We recently published a list of the 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America. Since Snap Inc (NYSE:SNAP) ranks 7th on the list, it deserves a deeper look.
Analysts at BofA Securities recently published a list of “best of breed” stocks for the third quarter of 2024, which they believe are the top choices for investors on the back of their high quality, liquidity, earnings growth and margin upside when compared with peers. BofA’s “best of breed” basket of stocks has reportedly outperformed the MSCI All Country World Index (NASDAQ:ACWI) by 584 basis points, and returned a whopping 470% since its inception in April 2010.
Bank of America analyst Michael Hartnett thinks these best of breed companies have strong balance sheets, cash flow and high EPS growth as well as competent management. Hartnett believes these companies generate the “best relative returns” in the long term and can protect investors against short-term volatility.
For this article we scanned BofA’s best of breed basket of stocks and picked 10 companies with the highest number of hedge fund investors. 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).
Photo by Alexander Shatov on Unsplash
Snap Inc (NYSE:SNAP)
Number of Hedge Fund Investors: 45
BofA added Snap Inc (NYSE:SNAP) in its list of best of breed stocks. Over the past one year, SNAP shares have gained about 50% in value. Snap Inc (NYSE:SNAP) has been a surprising rebound story over the past few months as Snap Inc (NYSE:SNAP) earnings and growth have surprised analysts. Snap Inc (NYSE:SNAP) is fast becoming an AI stock that needs more attention than it’s currently getting. Snap Inc (NYSE:SNAP) has integrated ‘My AI’ chatbot with its app and it’s getting a lot of traction. The bot helps Snap Inc (NYSE:SNAP) users plan trips, answers questions, makes customized recommendations and much more. Snap Inc (NYSE:SNAP) also revealed a feature that would allow creators to convert any text prompt into a “lens.” Snap Inc (NYSE:SNAP) is also investing heavily in machine learning to increase engagement on its platform. New features like Creative templates, longer video formats will increase engagement on Snapchat, analysts believe.
Snap Inc’s (NYSE:SNAP) Q1 results show the growth trajectory the company is on. Time spent on Spotlight, Snapchat’s short viral videos feature, jumped 125% year over year in the first quarter. Snapchat+, Snap’s subscription service that unlocks special features on the app, tripled to nine million in the March quarter. Small and medium-scale advertisers on the platform jumped 85% on a YoY basis. Snap Inc (NYSE:SNAP) earnings are expected to continue seeing growth on the back of AI and core business growth catalysts. Wall Street expects Snap Inc (NYSE:SNAP) to post an EPS of $0.25 this year and $0.43 next year. Earnings growth is expected at over 70% next year.
RiverPark Large Growth Fund stated the following regarding Snap Inc. (NYSE:SNAP) in its first quarter 2024 investor letter:
“Snap Inc. (NYSE:SNAP): SNAP was our top detractor in the quarter despite reporting fourth quarter results generally in line with or better than expectations. Revenue growth of 5% was roughly in line with investor estimates and at the high end of guidance, and EBITDA of $159 million was $49 million better than estimates. Daily Active Users (DAUs) were also ahead of investor expectations, ending the quarter at 414 million (about 2 million better), driven by continued innovation in Snap’s offerings. Revenue guidance for 1Q24 was also roughly in line with investor estimates, but EBITDA guidance of negative $55-95 million was well below estimates. The company pointed to increased infrastructure costs and a US focused marketing campaign for the lower-than-expected margin guidance.
Although the company continues to face near-term macro headwinds, we believe SNAP can accelerate its revenue growth over the next several years. With 2023 revenue expected to be $4.6 billion (as compared with Meta’s $134 billion), we believe SNAP has a long runway for both revenue growth and expanded profitability as it improves platform functionality, continues to grow its audience (daily active users continue to grow at a double-digit rate), and expands its monetization.”
Overall, Snap Inc (NYSE:SNAP) ranks 7th on Insider Monkey’s list titled 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America. While we acknowledge the potential of Snap Inc (NYSE:SNAP), 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 Snap Inc (NYSE:SNAP) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
