We recently made a list of Goldman Sachs’ List Of Stocks Popular With Mutual Fund Managers: Top 20 Stocks. In this piece, we will look at where Apple Inc. (NASDAQ:AAPL) ranks among the list of stocks that mutual funds are buying according to Goldman Sachs.
As the fourth quarter of 2024 starts, the market is once again back to debating about the Federal Reserve’s interest rate cuts. The latter half of September saw some much overdue optimism on Wall Street as the Federal Reserve kicked off its rate cut cycle through a 50 basis point cut. Since the day of the rate cut and the close of September, the flagship S&P and the broader NASDAQ index gained 2.6% and 3.5% respectively.
However, the start of October saw the return of nervousness that investors have been dealing with since the start of the rate hiking cycle and worries of a recession. The S&P and the NASDAQ dropped by 1.1% and 1.5% after labor market data saw the US market add 254,000 in nonfarm payrolls and 8.040 million overall jobs measured by the Labor Department’s JOLTS survey. Both of these releases beat economist expectations, leading to sharp drops in markets as investors now factored out a 50 basis point cut at the next meeting of the Federal Reserve.
The latest drops despite a strong labor market are indicative of how investors expect nothing but a perfectly balanced data set since in August, Magnificent 7 stocks, which are generally dependent on robust discretionary and corporate spending, lost $800 billion in market value after unemployment jumped by 4.3% in July for its highest value since September 2021.
However, even though markets pared back their gains in October, the fact still remains that drops due to a strong labor market are nevertheless better than ones that follow a slow market. This is because the former scenario promises a robust economic outlook. Soon after the fresh labor data that caused jitters in October, investment bank Goldman Sachs was out with yet another 2024 target for the benchmark S&P index. The bank now expects the S&P to close 2024 at 6,000 points, a sizeable bump over its first 2024 target of 4722 points, with the latest estimate being its fourth revision of the 2024 target so far. The first revision saw the bank bump up 2024’s S&P closing estimate to 5,100 points in late 2023, and two subsequent revisions saw further upside as it predicted that the index would close out at 5,200 and 5,600 points.
The latest revision now sees the bank estimate that the index will close at 6,000 points – for a 4.3% upside over the recent closing value of 5,751 points. It is based on the bank’s optimism about the third quarter earnings cycle, as the index revision was followed by an upward earnings revision as well. Heading into earnings, Goldman believes that in 2025, the S&P’s earnings per share will now sit at $268. This is a 4.7% upward revision from the bank’s previous estimate of $256 and it assumes that earnings will grow by 11.2% next year over the 2024 earnings estimate of $241. This isn’t the only growth estimate in the banks’ latest market outlook since the report also sees it introduce an S&P earnings target for 2026. As per Goldman, in 2026, the S&P will deliver earnings per share of $288 to mark a 7.4% annual growth and a stronger 19.5% growth over this year’s earnings.
For a market that first struggled with worries of a recession in August and is now re calibrating expectations for the interest rate cut cycle, it’s important to see what’s driving the bank’s optimism. Led by chief US equity strategist David Kostman, analysts have built their optimism on the back of strong economic performance. In the note, Kostin comments that his firm’s “forward EPS estimates reflect a steady macro outlook.” He adds that “the primary driver of the upward revision to our 2025 EPS estimate is greater margin expansion,” since the “macro backdrop remains conducive to modest margin expansion, with prices charged outpacing input cost growth.” This backdrop, as you might expect, is driven by bullish expectations about the US economy. As per Kostin, the 2025 EPS estimate is driven by Goldman’s assumption that “sales will grow by 5%, roughly in line with nominal GDP growth (vs 4% previously).”
Yet, despite the optimism, the analysts are also wary about short term turbulence in the stock market. October is the last month before a hotly contested US presidential election, and investors have also felt jitters from ongoing hostilities in the Middle East. Consequently, Kostin warns that as “everyone is in the pool” right now, with the election looming and the mutual fund fiscal year ending on October 31st, stocks could see some shifts as the big players rotate their positions. As an example of the volatility that the market is facing right now, the analyst points out that the Chicago Board’s CBOE volatility index jumped by 30% over the past five trading days to signal that “volatility is no longer the coach on the sidelines: it is the player on the field.”
Speaking of mutual funds, they’ve done quite well this year. We took a look at the brief performance of mutual funds as part of our coverage of Goldman Sachs’ Top Fund Manager Stock Picks: 25 Best Overweight Stocks. This revealed that as per BofA, during the first quarter, 64% of actively managed mutual funds beat their benchmarks during Q1, for their best set of performance over the past 17 years. This also marked a significant improvement over last year’s performance when 38% of these funds had beaten the benchmarks.
The Fed’s interest rate cut also means that hedge fund shifted their positions. Financial services firms and banks in particular benefit from interest rate cuts as their deposit costs drop and they can earn more by maintaining existing rates. Consequently, according to Goldman, in the week before the Fed interest rate cut, hedge funds bought banks and financial services stocks at the fastest pace since 2023. This falls in line with what UBS Wealth Management’s Brad Bernstein shared in his comments after the rate cut when he explained that lower rates make financials attractive since “the improving yield curve for their balance sheet and what that means for their ability to lend at higher rates and pay cheaper rates on cash savings.”
Our Methodology
For our list of Goldman Sachs’ top stocks that are popular with mutual fund managers, we used the bank’s list of 20 Russel 1000 stocks that mutual fund managers had grown their positions in during Q2 2024. The stocks are ranked by the number of funds that increased their portfolio allocation versus those that had decreased it.
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).
An investor confidently checking stock market fluctuations on a laptop computer.
Apple Inc. (NASDAQ:AAPL)
Number of Mutual Funds: 31
Number of Hedge Fund Investors in Q2 2024: 184
Apple Inc. (NASDAQ:AAPL) is a consumer technology company that is a global giant. Its best selling and most valuable product is the iPhone lineup. The iPhone is responsible for 52% of Apple Inc. (NASDAQ:AAPL)’s sales, and the firm’s hypothesis is dependent on its ability to generate stable revenue through regular upgrade cycles. Its resources, as evidenced by a whopping $28.3 billion in cash and equivalent also mean that Apple Inc. (NASDAQ:AAPL) is able to continuously innovate its product lineup. The biggest example of this is the MacBook lineup where the firm has successfully replaced x86 processors made by Intel with its custom chips. This has allowed Apple Inc. (NASDAQ:AAPL) to de link its supply chain from an unreliable partner and benefit from tighter ecosystem control. However, the firm’s reliance on the iPhone means that if the phone disappoints, its shares tumble. Apple Inc. (NASDAQ:AAPL) stock lost 3% in mid September after an analyst note speculated that 2024 iPhone sales were lower over its predecessor over the year ago comparable period.
Baron Funds mentioned Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter. Here is what the firm said:
“Recent Activity This quarter we re-initiated a position in Apple Inc., a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shis, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on- device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
Overall AAPL ranks 3rd on our list of the stocks popular with mutual fund managers according to Goldman Sachs. While we acknowledge the potential of AAPL 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 AAPL 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 was originally published on Insider Monkey. All investment decisions should be made after consulting a qualified professional.