We recently compiled a list of the 10 Best Low Beta Stocks To Buy. In this article, we are going to take a look at where Booz Allen Hamilton Holding Corporation (NYSE:BAH) stands against the other low beta stocks.
After a rough few years, the market is coming together and is on a healthy trajectory. The recent Fed rate cuts triggered a lot of bullish sentiment toward the broader market. For example, on September 20, Business Insider reported that Brian Belski from BMO raised his S&P 500 price target for 2024 to 6,100 from 5,600, followed by the Fed’s recent rate cut and strong seasonal market data.
Moreover, Belski talked about broadening stock market gains and the increased likelihood of a soft landing for the U.S. economy. He finds current elevated valuations justified as he compared the situation to the mid-1990s when the market sustained high multiples.
In addition, Tom Lee of Fundstrat is bullish on the market for several upcoming years and expects the broader market to nearly triple to 15,000 by 2030. His bullish sentiment is driven by demographic shifts, millennial spending, and technology advancements. He mentioned the prime earning years of millennials and Gen Z, which mirror previous periods of high stock market returns. Furthermore, he also highlighted the role of technology in addressing global labor shortages and projects significant spending on AI and tech solutions.
Broadening Market Participation and the Outlook for Recession Risks
On September 24, Prashant Bhayani of BNP Paribas Wealth Management joined CNBC to discuss the current market conditions. He discussed the improving liquidity and noted the tight credit spreads, near-record equities, and steady lending. While U.S. hiring is slowing, he explained that rising unemployment is partly due to labor force growth, not just layoffs, which makes it different from past cycles. Bhayani stressed that employment data, like jobless claims, will be important in determining market outlooks.
On market valuations, Bhayani acknowledged some sectors are overvalued but sees broader market participation beyond AI-related stocks. He suggested that stocks could outperform bonds if a soft landing or no recession occurs.
Addressing concerns about potential triggers for volatility, Bhayani said that a credit event, similar to those seen in 2000 or 2007, could lead to significant market declines. However, current credit spreads and a healthy banking system support the soft landing view.
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 30 mid to mega-cap stocks with a 5-year beta (monthly) between 0.2 to 0.8. Next, we narrowed the list to 10 stocks most widely held by institutional investors. The 10 best low-beta stocks to buy are listed in ascending order of their hedge fund sentiment and we used the beta as a tie-breaker as well.
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).
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Booz Allen Hamilton Holding Corporation (NYSE:BAH)
5-year Beta (monthly): 0.59
Number of Hedge Fund Holders: 47
Booz Allen Hamilton Holding Corporation (NYSE:BAH) is a Virginia-based consulting firm. The company originally began as the Business Research Service and over the years, it evolved into a leading provider of consulting, analysis, and engineering services, primarily catering to government and military clients.
The company provides a range of services including cybersecurity, analytics, artificial intelligence (AI), digital solutions, engineering, and management consulting. It has established itself as a trusted partner for U.S. federal agencies, especially within the defense and intelligence sectors, as it delivers end-to-end technology services that address complex challenges across various domains.
Booz Allen (NYSE:BAH) has formed strategic partnerships with major technology providers such as Amazon Web Services, Microsoft, Red Hat, and ServiceNow. These collaborations improve its service offerings and allow the company to use cutting-edge technologies for cloud migration, cybersecurity improvements, and operational efficiency.
In Q2, 47 hedge funds had stakes worth $345.975 million in Booz Allen (NYSE:BAH). After increasing its stake in the company by 92%, Millennium Management owns 367,645 shares of the company, valued at $56.58 million, and is the top shareholder, as of June 30.
On August 19, TD Cowen analyst Cai von Rumohr maintained a Buy rating on the company with a price target of $165, as reported by TipRanks. The analyst sees the recent stock price drop as a buying opportunity, given its undervaluation compared to peers.
Despite a weak fiscal first quarter, von Rumohr expects strong performance in the second quarter due to improved billability, new hires, and resolved funding delays. He believes the company’s effective management and strategic positioning in the defense sector justify his positive outlook.
On August 29, the company announced a new task order from the U.S. Department of Homeland Security to support the Cybersecurity Infrastructure Security Agency’s Continuous Diagnostics and Mitigation DEFEND program. The three-year contract, valued at $421 million with a limit of $1.2 billion, will involve providing cybersecurity tools and expertise to 13 federal agencies, including NASA and the IRS. Booz Allen (NYSE:BAH) will focus on asset management, identity and access management, network security management, and data protection.
LVS Advisory stated the following regarding Booz Allen Hamilton Holding Corporation (NYSE:BAH) in its first quarter 2024 investor letter:
“We added Booz Allen Hamilton Holding Corporation (NYSE:BAH) to the growth portfolio in October 2023. I am highlighting Booz Allen this quarter because the exercise of comparing BAH to CACI serves as an interesting example of weighing the trade-offs between “quality” and “value” when picking stocks.
Booz Allen is a technology consulting firm specializing in government contracting. Founded in 1914, Booz Allen has a storied history partnering with the US Government which includes helping the US Navy prepare for World War II. These deep roots have helped engrain the Company into the fabric of Washington DC and provide a foundation for the business’ deep moat.
Not resting on its laurels, Booz Allen has relentlessly re-invested in its business by acquiring and retaining the top talent and technology in the government contracting space. This has translated into Booz Allen serving as one of the most awarded government contractors. The Company is the #1 provider of artificial intelligence to the US Federal Government with nearly 200 government AI contracts spanning defense, national security, and civil missions. Frost & Sullivan ranks Booz Allen as the most innovative company in the Global Managed Detection and Response Market. The Company is also ranked highly in broader surveys including Fortune’s ‘World’s Most Admired Companies’ and Glassdoor’s ‘Best 100 Places to Work’…” (Click here to read the full text)
Overall BAH ranks 8th on our list of the best low beta stocks to buy. While we acknowledge the potential of BAH as an investment, our conviction lies in the belief that 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 promising and 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 is originally published at Insider Monkey.