moat in the rapidly changing pharmaceutical and biotechnology markets. Courtesy of weight loss drugs and other breakthrough treatments for ailments such as Sickle Cell disease, UnitedHealth Group Incorporated (NYSE:UNH) carries the chance to use its large user base to tap into the market demand for its users. Yet, its size, as evidenced by $381 billion in trailing twelve month revenue also means that the firm needs to control costs tightly. Cost control has driven UnitedHealth Group Incorporated (NYSE:UNH)’s narrative in the first half of 2024 after a historic cyberattack on its Change Healthcare business disrupted claims processing all over the US. For investors, this meant that the benefits provider would have to incur costs to manage the impacts, and before UnitedHealth Group Incorporated (NYSE:UNH)’s second quarter earnings, the stock was down 2.1% year to date. However, the earnings report saw the firm’s $6.80 EPS beat analyst estimates of $6.66, and UnitedHealth Group Incorporated (NYSE:UNH)’s shares shot up by 11% over the next couple of days.
UnitedHealth Group Incorporated (NYSE:UNH)’s management believes it can grow its customer base. It shared during the Q2 2025 earnings call that:
“We’re also well positioned for growth in 2025. In the selling season to date, the most sophisticated thoughtful buyers of health benefits and services in the US, such as large employers, unions, states, seniors, all continue to choose the offerings of UnitedHealth Group, when they’re looking for managed care, pharmacy services or a Medicare Advantage plan that provides the best value. This consistent growth reflects customers’ recognition of the need for a company like ours. As you know, UnitedHealth Group strives to help reduce the fragmentation and lack of coordination that drives up costs and erodes care outcomes in the $5 trillion US healthcare marketplace. We aim to better coordinate and align incentives among caregivers, payers, and pharmacy, enabling us to focus on the whole patient throughout their health journey.
We believe this increases value for customers and consumers, improves people’s experience and health, reduces redundancies and waste, and ultimately leads to a more sustainable health system. For example, the proven health and economic value to consumers and taxpayers of Medicare Advantage. A recent study by Milliman found that the cost of taxpayers of Medicare Advantage is 4% less than traditional fee-for-service Medicare. At the same time, Medicare Advantage provides seniors well over $2,000 per year in additional value through lower out-of-pocket cost and important services like dental, vision and hearing, none of which fee-for-service Medicare covers. That means a lot to the majority of the people Medicare Advantage serves, who have limited economic resources and otherwise would lack access to such services.”
11. Medtronic plc (NYSE:MDT)
Number of Hedge Fund Holders In Q2 2024: 114
Overweight Percentage: 0.12%
Medtronic plc (NYSE:MDT) is an Ireland based American medical devices manufacturer. One of the biggest companies of its kind, the firm sells products that aid patients in managing more than 70 different diseases. Its sizeable portfolio and market have enabled Medtronic plc (NYSE:MDT) to develop fortress balance sheets and income statements. As of its Q1 FY25, the firm had $7.8 billion in cash and short term investments and it had generated $32.6 billion in trailing twelve month sales. These enable Medtronic plc (NYSE:MDT) to have a robust development pipeline, such as a device for treating blood pressure by using radio waves which was approved by the FDA in November 2023. Products like the blood pressure device provide Medtronic plc (NYSE:MDT) with a wide moat that few or no other companies in the world can match. The shares have faced some trouble recently because of global supply chain troubles and the departure of Medtronic plc (NYSE:MDT)’s CFO, but there’s a high chance that these developments are transitory. Further potential catalysts for the stock can include a device under development to help stop sudden heart attacks and a new transcatheter aortic valve replacement device.
During the Q1 2025 earnings call, Medtronic plc (NYSE:MDT)’s management shared the opportunities it can capture with its hypertension products:
“Securing broad reimbursement remains key to unlocking the opportunity to our simplicity blood pressure procedure. We were pleased that CMS has finalized the inpatient payment and has now proposed an outpatient payment. And we continue to engage with CMS at the national and local levels to establish coverage, a key enabler so that this therapy can reach patients.
Now this is important as hypertension affects more than 1 billion people globally and nearly half of all US adults. Despite the availability of numerous classes of pharmaceuticals, only one in four adults in the US have their hypertension under control. Furthermore, more than 700,000 deaths in the US every year are directly attributable to hypertension. And the burden of hypertension cost the US health care system between $100 billion and $200 billion a year. So you can see why there is just an important role for our simplicity procedure to cost-effectively improve public health.”
10. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders In Q2 2024: 72
Overweight Percentage: 0.12%
The Charles Schwab Corporation (NYSE:SCHW) is one of the biggest financial and oldest financial services firms in the US. It has a diversified product portfolio which enables customers to invest in markets and also to seek advice for their investment decisions. As of H1 2024, 47% of the firm’s revenue came from interest. Notably, high interest rates have stressed The Charles Schwab Corporation (NYSE:SCHW)’s income statement this year. This is because the broker’s interest revenue dropped by 3.1% annually while its interest expense grew by 10%. This growth was led by the interest that The Charles Schwab Corporation (NYSE:SCHW) pays on its bank deposits. Consequently, lowering interest rates will help the bank – a fact that was evident in its 2.9% share price gain in the days after the Fed cut its interest rates by 50 basis points. However, lower rates also mean that The Charles Schwab Corporation (NYSE:SCHW) might be forced to cut its net interest margin forecast for the year – a fact that could weigh on the stock. Other notable factors for the broker include a massive 17% share price drop in July which followed a 5% dip in May. The July dip came as The Charles Schwab Corporation (NYSE:SCHW) high paper losses stemming from low priced bonds forced management to admit that it might have to rely on other banks to meet customer deposit requirements. This came as the firm’s brokerage customers sat at 985,000 in Q2, which undershot analyst estimates of 1 million.
Since balance sheet management is a key tenet of The Charles Schwab Corporation (NYSE:SCHW)’s hypothesis, here’s what management shared during the Q2 2024 earnings call:
“One of our objectives is to increase our emphasis on attracting transactional bank deposits like checking balances with our award-winning checking product. This would serve as a means of increasing liquidity and further stabilizing our overall deposit base. And we envision the potential to increase our usage of third-party banks like TD Bank and others to achieve the following gos, deliver extended FDIC insurance for clients, lower our capital intensity, and improve liquidity, subject, of course, to obtaining economics from the third-party banks that make sense for us. Net, these various actions should lead, again, over time to a bank that is somewhat smaller than our bank has been in recent years, while retaining the ability to meet our clients’ banking needs, lower our capital intensity and, importantly, protect the economics we are able to generate from owning a bank.”
9. American International Group, Inc. (NYSE:AIG)
Number of Hedge Fund Investors In Q2 2024: 61
Mutual Fund Overweight Percentage: 0.13%
American International Group, Inc. (NYSE:AIG) is one of the most well known insurance companies in America. It is a diversified business, with a presence in other countries such as Singapore. In fact, as of H1 2024, $6.6 billion of American International Group, Inc. (NYSE:AIG)’s $13.3 billion, or 49.6%, in revenue came from its international business. The firm focuses primarily on property and casualty insurance, which could create a dynamic environment for it in the future. This is because of global warming led climate catastrophes, which have increased the risks that insurers have to incur. However, American International Group, Inc. (NYSE:AIG)’s size, as evidenced by its $168 billion in assets could enable it to operate in areas that other insurance companies exit from by charging higher premiums. As property insurers come off the back of premium increases, American International Group, Inc. (NYSE:AIG)’s hypothesis is also dependent on the firm’s cost cutting initiatives through which it aims to reduce expenses by 13%. Costs are key to the firm’s narrative, as evidenced by a 12% share price drop in early August after Q2 EPS of $1.16 missed analyst estimates of $1.30.
During the Q2 2024 earnings call, American International Group, Inc. (NYSE:AIG)’s management shared how it is working on reducing its costs:
“As part of positioning AIG for the future, over the past several years, we’ve been on a journey to simplify AIG. We’re weaving the company together to operate seamlessly as one cohesive organization across underwriting, claims and all of our functional areas with the skills and capabilities to compete in the future. As a company, we’ve completed multiple transformation programs. These efforts, including AIG 200 have resulted in a reduction of our expense base of approximately $1.5 billion since 2018, while investing for the future. For example, over the last two years, we’ve invested approximately $300 million in data, digital workflow, AI and talent to accelerate our progress. If you look over the past five years, it include technology, end-to-end process workflow and foundational data investments that were part of AIG 200, our investment has been over $1 billion.
Also at the beginning of 2024, we formally launched AIG Next to further accelerate the realization of additional operational efficiencies. As part of the AIG Next program, we’re redefining our existing retained parent costs to reflect only expenses related to being a global regulated public company such as costs related to corporate governance, enterprise risk management and audit. Our objective is to decrease retained parent cost to $325 million to $350 million, or 1% to 1.5% of net premiums earned going forward. Expenses not defined as parent company costs will be fully embedded within the General Insurance results or they’ll be redundant. All of the factors being equal, we would expect our full year 2025 calendar year combined ratio to be the same or lower than the full year 2023 metric on a comparable basis as a result of the actions were taken as part of AIG Next.”
8. Intuit Inc. (NASDAQ:INTU)
Number of Hedge Fund Investors In Q2 2024: 82
Mutual Fund Overweight Percentage: 0.13%
Intuit Inc. (NASDAQ:INTU) is a software as a service (SaaS) firm that helps businesses with their daily operations. The firm’s software allows customers to manage payroll, compliance, accounting, and secure access to credit. Its shares have been on quite a roller coaster this year. Intuit Inc. (NASDAQ:INTU)’s stock tumbled by 16% in May as the firm delivered the antithesis of what underlies the narrative of most SaaS stocks. The company’s management warned during the Q1 2024 earnings call that it could lose a stunning 1 million customers using its TurboTax software. This was because the IRS had debuted its software to enable people to self file taxes, and the comments indicated to investors that Intuit Inc. (NASDAQ:INTU) might stop growing with one software product. After the 16% drop, its stock soared by 18% between June and July only to pare them back in early August due to market worries of a recession. Intuit Inc. (NASDAQ:INTU)’s second quarter results sent the stock tumbling 7.5% after its revenue and earnings guidance for the October quarter, which sat at $3.13 billion and $2.36, missed analyst estimates of $3.37 and $2.78. Intuit Inc. (NASDAQ:INTU) also lowered its consumer growth target to 6% to 10% from an earlier 8% to 12%. Since growth and cost control are the keys of SaaS hypothesis, investors weren’t impressed. Looking ahead, cross selling and margins should be pivotal for any tailwinds to Intuit Inc. (NASDAQ:INTU)’s shares.
Baron Funds mentioned Intuit Inc. (NASDAQ:INTU) in its Q2 2024 investor letter. Here is what the fund said:
“Intuit Inc. has been rolling out Intuit Assist, a GenAI powered digital assistant, across its product lines to help Credit Karma users select new credit cards, QuickBooks customers forecast cash flow, Mailchimp customers create targeted email marketing campaigns, and TurboTax customers understand changes in their tax returns from the prior year. Klarna, the privately held consumer lending and payments company, is cutting costs by using GenAI assistants to handle two-thirds of customer service chats and reduce its dependency on external marketing agencies. We consider these GenAI advancements to be evolutionary rather than revolutionary, but we continue to closely monitor the impact of new technologies on the fintech industry.”
7. Comcast Corporation (NASDAQ:CMCSA)
Number of Hedge Fund Investors In Q2 2024: 61
Mutual Fund Overweight Percentage: 0.13%
Comcast Corporation (NASDAQ:CMCSA) is a well known American broadcasting and internet company. It has been in business since 1963, and its continued presence in the market has enabled the firm to amass a sizeable market position and cash resources of $6 billion. Consequently, Comcast Corporation (NASDAQ:CMCSA)’s shares have an element of defensiveness in them as it can be assured of sizeable revenues even during a downturn. However, the modern day has seen growth in internet streaming, fixed wireless internet, and satellite internet services. These are high growth businesses and ones in which Comcast Corporation (NASDAQ:CMCSA) either has been a late entrant or has no presence at all. Consequently, the key to its hypothesis is the firm’s ability to keep its user base intact and ensure growth in markets like streaming. Any growth in these areas will create tailwinds and versa.
Comcast Corporation (NASDAQ:CMCSA) operates in the streaming industry through its Peacock service. One way it can gain share is through mega deals (for share price tailwinds), and here’s what management shared during the Q2 2024 earnings call:
“Our expectation is that soon an 11-year rights deal between ourselves and the NBA will be announced. We don’t believe that the resolution of matching rights will affect the package that we expect to be awarded. This package, which begins with the 2025-2026 season includes: 100 NBA games each regular season across NBC and Peacock, which is more than any other media partner and more regular season games than each existing partner has under the current rights deal; for playoffs, we will have first and second round games each year, exclusively on our national platforms and six NBA conference final series over the course of the term of the deal, which is more playoff games on average each year, than any other media partner; and exclusively for Peacock will be approximately 50 national regular season and post-season games, including National Monday Night games and doubleheaders.
Additional elements of the NBA package include the annual NBA All-Star Game and All-Star Saturday Night each season, the season opening NBA tip-off doubleheader each season, a special doubleheader on the MLK holiday, and Select NBA games in every NBA All-Star game on Telemundo. Beyond the NBA itself, we’re excited that our package includes WNBA, where starting in the spring of 2026, we’ll have more than 50 WNBA regular season and first round playoff games each season across Peacock, NBC and USA, and we’ll also have games in seven WNBA Conference semifinals and three WNBA Final series; for USA Basketball, we’ll have the rights to USA men’s and women’s games leading up to the Olympics and FIBA World Cup; Sky Sports will air all of NBCUniversal’s NBA and WNBA games in its markets; and finally, Xfinity will be the NBA and WNBA’s marketing partner in the video category.”
6. The TJX Companies, Inc. (NYSE:TJX)
Number of Hedge Fund Investors In Q2 2024: 56
Mutual Fund Overweight Percentage: 0.14%
The TJX Companies, Inc. (NYSE:TJX) is one of the biggest retailers in the world. The firm sells a variety of products such as apparel, food, and furniture. As a result, margins, volume, and pricing power are among the key drivers of its hypothesis. Since it’s an off price retailer, The TJX Companies, Inc. (NYSE:TJX) has seen sizeable catalysts over the past couple of years which have been plagued by inflation. Between 2021 and 2023, the retailer’s revenue has grown by 68%, or from $32 billion to $54 billion. However, current geopolitical tensions, potential strikes on the East Coast, and rising compensation costs could make the firm struggle with cost control and margins. The TJX Companies, Inc. (NYSE:TJX)’s forward price to earnings ratio is 27.86, which is lower than near peer firms like Walmart (32.68) and Costco (50.25). As a result, volume and comp growth might create tailwinds for the stock to help it catch up with the broader industry’s valuation. Some catalysts that might aid this include evaporating cost pressure and a strong holiday season.
While it was for Q4 2023, Madison Investment’s investor letter provides a great summary of The TJX Companies, Inc. (NYSE:TJX)’s share price performance and some of the drivers:
“We’ve been invested in off-price retailer TJX Companies for just under ten years, having invested in 2014 in our Large Cap strategy. TJX is one of the most recession-resistant companies we own due to its perennial value proposition to customers; customers always like to save money, especially when economic times get tough. As a result, the company has had an exceedingly steady revenue and earning profile over the past several decades.
But that doesn’t make it immune to other kinds of cycles. After our initial investment, the stock materially outperformed the S&P 500 for two years. Then, it materially underperformed for two years. Then, it materially outperformed again for two years. Then, once again, it materially underperformed for over two years before starting its current stretch of strong two-year outperformance. Despite these swings in relative performance, the investment has done rather well over the full term of our ownership, outperforming the index.
For some periods of underperformance, there seem to be fundamental explanations – the company made a few merchandising mistakes, and sales were weak, or there were expense pressures that crimped margins, for example. For the other periods of underperformance, there are no obvious reasons for underperformance. The stock likely just fell out of favor with investors for market cycle reasons or perhaps “got ahead of itself.” But the critical point is that we made little attempt to forecast these unforecastables, and held steady with our investment with infrequent trading. So far we have been rewarded.”
5. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Investors In Q2 2024: 142
Mutual Fund Overweight Percentage: 0.15%
Mastercard Incorporated (NYSE:MA) is the smaller of the two major payments processing companies in the US. Along with Visa, the firm controls 76% of the US credit card market share, but is quite smaller due to its 24% share compared to Visa’s 52%. This means that unlike Visa, Mastercard Incorporated (NYSE:MA) has to be on the watch out for competitors, especially as the third biggest credit card company AMEX holds 20% of the market. When it comes to maintaining market share, 2024 has been historic for Mastercard Incorporated (NYSE:MA) and Visa since the duo has agreed to a historic $35 billion in fee reductions for merchants. However, the future of the deal is unclear after a judge struck it down, and any further disappointing news could spell trouble. Another key issue that Mastercard Incorporated (NYSE:MA) has been facing is trouble with retailers who are dissatisfied with fraud liability protection for consumers. On this front, the firm is aiming to introduce the First Party Trust program that aims to shift liability protection away from merchants. The stock’s overall health depends on purchasing volumes and consumer spending strengths, with lower rates also carrying the potential to grow the credit card business.
L1 Capital mentioned Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter. Here is what the firm said:
“The share prices of Mastercard and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
4. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Investors In Q2 2024: 97
Mutual Fund Overweight Percentage: 0.16%
ServiceNow, Inc. (NYSE:NOW) is a SaaS company that provides process automation, IT operations management, human resource management, and other associated products. The firm is one of the biggest of its kind since it generated $1.1 billion in trailing twelve month net income. Profitability, along with growth and cost control, is one of the pillars of SaaS evaluation which means that the discussion surrounding ServiceNow, Inc. (NYSE:NOW) now focuses on its ability to sustain revenues, retain its customer base, and increase its individual deal values. The company appears to be performing well on these fronts as during its Q2, ServiceNow, Inc. (NYSE:NOW) grew its committed remaining performance obligations by 31% to $18.6 billion. During the same three month period, its customers with annual recurring revenue greater than $20 million jumped by 40%. This indicates that ServiceNow, Inc. (NYSE:NOW) is seeing sizeable demands for its products, and the continued strong performance of the shares which are up by 28% depends on a strong economy and low interest rates.
During the Q2 2024 earnings call, ServiceNow, Inc. (NYSE:NOW)’s management shared key details about its contract performance:
“We closed 88 deals greater than 1 million in net new ACV in the quarter, representing 26% growth year-over-year. This includes six new logos, two of which were G2K customers. We continue to see robust large deal momentum in the quarter closing 14 deals over 5 million in net new ACV and four deals over 10 million. Our focus on selling a comprehensive platform continue to drive more multiproduct deals, as 14 of our top 20 deals included eight or more products. We now have 1,988 customers paying us over 1 million in ACV. In addition, the number of customers paying us 20 million or more grew nearly 40% year-over-year. As Bill highlighted, our Gen AI net new ACV to date continues to trend ahead of any new product family launched for the comparable period.
Our Plus SKU saw more than a 30% price uplift over Pro in Q2. Furthermore since launch, we’re seeing a greater than 3x increase in average deal size versus the comparable Pro upgrade. NowAssist cogeneration capabilities within creative workflows remain a powerful productivity tool of choice as well, appearing in over 70% of our Gen AI deals. Best of all, customers are going live fast. We’re learning with them, releasing innovations based on that feedback at a very fast clip to get them to value. In July, BT Group announced that its NowAssist pilot help agents write case summaries and review complex nodes faster, cutting both times by 55%. This helped drive down the average time to resolve cases by a third. We are just scratching the surface of the opportunity as the vast majority of Gen AI sales are direct.”
3. The Cigna Group (NYSE:CI)
Number of Hedge Fund Investors In Q2 2024: 66
Mutual Fund Overweight Percentage: 0.16%
The Cigna Group (NYSE:CI) is an American pharmaceutical and health care benefits management company. It is one of the biggest pharmacies in the US courtesy of having more than 62,000 locations in its chain. This allows The Cigna Group (NYSE:CI) to enjoy strong supplier partnerships and economies of scale that lead to low costs. As of H1 2024, $87 billion out of the firm’s $118 billion in revenue came from its pharmacy division. The Cigna Group (NYSE:CI) also benefits from having a diversified business model as its pharmacies offer both generic and specialty medicines. As a result, the firm can rely on stable cash flows during an economic downturn and simultaneously enjoy revenue from costlier specialty medicines. Additionally, a sizeable presence in the specialty business also means that The Cigna Group (NYSE:CI) can benefit from the growing popularity of bio similar drugs and new treatments for rare diseases along with genetic treatments.
The Cigna Group (NYSE:CI)’s management shared details for its Specialty business during the Q2 2024 earnings call:
“In Accredo, our specialty business, our growth continues to be fueled by secular tailwinds as well as Accredo’s differentiated strength which makes us the market leader in the space. Biosimilars, for example, represent a force of change and a substantial opportunity for continued growth and impact. At the end of June, we began dispensing our interchangeable biosimilar for Humira. Our program has zero dollar out-of-pocket cost for patients, saving them on average $3,500 per year. To deliver these savings, we have agreements in place with multiple manufacturers that will produce biosimilars for Evernorth pharmaceutical distributor, Quallent Pharmaceuticals. Now the biosimilar opportunity goes well beyond Humira. By 2030, we expect an additional $100 million of annual specialty drug spend in the U.S. will be subject to biosimilar and generic competition.
And Accredo is well positioned to deliver differentiated value for our clients, customers and patients.”
2. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Investors In Q2 2024: 83
Mutual Fund Overweight Percentage: 0.18%
Wells Fargo & Company (NYSE:WFC) is one of the biggest banks in America. It is a diversified bank that operates in investment banking, wealth management, commercial banking, and other markets. The bank has a considerable presence in the domestic US market, and as of Q2 2024, $11.9 billion out of its $20.7 billion in revenue came from net interest income. Additionally, consumer banking is Wells Fargo & Company (NYSE:WFC)’s biggest interest income contributor, since during the quarter, $7 billion of the bank’s $11.9 billion net interest income came through consumer banking and lending. This division also had the highest non interest expenses, and moving forward, as interest rates drop, Wells Fargo & Company (NYSE:WFC) should find more breathing room on its income statement as its interest costs drop. Additionally, lower rates also mean increased investment banking activity provided the economy is robust, and given Wells Fargo & Company (NYSE:WFC)’s diversified business, the bank can see catalysts from this area as well. The shares gained 3.7% in the week of the Fed’s interest rate cuts, but headwinds can result from stricter regulation such as the recent anti money laundering announcement.
Wells Fargo & Company (NYSE:WFC)’s management commented on its investment arm during the Q2 2024 earnings call:
“We have been methodically growing our corporate investment bank, which has been a priority and continues to be a significant opportunity for us. We are executing on a multi-year investment plan while maintaining our strong risk discipline and our positive momentum continues. We have added significant talent over the past several years and we’ll continue to do so in targeted areas where we see opportunities for growth. Fernando Rivas recently joined Wells Fargo as Co-CEO of Corporate Investment Banking. Fernando has deep knowledge of our industry and his background and skills complement the terrific team Jon Weiss has put together. While we view our work here as a long-term commitment, we expect to see results in the short and medium term and are encouraged by the improved performance we’ve already seen with strong growth in investment banking fees during the first half of the year.
In our Wealth and Investment Management business, we have substantially improved advisor retention and have increased the focus on serving independent advisers and our consumer banking clients, which should ultimately help drive growth. In the commercial Bank, we are focused on growing our treasury management business, adding bankers to cover segments where we are underpenetrated, and delivering our investment banking and markets capabilities to clients and believe we have significant opportunities in the years ahead.”
1. Visa Inc. (NYSE:V)
Number of Hedge Fund Investors In Q2 2024: 163
Mutual Fund Overweight Percentage: 0.30%
Visa Inc. (NYSE:V) is the largest payment platform provider in the US. It commands a 52% share of the US credit card market by purchase volume and a 47% share by outstanding balances. This means that the state of the credit card market is key to Visa Inc. (NYSE:V)’s hypothesis. The firm, along with smaller rival Mastercard, has seen some tailwinds in these areas in 2024. While the pair agreed to a historic $30 billion settlement to resolve merchant grievances about high fees, the deal was stopped by a court despite the fact that many businesses had agreed to it. Further friction between Visa Inc. (NYSE:V) and merchants coupled with a rise in alternate payment networks could mean that the firm loses market share. Another point of friction between the firm and merchants is the 30 day liability protection, which protects customers from fraud but also exposes merchants to fraudulent claims. Visa Inc. (NYSE:V) can generate tailwinds by expanding into emerging markets and via new features that enable automatic payments.
Aoris Management mentioned Visa Inc. (NYSE:V) in its Q2 2024 investor letter. Here is what the firm said:
“Visa operates the world’s largest payments network, which facilitates the movement of money between merchants, financial institutions, consumers, businesses, and governments.
The company is best known for enabling consumers to make debit and credit card payments. In the year to September 2023, 4.3 billion Visa cardholders made 213 billion transactions on its network, to a total value of US$12.1 trillion.
Compared to cash and cheques, which are still widely used around the world, Visa’s network is a more convenient, secure, and ubiquitous way for consumers to pay. Visa has invested to reduce friction and fraud in the payments experience, to the benefit of both merchants and consumers.”
V is one of the top Goldman Sachs stocks that fund managers are buying. While we acknowledge the potential of V as an investment, 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 V but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. All investment decisions should be made after consulting a qualified professional. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
