We recently compiled a list of the 10 Best Stocks In Each Sector In 2024. In this article, we are going to take a look at where S&P Global Inc. (NYSE:SPGI) stands against the other top stocks in each sector.
With 2024’s close approaching fast, the stock market has touched new records that few would have thought were possible when the Federal Reserve started its interest rate hiking cycle in March 2022. Most of the stock market’s gains are due to artificial intelligence making a splash in November 2022, and since then, investors have had a chance to bask in meteoric returns as they waited for financial conditions to ease.
For instance, consider the stock performance of the world’s leading AI GPU designer. From the start of 2021 to the end of 2022, when inflation had peaked in the US, its shares had bled 53%. Back then, the semiconductor industry was facing a historic glut as chip companies had shipped excessive inventory into the channel after witnessing booming demand during the pandemic era. However, since the start of November 2022, the stock has gained 800%+, simply due to the fact that its GPUs are the prized commodity for training and using AI software.
On the flip side, consider a warehouse and logistics real estate stock with a market value of $117 billion and which ranked 11th on our list of the 12 Best Forever Stocks To Buy Now. During the time that the GPU designer’s shares gained 800%+, its stock has posted a mere 17% in returns through share price appreciation. This bifurcation sits at the heart of the stock market right now, where while stocks exposed to AI, such as the 4th top stock out of the 12 that Jim Cramer believes investors should watch closely, are up by 61% year to date.
Apart from chip designers, other stocks have also been caught up in the AI wave. One of the biggest sectors that has seen these tailwinds is utilities. Within utilities, firms that rely on carbon free sources to generate electricity are seeing particular interest. One top stock that has performed well this year ranked 2nd on our list of 10 Best Infrastructure Stocks To Buy Now. A nuclear energy firm that generates 90% of its 32GW energy capacity through nuclear, the stock is up 120% year to date. In fact, this stock jumped by a hefty 26% between September 18th to September 23rd, after Microsoft announced a 20 year deal with it to use a nuclear plant at Three Mile Island to power up its AI data centers. The shares were further helped when the biggest banks in the world backed a COP28 goal to triple global nuclear power generation capacity by 2050.
Focusing on the broader clean energy sector which has been quite distressed in the era of high rates with the S&P’s clean energy index down by 3.19% over the past year, analysts continue to be bullish about the sector’s future. Estimates from the International Energy Agency (IEA) suggest that global clean energy demand is slated to grow by 3.4% annually until 2026. Within the US, the Energy Information Agency (EIA) expects that renewable energy deployment will grow by 17% in the US this year to potentially account for 25% of American energy production by touching 42GW. Government spending has played a key role in this optimism, as these initiatives have led to private companies announcing $82 billion in investments for clean energy manufacturing and infrastructure.
While clean energy has lagged amidst investor worries of high rates sapping investments, other sectors have prospered. One such sector is the telecommunications sector. As we live in the information age, humanity’s data consumption has touched levels no one would have thought were possible when the internet was growing in popularity during the 1990s. Estimates show that while global data consumption already sat at a remarkable 3.4 million petabytes (PB – 1 PB = 1,048,576 GB), it is expected to grow to 9.7 million PB by 2027. Simultaneously, telecommunications companies are expected to invest a whopping $342 billion in network upgrades by 2027, while the number of Internet of Things (IoT) gadgets is expected to surge to 25.1 billion by the same year. Telecommunications stocks have performed well over the past twelve months as well since the S&P’s telecommunications index is up by 40.48%.
Mid September also saw a status quo change on Wall Street as the Federal Reserve cut interest rates by 50 basis points. While this is great for industrial, real estate, and clean energy stocks, it’s also beneficial for financial services firms and banks in particular. While banks have the opportunity to earn more money through interest from loans generated when rates are high, their deposit costs also increase to dent the overall net interest income. As a result, since the Fed’s rate cut announcement, the S&P’s bank stock index has gained 5.8%. As a whole, the financial services industry is expected to grow at a compounded annual growth rate (CAGR) of 7.7%, or from $31 trillion in 2023 to $33.5 trillion by the end of this year.
Crucially, lower rates also mean that alternative securities become more attractive to investors. When it comes to stocks, dividend stocks are particularly favored as their yield becomes lucrative compared to low interest rates. The Dividend Aristocrat Index is up by 2.3% since the rate cut. Investors, it seems, are attracted to dividends again, which is unsurprising considering that the S&P’s dividend stocks paid out $153 billion in dividends in Q2 2024 to mark a 7% annual and 1.2% sequential growth.
A Nuclear power plant with all its safety & security protocols in place.
Our Methodology
To make our list of the best stocks to buy in each sector, we used our coverage of the best stocks in infrastructure, materials, clean energy, telecommunications, financial services, dividends, artificial intelligence, real estate, consumer defensive, and healthcare to pick out the top stocks. The stocks are ranked by the number of hedge funds that bought the shares during 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).
S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders in Q2 2024: 90
S&P Global Inc. (NYSE:SPGI) is one of the biggest financial services providers in the world. It has a diverse set of products which range from credit ratings to third party research, supply chain solutions, and stock index management. However, despite the diversity, $4.5 billion of S&P Global Inc. (NYSE:SPGI)’s $7 billion in revenue during H1 2024, or 64% came from its markets intelligence and credit rating businesses. The picture is further complicated by the fact that market intelligence is a margin light business, as 48% of the firm’s $2.9 billion of H1 operating income was through ratings. What these metrics imply is that S&P Global Inc. (NYSE:SPGI) is heavily dependent on the bond market for its performance. Consequently, as credit markets recover from the shock of 24 year high interest rates, S&P Global Inc. (NYSE:SPGI)’s shares are up by just 9.30% since 2022 start. However, provided that capital markets activity grows, then the stock could provide gains, particularly as the ratings division’s H1 2024 revenue of $2.2 billion marked a 29% annual growth.
S&P Global Inc. (NYSE:SPGI)’s management commented on the rating business during its Q2 2024 earnings call:
“Now turning to Ratings where we saw exceptional revenue growth of 33% which exceeded our internal expectations. Transaction revenue grew by 63% in the second quarter, fueled by increased bank loan and bond issuance. Non-transaction revenue increased 9%, primarily due to an increase in annual fee revenue and an increase in new mandates, particularly from the return of high-yield issuers. Adjusted expenses increased 8%, driven by higher compensation, including incentives, as well as investments in strategic initiatives.
This resulted in a 52% increase in operating profit and an 810 basis point increase in operating margin to 65.8%. For the trailing 12 months, Ratings margin expanded 570 basis points to 60.9%.”
Overall SPGI ranks 6th on our list of the best stocks to buy in each sector. While we acknowledge the potential of SPGI as an investment, our conviction lies in the belief that some 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 SPGI 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. All investment decisions should be made after consulting a qualified professional. This article is originally published at Insider Monkey.
