We recently compiled a list of the 12 Best Up and Coming Stocks To Buy According to Hedge Funds and in this article, we discuss whether Duolingo, Inc. (NASDAQ:DUOL) is the best up-and-coming stock to buy now.
Despite the concerns surrounding the market over the last few years, the broader market has performed exceptionally well as the S&P 500 reached new record highs crossing 5,300 points by mid-May. While the broader market has been surrounded by bearish sentiment since 2022 and even after its tremendous performance in 2023, many analysts have retracted their statements and are now expecting a positive future. For the year-end 2024, UBS and BMO expect the index to reach 5,600, Wells Fargo predicts that it will close out the year at 5,535 and even one of the most bearish analysts, Morgan Stanley’s Mike Wilson, raised the target to 5,400 from the prior 4,500.
Interest Rate Predictions
Interest rate hikes and cuts have been a major part of discussion in the markets for the last couple of years. In 2023, many analysts predicted up to six cuts in 2024 but the predictions faded over time with hotter-than-expected inflation data. At the Federal Reserve’s May 1 meeting, Chairman Jerome Powell showed hesitation in providing a specific time for any decision on rate cuts and said that the Fed needs more data before taking any step. However, the chairman did hint that the chances of hikes are highly unlikely. Some experts also believe that there may not be a rate cut this year as discussed in our previous article about best soaps and cleaning materials stocks.
According to CME’s FedWatch tool, 98.9% of the market is expecting interest rates to remain the same at the Fed’s June meeting while 1.1% believe that the Fed may raise the rates by 25 basis points (bps). Morgan Stanley predicts rate cuts to start in September at 25 basis points as they expect that inflation will begin to decline which could give the Fed enough confidence to start cutting rates. The FedWatch tool reveals that in September, 51.6% of the market isn’t expecting any rate cuts, 42.8% expects a 25 bps reduction, 5% expect rates to be cut by 50 bps and 0.6% believe that the rates will be 25 bps higher than the current levels of 5.25% to 5.5%.
Market Upside Potential Amidst Tightening Policies
Recently, we have seen another pullback in the market as the broader market has contracted by 1.5% between May 27 to 30. However, some experts still expect an upside and believe that the market is in healthy condition.
On May 29, former chief investment strategist for The Leuthold Group and Wells Capital Management, Jim Paulsen told CNBC that he is optimistic about the economy and highlighted its resilience despite previous recession predictions and challenges like inverted yield curves. He noted the strength of corporate balance sheets, overall economic health, liquidity, and positive recent earnings reports. He also acknowledged that tightening policies such as higher yields, a stronger dollar, a lower fiscal deficit to GDP ratio, modest monetary growth, and balance sheet contraction will eventually slow the economy and reduce inflation. Paulsen predicts that inflation will fall below 3%, creating favorable conditions for the market and suggesting potential for further upside. Moreover, Paulsen noted that the inflation has indeed come down if we compare it to 2022’s 9% and added that he does not think that the Fed target of 2% inflation is needed for “things to be good.”
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Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 400 stocks that have experienced revenue growth of at least 40% year-over-year and have a market cap of above $300 million. We then narrowed down our list to 12 stocks that have seen growth in hedge fund sentiment between the fourth quarter of 2023 and the first quarter of 2024, have positive analyst sentiment, and have consistent revenue growth. We listed the best up and coming stocks in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 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 best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Duolingo, Inc. (NASDAQ:DUOL) the Best Up and Coming Stock According to Hedge Funds?
Duolingo, Inc. (NASDAQ:DUOL)
Year-over-Year Revenue Growth in FQ3 2023: 45%
Year-over-Year Revenue Growth in FQ4 2023: 45.4%
Year-over-Year Revenue Growth in FQ1 2024: 43.2%
Number of Hedge Fund Holders: 43
Duolingo, Inc. (NASDAQ:DUOL) is a mobile learning platform that offers language courses through its app. With a stake value of $1.84 billion, 43 hedge funds held long positions in Duolingo, Inc. (NASDAQ:DUOL) at the close of the first quarter of 2024. Durable Capital Partners is the most prominent shareholder in the company and has a position worth $684.93 million.
Duolingo, Inc. (NASDAQ:DUOL) is one of the best up-and-coming stocks as it has consistently managed to increase its revenue over the last few quarters. The company’s ability to continuously upgrade its product based on user data drives higher engagement and conversion rates, which is highlighted by a 54% growth in daily active users (DAUs) in the first quarter of 2024, compared to the previous year. Moreover, analysts see further upside to the stock. The stock’s average price target of $255.33 represents a 31.36% upside from current levels, as of May 30.
ClearBridge Investments stated the following regarding Duolingo, Inc. (NASDAQ:DUOL) in its first quarter 2024 investor letter:
“Encouragingly, we are seeing underlying improvements from companies we do own in the portfolio, with several being recent portfolio additions or subjects of repositioning work executed in 2023.
The first quarter represented another period of fruitful new idea generation with nine new investments. Consistent with historical practice, these initial investments represent modest position sizes that we intend to build over time.
Duolingo, Inc. (NASDAQ:DUOL), in the consumer discretionary sector, is a category leader in online language learning. With a freemium digital education model offering 40+ languages, Duolingo’s application has exhibited rapid growth in users and conversion to paid subscribers. The company has opportunity to expand its English-learning focus as well as broaden into new categories like math and music. Duolingo offers a long history of product innovation, marketing efficiency and attractive profitability/unit economics.”
Duolingo, Inc. (NASDAQ:DUOL) takes the fifth spot on our list of best up and coming stocks to buy. To find other up-and-coming stocks that hedge funds and analysts like, check out our free report on the 12 Best Up and Coming Stocks To Buy According to Hedge Funds.
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 more promising than NVIDIA 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 is originally published on Insider Monkey.
