We recently compiled a list of the 10 Best QQQ Stocks to Buy According to Analysts. In this article, we are going to take a look at where Globalfoundries Inc. (NASDAQ:GFS) stands against the other QQQ stocks.
Navigating High Valuations and Stock Opportunities
Several recent discussions have focused solely on the implications of the Fed’s recent rate cut for the market. Analysts have noted that smaller interest rate reductions are expected as the Fed adopts a long-term perspective on monetary policy. Despite earlier recession predictions, there is a bullish outlook for the market now.
Economic data indicates strong growth. The current environment is characterized as stable, suggesting that additional quarter-point cuts could be beneficial. Just as October began, Richard Fisher, Jefferies’ senior advisor, joined CNBC to make a discussion on the concerns about whether current rates are too restrictive, with arguments that financial conditions remain supportive. We covered this in detail in our 10 Most Undervalued Quality Stocks To Buy According To Analysts article, here’s an excerpt from it:
“He highlighted the significance of recent economic data, particularly from the Atlanta Fed, which indicates strong growth above 3%. Fisher characterized the current economic environment as experiencing neither a soft landing nor a hard landing, but rather a smooth glide path. He believes that two more quarter-point cuts would be appropriate to maintain this trajectory. When discussing concerns about whether current rates are too restrictive relative to inflation, Fisher disagreed with the argument and pointed out that financial conditions remain accommodative, citing narrow spreads and strong private lending activity. He argued that with another two cuts, the Fed would not be overly restrictive.”
Analysts caution against declaring victory regarding economic stability too soon. The ongoing evaluation of monetary policy will continue until 2026. Under a similar discussion, Michael Kantrowitz, chief investment officer at Piper Sandler, joined CNBC on October 14 to discuss the outlooks on overvalued markets, as he thinks that over-valuation is no reason to get bearish.
The financial markets marked the second anniversary of the ongoing bull market, which has seen stock prices rise at the second-fastest pace since 1950. Michael Kantrowitz noted that while markets may appear expensive, this does not necessarily warrant a bearish outlook unless new risks emerge. Kantrowitz emphasized that many valuation models have indicated that the market has been expensive for some time, but he believes it is essential to understand the catalysts driving these valuations.
He explained that the significant rise in market multiples over the last two years can largely be attributed to the pricing out of risks that were prevalent two years ago, such as inflation and high interest rates. Kantrowitz stated that these concerns have largely been factored into equity prices, which is why the market is where it is today. He argued that an expensive market alone is not a reason to adopt a bearish stance; instead, potential spikes in interest rates or renewed inflation fears could trigger such a sentiment. Currently, however, he sees no immediate threats on the horizon.
When discussing sector performance, Kantrowitz clarified that his focus is less on broad sectors and more on individual stocks with strong earnings momentum. He acknowledged that while sectors like technology may appear expensive overall, there are still individual stocks within those sectors that continue to show earnings growth. He stressed the importance of earnings revisions as a key factor in stock selection and portfolio construction.
Addressing concerns about rising bond yields, Kantrowitz acknowledged that higher yields could pose challenges for equity markets. He recalled how earlier in the year when ten-year Treasury yields rose from around 3.80% to approximately 4.30%, equity markets initially remained stable but began to feel pressure as rate-sensitive stocks started underperforming. He noted that utilities and real estate sectors had benefited from lower rates but were now facing challenges as rates increased.
Kantrowitz also commented on various economic indicators suggesting mixed signals in the market. For instance, he mentioned metrics like rail freight carloads and corporate misery indices indicating weak demand. However, he cautioned against overreacting to these indicators, noting that downward earnings revisions are common as companies adjust their forecasts throughout the year. Historically, Q4 tends to see significant downward revisions as companies align their expectations with actual performance.
In the current economic climate, characterized by uncertainty and mixed signals, the importance of quality stocks cannot be overstated. Quality stocks, those with strong earnings momentum and resilient business models, are particularly well-positioned to navigate these turbulent times. As concerns about rising interest rates and inflation persist, investors may find that high-quality companies with solid balance sheets and consistent profitability can offer a buffer against volatility.
Methodology
We first sifted through the Invesco QQQ exchange-traded fund (ETF) holdings to find the ones with an upside potential of over 25% as of October 14, 2024. We then selected 10 stocks with the highest upside potentials that were also the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of their analysts’ upside potential.
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).
A technician holding a complex printed circuit board with microcontrollers, showing the company’s expertise in powering devices.
Globalfoundries Inc. (NASDAQ:GFS)
Average Upside Potential: 34.64%
Number of Hedge Fund Holders: 21
Globalfoundries Inc. (NASDAQ:GFS) is a semiconductor contract manufacturing and design company that specializes in producing integrated circuits (ICs) of various technologies, including leading-edge and mature nodes. It operates manufacturing facilities around the world and serves a diverse customer base, including major chip designers and technology companies.
The acquisition of Tagore Technology’s GaN IP portfolio aligns with its strategy to address the growing demand for high-power GaN devices in sectors like automotive, IoT, and AI data centers. This technology enhances efficiency and performance in these applications. The company’s recent $1.5 billion funding through the US CHIPS and Science Act will support the domestic high-volume manufacturing of GaN chips, further strengthening the company’s position in the power semiconductor market.
Despite recording a revenue of $1.63 billion in Q2 2024, beating analyst expectations, the company saw an 11.54% revenue decline in the quarter. The decline was attributed to weak demand in key segments such as Communications Infrastructure, Data Centers, and lower-end Consumer and Home Electronics. Additionally, the company faced challenges from broader macroeconomic conditions, geopolitical instability, and elevated inventory levels in the semiconductor industry. However, there were some positive developments, such as higher average selling prices and growth in the automotive segment.
In early September, it formed a strategic partnership with Silicon Catalyst, a renowned startup incubator. This collaboration aims to foster innovation and accelerate the development of next-generation semiconductor solutions. By providing startups with access to the company’s advanced technology and expertise, the partnership will empower them to create cutting-edge chips for applications like AI, automotive, and IoT.
Despite challenges, Globalfoundries Inc.’s (NASDAQ:GFS) rebound in revenue from the automotive industry and its potential for future growth in emerging technologies like AI and 5G make it a compelling investment opportunity.
Overall GFS ranks 5th on our list of the best QQQ stocks to buy according to analysts. While we acknowledge the growth potential of GFS 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 GFS 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.
