We recently compiled a list of the 10 Most Profitable NASDAQ Stocks To Invest In. In this article, we are going to take a look at where Baker Hughes Co. (NASDAQ:BKR) stands against the other profitable NASDAQ stocks.

Is the Market Sentiment Still Bullish?

Recent analysis indicates that an anticipated tech rally may be delayed until year-end, despite the S&P 500 achieving a remarkable 20% increase year-to-date. As September closed, the index rose by 1.6%, defying its historical volatility and showcasing market resilience. Positive macroeconomic indicators are emerging, with upward revisions to Q3 growth estimates and low jobless claims, suggesting a stable economic foundation.

However, concerns about sustaining market momentum without new catalysts persist. Historically, stock prices and price-to-earnings multiples rise together unless disrupted by negative events. As the market approaches traditionally strong months following elections, expectations for a potential year-end rally are building. Despite elevated volatility and geopolitical tensions, investor caution remains. The NASDAQ 100 has surged significantly over the past two years, but this performance does not yet indicate speculative excess. In the last days of September, DataTrek Research co-founder, Nick Colas, joined CNBC to discuss the trading day and highlighted his outlook on the NASDAQ during the conversation. We covered his views in our article on the 10 Best Performing NASDAQ Stocks in 2024. Here’s an excerpt from it:

“…Over the past two years, the NASDAQ 100 has surged approximately 67%, marking a significant recovery since its lows in October two years ago. This performance is substantially above the historical average return of around 25%. Colas emphasized that while such returns are impressive, they do not yet indicate speculative excess; historically, a doubling of the NASDAQ over two years would signal potential trouble for investors.

Looking back further, Colas noted that since peaking before the bear market in November 2021, the NASDAQ 100 has only risen about 20% over three years. This suggests that there may still be room for growth compared to prior bubbles when returns were much more pronounced within shorter time frames.”

In a recent discussion on October 9,  Jason Snipe, Odyssey Capital Advisors principal, joined CNBC’s ‘Closing Bell’ to discuss the tech sector’s mega-cap momentum, particularly in light of recent mega-cap stock downgrades and significant investor outflows. Despite these challenges, Jason Snipe noted that the tech sector is having a positive day, attributing this to a combination of improved earnings estimates across various sectors and substantial investments in AI-related capital expenditures. He emphasized that ~40% of operating cash flow is being allocated to AI, raising questions about when these investments will start to yield returns. This focus on AI has contributed to some recent downgrades but also suggests continued upside potential for select names within the sector.

Snipe further defended the tech space by highlighting the profit margins of mega-cap stocks, which average over 23%, compared to just over 8.5% for other sectors. This discrepancy indicates a strong reason for ongoing capital inflows into tech and software companies that demonstrate earnings strength. He acknowledged that while there may be some consolidation and a slowdown in growth, he believes that investors’ muscle memory will eventually lead to a resurgence in these stocks.

When discussing NVIDIA’s recent performance, Snipe pointed to comments made by the CEO regarding the endless demand for their Blackwell chip as a significant catalyst for the stock’s movement. He expressed confidence that it would exceed earnings expectations when they report later in the earnings season. However, Snipe also addressed concerns regarding Amazon, which has seen its stock decline for 8 of the last 9 days. He noted that its retail business appears to be struggling, with retail making up 62% of its operations. Despite this, he highlighted AWS as a bright spot, which reported a 19% year-over-year acceleration. He suggested that competition from other retailers could pressure its retail margins but remained optimistic about the company’s diverse revenue streams, including advertising and subscription services.

Snipe’s analysis underscores the complexities facing the tech sector amid market volatility and evolving economic conditions. While challenges persist, particularly with mega-cap stocks experiencing downgrades, there are also significant opportunities driven by innovation and strong profit margins that could support continued growth in this space. As expert sentiments shift regarding MAG7 and other big tech stocks, other profitable tech companies are maintaining their positive momentum in the market.

Methodology

We sifted through Finviz to compile an initial list of the top NASDAQ stocks. From that list, we narrowed our choices to 20 companies with positive TTM net income and 5-year net income compound annual growth rates. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.

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).

Baker Hughes Co. (NASDAQ:BKR)

TTM Net Income: $1.99 billion

5-Year Net Income CAGR: 31.11%

Number of Hedge Fund Holders: 41  

Baker Hughes Co. (NASDAQ:BKR) provides products and services for oil well drilling, formation evaluation, completion, production, reservoir consulting, and tubular running services. It plays a crucial role in helping energy companies explore, develop, and produce oil and gas resources.

It benefits from global economic growth that increases oil demand. 63% of its revenue comes from goods and services, making margin control and sizeable orders crucial. To reduce oil dependence, the company is diversifying into other industries like paper manufacturing.

The company has invested in GreenFire Energy, acquiring Advanced Geothermal Systems, which uses closed-loop technology to enhance geothermal energy extraction from wells. Earlier in March, it announced a collaboration with Earths Energy to explore, develop, and commercialize geothermal projects in Australia using its technology capabilities. In Q2, Wabash Valley Resources selected this company as their preferred equipment and service supplier for their ammonia and carbon sequestration plant in Indiana.

In Q2 2024, company revenue reached $7.14 billion, up 13.05% year-over-year, primarily driven by increased volume in both IET and OFSE segments. IET had orders go up 97%, and revenue go up 28%. CTS orders increased by 24%, and new energy orders grew by 31%. OFSC also saw strong growth, with orders up 40%, and revenue up 6%.

Unlike its peers, over 75% of Baker Hughes Co.’s (NASDAQ:BKR) revenue is ex-US, diversifying its customer base and protecting against US-specific downturns. It is capitalizing on the growing geothermal market. Its investment in GreenFire Energy and AGS technology allows it to repurpose existing infrastructure and unlock previously uneconomical projects. This innovative approach, coupled with global reach and industry expertise, positions it for significant growth in the clean energy transition.

ClearBridge Select Strategy made the following comment about Baker Hughes Company (NASDAQ:BKR) in its Q3 2023 investor letter:

“Performance was boosted in the quarter by the Strategy’s more economically-sensitive holdings among steady compounders and evolving opportunities. Oilfield equipment and services provider Baker Hughes Company (NASDAQ:BKR), meanwhile, benefited from a $20 rise in crude oil prices as well as disciplined execution.”

Overall BKR ranks 6th on our list of the most profitable NASDAQ stocks to invest in. While we acknowledge the potential of BKR as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BKR 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. This article is originally published at Insider Monkey.