We recently compiled a list of the 12 Best Large Cap Stocks To Buy Now. In this article, we will look at where S&P Global Inc. (NYSE:SPGI) ranks among the best large cap stocks to buy now.
Is the Next Bull Cycle Picking Up?
Analysts’ anticipation about the Fed initiating three rate cuts of 25 basis points each, starting in September, has become a hot topic in the current market. While some economic indicators show resilience, recent market fluctuations have raised concerns about deeper rate cuts being overestimated. Yet, a recession appears unlikely, and the steady economic growth suggests a cautious but positive outlook for the markets.
But the question is: why is a recession even being talked about? We discussed this earlier in another one of our articles, 12 Best Small Cap Tech Stocks to Buy, here’s an excerpt from it:
“Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.”
Binky Chadha, Deutsche Bank’s chief global strategist, joined CNBC last week to discuss what’s next for stocks, given the US elections — particularly the typical pullback seen in the month leading up to closely contested races, where markets often decline by 4% to 5%.
Chadha thinks that this trend, driven by uncertainty, prompts investors to seek protection against volatility, leading to a dip in stock prices. This decline usually hits its lowest point on election day, followed by a substantial rally if the election outcome is clear and resolves uncertainty. Historical instances, such as the Bush/Gore election, show that unresolved outcomes can exacerbate volatility, as seen with further market declines during that period.
Understanding market trends about elections is crucial, as delays can significantly impact investor confidence and overall market behavior. The current market is led by a significant rally in the S&P 500, reaching record highs despite challenges like high interest rates and geopolitical tensions. While election years typically see market weakness, the incumbency of both major party nominees may reduce uncertainty this cycle. However, potential volatility remains as the election approaches and corporate earnings are closely examined against high expectations, according to Chadha.
Chadha further talked about the Bush/Gore election and when a Supreme Court resolution seemed imminent, the market rallied. However, this was followed by a continued market decline. While relying on a single instance for broader conclusions is not ideal, this case reflects general market behavior. It’s important to recognize the prevailing positive trend, despite experiencing two pullbacks.
Chadha said that while the S&P 500 has shown unusual recovery dynamics, peaking with 26% year-on-year sales growth, this growth has slowed unsustainably over the past 2 years. As sales growth decelerates, concerns about potential downturns rise, leading to increased inquiries about negative sales growth in the S&P 500.
While Chadha acknowledges that S&P 500 sales growth has returned to pre-pandemic levels, implying stability, there’s also a decline in the labor market, particularly in private payrolls over the past 7 months. Such a mixed sentiment should be given into and used as a buying opportunity. With that, we’re bringing you a list of the 12 best large-cap stocks to buy now.
Methodology
For this article, we have defined large cap stocks as those trading between $20 billion and $200 billion. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 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).
S&P Global Inc. (NYSE:SPGI)
Market Capitalization as of September 13: $162.82 billion
Number of Hedge Fund Holders: 90
S&P Global Inc. (NYSE:SPGI) is a leading provider of independent credit ratings, market intelligence, and risk analytics services, offering a range of products and services that help investors, businesses, and governments make informed decisions. Its primary areas of business are financial information and analytics.
The company reported strong earnings in Q2 2024, with a revenue of $3.55 billion, up 14.45% year-over-year. Vitality’s newly enhanced products accounted for 11% of the total revenue, up 10% from the previous quarter. Transaction revenue grew 60%. Subscription products revenue rose by 8% year-over-year. The earnings per share were $4.04, recording a 30% increase.
The company raised its guidance on various fronts for the full year 2024. The cash flow outlook for the year is particularly well-received by investors. S&P Global Inc. (NYSE:SPGI) intends to uphold its commitment to shareholders, expecting to return approximately 85% of its adjusted free cash flow to them in 2024 through dividends and share repurchases.
As of June 30, 90 hedge funds hold a total of 10,400,077 shares in the company. The largest position amounts to $4.6 billion by TCI Fund Management.
The June update of S&P Capital IQ Pro introduced new benchmarks and commodity insights while accelerating GenAI features. The company completed the acquisition of Visible Alpha in Q2 and plans to divest Fincentric by Q3 2024.
It reported over $1 trillion in billed issuance this quarter, marking a year-over-year revenue increase of over 70% from its private market rating services. The company achieved nearly $200 million in annualized run rate revenue synergies and is on track to reach its target of $350 million in revenue synergies by 2026.
The company continues to enhance its internal tools, including adding new features to the S&P Spark Assist platform launched earlier this year. ~14,000 of its employees are utilizing Spark Assist internally.
S&P Global Inc. (NYSE:SPGI) is well-positioned for sustained growth and success in the financial information and analytics sector. As it continues adapting to market demands, it remains a compelling choice for investors seeking long-term value.
Artisan Global Discovery Fund stated the following regarding S&P Global Inc. (NYSE:SPGI) in its Q1 2024 investor letter:
“We ended our investment campaigns in BJ’s Wholesale Club, Moncler and S&P Global Inc. (NYSE:SPGI) during the quarter. We assumed shares of S&P Global when it merged with IHS Markit. S&P Global is one of the largest credit rating agencies globally and a provider of benchmarks, data and analytics for the global capital and commodities markets. The company has gone through a free cash flow expansion period due to cost-cutting exercises driven by the merger. However, we believe that opportunity is maturing. Furthermore, recent earnings results displayed disappointing forward guidance, including lower rating revenue growth. Given the slowdown in the profit cycle, we decided to exit our position.”
Overall SPGI ranks 12th on our list of the best large cap stocks to buy. While we acknowledge the potential of SPGI 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 SPGI 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 was originally published on Insider Monkey.
