We recently compiled a list of the 8 Most Profitable Large Cap Stocks To Invest In. In this article, we are going to take a look at where Eaton Corporation plc (NYSE:ETN) stands against the other profitable large cap stocks.

US Stocks Surge as Economic Outlook Brightens

In the second half of 2024, the financial markets are navigating a complex landscape marked by volatility and cautious optimism. Recent reports indicate that the US economy has shown resilience, with growth rates remaining solid despite concerns about inflation and potential recession. Analysts from JPMorgan Asset Management highlight that the US economy has shown strong momentum in recent months, fueled by resilient consumer spending. Analysts suggest that with few excesses in cyclical sectors, the likelihood of a recession triggered by internal factors remains low. Moderate consumer spending is expected to support steady growth into 2025. However, with the upcoming US election, shifting monetary policies, and ongoing geopolitical tensions, there are external risks that could impact this expansion.

On October 9, 2024, US stocks rose for the second consecutive session, with the S&P 500 and Dow Jones Industrial Average closing at record highs. The S&P 500 climbed 0.71% to finish at 5,792.04, while the Nasdaq Composite gained 0.6%, closing at 18,291.62. The Dow surged by 431.63 points, or 1.03%, to settle at 42,512.00 and at a record close. Technology stocks led the rally, reflecting strong investor sentiment despite ongoing geopolitical concerns.

The market’s positive momentum followed the release of minutes from the Federal Reserve’s September meeting, which disclosed a preference among many participants for a larger rate cut. Mike Bailey, director of research at FBB Capital Partners, noted that the Fed’s actions are a key driver behind the market’s performance.

Overall, Wall Street is showing resilience, supported by optimism regarding the Fed’s ability to manage a soft landing for the economy, especially after the September jobs report showed strong growth in the labor market.

In a recent interview on CNBC’s “Closing Bell,” Malcolm Ethridge, managing partner at Capital Area Planning Group, shared his insights on the current state of the markets, particularly regarding mega-cap stocks and the impact of artificial intelligence (AI). Ethridge emphasized that the ongoing bull market, which has seen a remarkable 60% increase over the past two years, is likely to continue, driven primarily by advancements in AI technology. He noted that AI has demonstrated significant staying power, with companies like Microsoft and NVIDIA leading the charge. Ethridge posed an intriguing question: which stock will emerge as the next major player in the ongoing AI arms race?

Ethridge pointed out that mega-cap companies have not relied heavily on borrowing for growth. As the Federal Reserve begins to cut rates, he believes this will enable more companies to issue debt or borrow and invest in AI, potentially fueling further market expansion. He cautioned, however, that historical norms may not apply in this unique economic environment shaped by the COVID-19 pandemic. Overall, Ethridge remains optimistic about mega-cap stocks leading the way.

Methodology

To compile our list of the 8 most profitable large-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined large-cap stocks as those with a market capitalization between $20 billion and $200 billion. Next, we focused on profitability by filtering for stocks that had an estimated 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.

From this initial list of 20 profitable large-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and Macrotrends, which offered information on TTM net income.

Finally, from this list of large-cap stocks that met our criteria, we focused on the top 8 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 most profitable large-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.

Why do we care about what hedge funds do? 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).

Eaton Corporation plc (NYSE:ETN)

TTM Net Income: $3.65 Billion

5-Year Net Income CAGR: 10.61%

Number of Hedge Fund Holders: 93

Eaton Corporation plc (NYSE:ETN), headquartered in Dublin, Ireland, is a global power management company that ranks among the top 3 on our list of the 8 most profitable large-cap stocks to invest in. Operating in over 175 countries, the corporation provides innovative technologies and energy-efficient solutions that help customers manage electrical, hydraulic, and mechanical power effectively. It makes products for the data center, utility, commercial, industrial, residential, machine building, aerospace, and mobility markets.

Founded in 1911 and listed on the New York Stock Exchange for over a century, Eaton Corporation plc (NYSE:ETN) has adapted to changing markets while maintaining a strong commitment to shareholder value, consistently paying dividends on its shares every year since 1923.

The company is making significant strides by expanding its operations and enhancing its product offerings. Recently, Eaton Corporation plc (NYSE:ETN) opened a new state-of-the-art campus in Helsinki, which will boost its capacity for manufacturing uninterruptible power supply (UPS) systems, including the latest energy-efficient models that are 30% smaller than competitors. Additionally, the company has signed an agreement to build a new electrical campus in Dubai, aimed at strengthening its commercial and manufacturing functions in the rapidly growing Middle East market.

Eaton Corporation plc (NYSE:ETN) is also focusing on the European data center market through a strategic investment in NordicEPOD, which designs standardized power modules for data centers. These pre-engineered systems allow for quicker market responses and are designed to operate in harsh conditions while supplying up to 2 megawatts of power.

Driven by its strategic focus on electrification and sustainability, the company is well-positioned to capitalize on the rising demand for electric power solutions across various industries. By investing in innovative technologies and expanding its product offerings in areas like e-mobility and renewable energy, Eaton Corporation plc (NYSE:ETN) is well-positioned for significant growth.

The company reported impressive results for the second quarter of 2024, achieving record sales of $6.4 billion, which reflects an 8% increase compared to the previous year. The company experienced strong organic growth of 9%, marking nine consecutive quarters of growth. Operating profit surged by 90%, and adjusted earnings per share reached a record $2.73, up 24% year-over-year. Additionally, Eaton generated a record operating cash flow of $946 million and a free cash flow of $759 million, demonstrating robust financial health.

In its e-mobility segment, Eaton Corporation plc (NYSE:ETN) saw sales rise by 18%, driven by new program launches in Europe. The company has managed to grow its bottom line by 10.61% over the past 5 years.

According to Insider Monkey’s database, Eaton Corporation plc (NYSE:ETN) has gained significant interest from institutional investors, with the number of hedge fund holders increasing to 93 in Q2 2024, up from 85 in the previous quarter.

Ave Maria World Equity Fund stated the following regarding Eaton Corporation plc (NYSE:ETN)  in its first quarter 2024 investor letter:

“Eaton Corporation plc (NYSE:ETN) is an intelligent power management company. The company is a long-term beneficiary in the trend towards electrification, energy transition and digitalization. Eaton is also benefiting from unprecedented global stimuli such as the Inflation Reduction Act, Infrastructure Investment and Jobs Act, the Chips and Science Act and the EU recovery plan known as the NextGenerationEU.”

Overall ETN ranks 3rd on our list of the most profitable large cap stocks to invest in. While we acknowledge the potential of ETN 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 time frame. If you are looking for an AI stock that is more promising than ETN 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.