In this article, we discuss 10 stocks investors are buying amid “dire” pessimism. If you want to see more stocks in this selection, check out Investors are Buying These 5 Stocks as New Survey Shows “Dire” Pessimism.
Bank of America carried out a week-long survey of hedge fund managers through July 15 that consisted of 259 participants with $722 billion in assets under management. The survey pointed towards inflation as the most troublesome risk for fund managers, followed by recession, soaring rates, and strategic credit events. Simultaneously, the majority of the investors also think that 2023 will bring lower inflation and rates will consequently be controlled as well.
According to Bank of America’s monthly fund manager survey for July, investors lowered their exposure to risky assets as the United States economy nears recession and market experts highlight a “dire” economic outlook. The survey suggested that investors have cut their exposure to risk even more than during the global financial crisis of 2009. The growth of global GDP and corporate profits dropped to a record low, and Michael Hartnett, an analyst at BoFA, explained that the market expects a recession more now than it did at the height of the COVID-19 pandemic in May 2020. The survey suggests that while investors dramatically pulled back from the volatile stock market, they increased their cash exposure to the highest levels recorded since 2001. 58% of the hedge fund managers stated that their risk appetite has curbed notably, more so than the global financial crisis levels.
Although there is some market optimism on the rise since inflation in the United States could be reaching its record levels and will eventually rebound, investors are still wary of the looming recession and the GDP contraction it will bring. Europe’s energy crisis and China’s supply chain constraints also add to the market pessimism. Bank of America strategists remain “max bearish”, which is at odds with the near-term rally in the stock market.
BoFA’s survey indicates that investors are very bullish on consumer staples, utilities, healthcare, energy, and commodities. Some of the stocks investors are buying despite “dire” market pessimism include Costco Wholesale Corporation (NASDAQ:COST), The Procter & Gamble Company (NYSE:PG), and AbbVie Inc. (NYSE:ABBV).
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Our Methodology
We selected stocks from the sectors which investors are bullish on during the current market pessimism according to the BoFA survey. These stocks display optimistic catalysts including strong Q2 results, a solid dividend history, and positive analyst ratings. We have ranked the list according to the Q1 2022 hedge fund sentiment around the securities.
10. Consolidated Edison, Inc. (NYSE:ED)
Number of Hedge Fund Holders: 26
Consolidated Edison, Inc. (NYSE:ED) is a New York-based company that supplies regulated electricity, gas, and steam in the United States. The company declared on July 21 a $0.79 per share quarterly dividend, in line with previous. The dividend is payable on September 15, to shareholders of record on August 17. Consolidated Edison, Inc. (NYSE:ED) is on its way to becoming a dividend king, having increased annual dividends for 46 consecutive years. The stock delivers a dividend yield of 3.21% as of August 9.
On June 27, Mizuho analyst Anthony Crowdell maintained a Buy recommendation on Consolidated Edison, Inc. (NYSE:ED) and lowered the price target on the stock to $99 from $100. The analyst thinks the company should be able to divest its Clean Energy Business at a 13-14 times enterprise value to EBITDA multiple. He still sees Consolidated Edison, Inc. (NYSE:ED) as an attractive investment but slashed the price target to factor in present market multiples.
According to Insider Monkey’s Q1 data, 26 hedge funds were bullish on Consolidated Edison, Inc. (NYSE:ED), up from 22 funds in the prior quarter. Cliff Asness’ AQR Capital Management is the leading stakeholder of the company, with 1.3 million shares worth more than $127 million.
In addition to Costco Wholesale Corporation (NASDAQ:COST), The Procter & Gamble Company (NYSE:PG), and AbbVie Inc. (NYSE:ABBV), smart investors are monitoring Consolidated Edison, Inc. (NYSE:ED) as the stock market experiences volatility.
9. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 28
The Southern Company (NYSE:SO) is a Georgia-based electric provider, operating through Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services segments. On July 28, The Southern Company (NYSE:SO) reported its Q2 results, posting a non-GAAP EPS of $1.07, beating market estimates by $0.23. Revenue over the period climbed 38.7% year over year, reaching $7.21 billion, outperforming Wall Street consensus by $1.9 billion.
On August 4, UBS analyst Ross Fowler upgraded The Southern Company (NYSE:SO) to Buy from Neutral, raising the price target to $87 from $76. The Southern Company (NYSE:SO)’s post-Vogtle growth profile should improve due to fleet transformation initiatives that will enable it to meet its 2050 net zero carbon emissions goal, the analyst told investors in a bullish thesis. He expects both Vogtle units moving to an in-service rate base will generate cash of $600 million to $700 million.
Among the hedge funds tracked by Insider Monkey, Jim Simons’ Renaissance Technologies held the leading stake in The Southern Company (NYSE:SO), comprising 1.65 million shares worth $119.7 million. Overall, 28 hedge funds were bullish on The Southern Company (NYSE:SO) at the end of March 2022, up from 26 funds in the last quarter.
8. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 37
Shell plc (NYSE:SHEL) is a London-based energy and petrochemical company that operates through Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. Investment advisory Berenberg on August 1 maintained a Buy recommendation on Shell plc (NYSE:SHEL) and lowered the price target on the stock to EUR 31.50 from EUR 33.
Shell plc (NYSE:SHEL) on July 28 reported its Q2 2022 results, announcing earnings per share of $3.06 and a revenue of $100.06 billion, outperforming market estimates by $0.26 and $17.76 billion, respectively. The company also disclosed a $6 billion share repurchase program which is to be completed by Q3 2022. The total distributions to shareholders have been notably more than 30% of CFFO for the last four quarters and are expected to remain so.
On July 28, Shell plc (NYSE:SHEL) declared a $0.50 per average diluted share quarterly dividend, in line with previous. The dividend is distributable on September 19, to shareholders of record on August 12. The company delivered a dividend yield of 3.77% on August 8.
According to Insider Monkey’s data, 37 hedge funds were long Shell plc (NYSE:SHEL) at the end of Q1 2022, compared to 41 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management featured as the leading position holder in the company, with 19.6 million shares worth over $1 billion.
Here is what Harding Loevner International Equity Fund has to say about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“While risks of unforeseen consequences arising from the Ukraine conflict are high, on this front we are cautiously optimistic that China will work hard to maintain its neutrality in a credible way, as it is a huge beneficiary of trade with the rest of the world, especially the rich developed nations. We think it likely that China, along with India, will continue to buy oil and gas from Russia (just as Europe, at least for now, plans to keep its gas pipelines open), and do not expect that fact to alter China’s trade relations with the West much. Nevertheless, we must contemplate that our optimism is misplaced on the importance of membership in the global network of exchange. If our central and optimistic case—admittedly an educated guess—is wrong, then we’d need to greatly modify our views of which companies in our opportunity set will face new barriers to profitable growth, and which might stand to benefit, relatively, from a further receding of globalization. (Global trade, after all, has never matched the peak share of GDP it reached in 2008, before the Global Financial Crisis.) We’d expect such a world to be less efficient, as the cold logic of comparative advantage is demoted as a determinant of which goods or services are produced and where. That would lead to a less prosperous world, since exploiting comparative advantage is a cornerstone of wealth creation. If regional blocs began to raise limits on the movement of capital as well as goods, we’d need to parse which of our multi-national companies were at risk of declining sales from increasingly hostile, siloed countries. Royal Dutch Shell (NYSE:SHEL) has found its Siberian oil and gas joint venture assets stranded by the combination of sanctions and the public opprobrium of Russia’s actions.”
7. Newmont Corporation (NYSE:NEM)
Number of Hedge Fund Holders: 53
Newmont Corporation (NYSE:NEM) is a Colorado-based company engaged in the production and exploration of gold, copper, silver, zinc, and lead. On July 27, Canaccord analyst Carey MacRury upgraded Newmont Corporation (NYSE:NEM) to Buy from Hold with a price target of $60, down from $66, in light of the company’s Q2 results. The 13% decline in share price was “overdone” as Newmont Corporation (NYSE:NEM)’s EPS miss included multiple abnormal items, the analyst observed. Revised gold production guidance was broadly in line with his earlier forecast and he sees Newmont Corporation (NYSE:NEM) offering investors a steady gold production profile in “geopolitically stable jurisdictions” with “a deep project pipeline” and a robust balance sheet, the analyst said.
On July 22, Newmont Corporation (NYSE:NEM) declared a quarterly dividend of $0.55 per share, in line with previous. The dividend is payable on September 22, to shareholders of the company as of the close of business on September 8. The company delivered a dividend yield of 3.91% on August 8.
According to Insider Monkey’s data, 53 hedge funds were long Newmont Corporation (NYSE:NEM) at the end of the first quarter of 2022, up from 45 funds in the preceding quarter. Rajiv Jain’s GQG Partners featured as the leading position holder in the company, with 32 million shares worth $2.5 billion.
Here is what First Eagle Investment Management has to say about Newmont Corporation (NYSE:NEM) in its Q3 2021 investor letter:
“The largest gold miner in the world, Newmont shares lost ground in what was a volatile and ultimately down quarter for the price of gold. The Colorado-based company has continued to execute well in what has been a challenging environment. The company recently reaffirmed its full-year 2021 production guidance, but indicated that it was likely to come in at the mid to low point of the range provided as a result of disruptions from Covid-19 as well as severe weather events. It also noted that inflation pressures were likely to push its costs higher in 2021. None of this changes our opinion of the stock, which has historically offered steady production anchored in good jurisdictions, a good pipeline of organic projects, a strong balance sheet and proven management.”
6. Bunge Limited (NYSE:BG)
Number of Hedge Fund Holders: 55
Bunge Limited (NYSE:BG) is an American agriculture and food company that specializes in food processing, grain trading, and fertilizers. Although Bunge Limited (NYSE:BG) missed Q2 earnings and revenue estimates, the company management reiterated a bullish full-year profit outlook. The company now expects annual adjusted earnings per share of at least $12, up $0.50 from earlier estimates. Bunge Limited (NYSE:BG) announced a new earnings framework of about $11 per share by the conclusion of 2026 as well, paired with $3.3 billion in capital expenditure and M&A activity over that period. The company also authorized a $1.25 billion share repurchase program through 2026.
Barclays analyst Benjamin Theurer on July 28 maintained an Overweight rating on Bunge Limited (NYSE:BG) and lowered the price target on the shares to $125 from $135. Despite the Q2 results being below consensus and the company lifting its fiscal year guidance, whisper expectations were possibly higher, the analyst told investors in a research thesis.
Among the hedge funds tracked by Insider Monkey, Bunge Limited (NYSE:BG) was part of 55 hedge fund portfolios at the end of March 2022, up from 38 funds in the prior quarter. Israel Englander’s Millennium Management is the largest position holder in the company, with 1.65 million shares worth $183.6 million.
Like Costco Wholesale Corporation (NASDAQ:COST), The Procter & Gamble Company (NYSE:PG), and AbbVie Inc. (NYSE:ABBV), elite investors are piling into Bunge Limited (NYSE:BG) as the United States battles rampant inflation.
Here is what Old West Investment Management had to say about Bunge Limited (NYSE:BG) in its Q1 2022 investor letter:
“Bunge (pronounced BUN-GEE) Ltd (NYSE:BG) is one of the biggest agribusinesses and food companies in the world. There are four worldwide companies that dominate the sector, the others being Archer-Daniels-Midland Cargill, and Dreyfuss. One of our favorite ways to screen for new ideas is following insider buying. When I saw the Form 4 filed by new Bunge CEO Greg Heckman, his purchase of $9 million of BG stock intrigued me. My initial thought was the company gave him the stock as a signing bonus. I contacted BG Investor Relations and asked whether it was a signing bonus or did Heckman actually write a check for $9 million. IR assured me it was his own hard-earned money that he invested in the company he was about to run.
Heckman was a long time executive at Conagra Foods who obviously sensed opportunity at BG. One of his first moves as CEO was to move the company’s HQ from New York to St. Louis, right in the middle of America’s breadbasket. BG had been plagued for years with poor decisions by underperforming management. Heckman’s decision to move to St. Louis was indicative of a no-nonsense style and he would commence cutting expenses and selling non-core assets…” (Click here to see the full text)
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Disclosure: None. Investors are Buying These 10 Stocks as New Survey Shows “Dire” Pessimism is originally published on Insider Monkey.
