We recently compiled a list of 8 Most Profitable New Stocks To Invest In. In this article, we will look at where Knife River Corp. (NYSE: KNF) ranks among the most profitable stocks to invest in.

IPO Market to Bounce Back in 2025

Convergence of significant macroeconomic events anywhere around the globe usually ends up triggering market volatility. Last week was marked by critical factors, including a potential port strike and major jobs reports, and created a perfect storm for short-term fluctuations. Of course, that means that these developments influence investor sentiment and market dynamics significantly.

But even before the heightened uncertainty from last week, geopolitical tensions and recent political debates were already and are still influencing market reactions. Bond prices have fluctuated due to uncertainties. With elections approaching, further market fluctuations are expected. Investors should reassess their portfolios, especially those heavily concentrated in equities. As October began, Tiffany McGhee, CEO and CIO at Pivotal Advisors highlighted the macro events that may spark market volatility at this time. With the potential port strike and major job reports scheduled for release, Tiffany’s opinion was covered in our article on the 7 Cheap New Stocks To Invest In Now. Here’s an excerpt from it:

“Tiffany pointed out that the ongoing conflict in the Middle East and the recent vice presidential debate are critical factors influencing market reactions. She observed that bond prices experienced a sell-off earlier in the week but stabilized as investors sought safety amid rising geopolitical tensions. As the election approaches, she anticipates further short-term volatility due to these developments.

In terms of strategy, Tiffany encouraged investors to reassess their portfolios, particularly those with a heavy concentration in equities. With the S&P 500 up 20% year-to-date and sectors like technology and consumer discretionary having performed well, she suggested that now is an opportune time to take some profits off the table and consider reallocating those funds into different areas of the market.”

In short, Tiffany emphasizes strategic asset allocation and proactive management in capital markets to make informed investment decisions. Later on October 4, Ashley MacNeill, Vista Equity’s head of equity capital markets, joined CNBC’s ‘Squawk on the Street’ to discuss her opinion on the IPO market’s potential to bounce back in 2025, given all the market volatility for the rest of 2024.

Ashley McNeill explained that her responsibilities at Vista include not only taking companies private but also re-IPOing them and engaging with public investors to understand their preferences and concerns. McNeill acknowledged that the market has yet to see a significant number of IPOs. For the IPO market to regain momentum, she emphasized 3 critical factors: a lack of market volatility, stable market conditions, and a risk-on appetite from investors. Most importantly, she highlighted the need for corporations to provide consistency and clarity regarding their business plans and execution strategies. This clarity emerged in 2023, leading her to believe that 2025 could be a promising year for IPOs.

McNeill also discussed the current status of private markets, noting that many companies are choosing to remain private longer due to the availability of capital. She pointed out that approximately 45% of US venture capital-backed firms are poised to go public, which translates to over 350 firms potentially looking to tap into the market. This backlog suggests that if the market returns to normalcy, it could take a decade to clear.

When asked about Vista’s portfolio companies, McNeill noted their resilience in the current high-cost capital environment. The implementation of GenAI has been transformative for many of these companies, positioning software firms to leverage this technology effectively. She characterized the sentiment around software versus AI as one where software is expected to benefit from AI advancements. However, she cautioned that it takes time to realize the measurable impacts of GenAI. She thinks investors need to be patient and look for tangible improvements in business performance attributable to GenAI technology. Growth areas, according to McNeill, include enhancing margins and efficiency and forming partnerships that integrate AI into existing operations. Many software companies are beginning to collaborate more closely to harness this technology effectively.

Methodology

We used the Finviz to compile an initial list of the top stocks that went public in the last 2 years. From that list, we narrowed our choices to 20 companies with positive TTM net income. We then selected the 8 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).

Knife River Corp. (NYSE: KNF)

TTM Net Income: $197.7 million

Number of Hedge Fund Holders: 37

Knife River Corp. (NYSE:KNF) is a construction materials and services company operating primarily in the western US. It specializes in aggregates, asphalt, ready-mix concrete, and construction. It also provides construction services, such as road construction, earthwork, and site development. The focus on the construction industry and its strong regional presence make it a significant player in its market.

This company uses a strategic plan under the name of EDGE to drive long-term profitable growth. It focuses on improving EBITDA margin through price optimization, cost control, and efficient execution. Additionally, the plan emphasizes discipline, growth, and excellence in all areas of the business.

It has several deals in its pipeline, ranging from small acquisitions to midsize bolt-on and new platforms. It has completed over 85 acquisitions. The experienced team positions it as the acquirer of choice in midsize high-growth markets.

In the second quarter of this year, the company expanded its teams to 10, focusing on all aspects of business. The PIT crews have visited 98 sites across 10 states, resulting in 1300 improvement opportunities (60% completed). Examples include new mining practices in Medford, Oregon ($1 million annual benefit), reconfigured sand washing equipment in Casper, Wyoming ($200,000 annual benefit), and reintroduced quarry byproduct in Portland, Oregon ($1.1 million annual benefit).

Revenue in Q2 2024 was $806.90 million, up 2.76% from a year-ago period. The company earned $1.37 per share in this quarter. Price increases, increased contracting services, and favorable market conditions drove revenue growth. Weather and lower input costs led to revenue declines in specific segments.

The company’s strong financial performance is driven by its strategic initiatives. With a strong balance sheet and positive market outlook, Knife River Corp. (NYSE:KNF) is well-positioned for continued growth and success.

Longleaf Partners Small-Cap Fund stated the following regarding Knife River Corporation (NYSE:KNF) in its fourth quarter 2023 investor letter:

“Knife River Corporation (NYSE:KNF) – Construction materials and contracting company Knife River was a top contributor for the year and for the quarter. We initiated the position this year after it was spun out of MDU Resources Group, a utility holding company in North Dakota. We were familiar with the business from previous work done on MDU. Knife River was the business that originally attracted us to MDU, and the spin gave us the opportunity to buy the best business as a standalone stock at a discount when utility shareholders focused on a steady dividend dumped it. The business had not been optimized for a long time under MDU but still delivered solid mid-single digit revenue growth over the prior decade. We believe CEO Brian Gray and his plan to improve cash flow represents an improvement over the previous path. Knife River reported strong results in its first two quarters, beating expectations and company guidance.”

Overall KNF ranks 5th on our list of the most profitable stocks to invest in. While we acknowledge the growth potential of KNF, 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 KNF 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.