We recently compiled a list of the 10 Best Performing Stocks in 2024. In this article, we are going to take a look at where Sprouts Farmers Market Inc. (NASDAQ:SFM) stands against the other great-performing stocks.
Dow Breaks Record
The Dow Jones Industrial Average has recently made headlines by closing above the 42,000 mark for the first time, a significant milestone that reflects a surge in investor confidence following a substantial interest rate cut by the Fed. This momentous achievement occurred on September 19, when the Dow jumped over 500 points, closing at 42,063.36. This rise was part of a broader trend in the stock market, with major indices experiencing overall gains throughout the week, largely fueled by optimism surrounding the Fed’s decision to lower interest rates by 0.5%.
On September 21, Edward Yardeni, president of Yardeni Research, while acknowledging that the market tends to keep rising, also discussed the warning signs of a melt-up, in the context of the markets’ response to the September rate cut on CNBC’s ‘Closing Bell’. He doubted the necessity of such a large rate cut, suggesting that the economy is currently growing at about 3% year-over-year and could potentially grow even faster. Yardeni noted that while productivity gains are expected to be more pronounced shortly, he would have preferred to see the market stabilize for a while instead of continuing its upward trajectory.
Yardeni provided his forecast for the market’s potential growth. In his base case scenario, he predicted that the Dow could reach 5,800 possibly by next week. However, he also entertained an alternative scenario where the market might exceed 6,000 before experiencing a correction. Still, he does not foresee a bear market as a recession is unlikely.
While discussing investment strategies, Yardeni highlighted that with small-cap and mid-cap stocks showing signs of improvement in valuations, there is an indication that investors should consider diversifying their portfolios beyond large-cap stocks. However, concerns remain regarding mid-cap earnings, which have not shown significant growth recently. Lower interest rates might eventually provide some uplift to these earnings.
Chicago Fed President Austan Goolsbee has indicated that many more rate cuts may be necessary over the next year due to signs of weakness in the manufacturing sector. CNBC’s Rick Santelli, who was reporting on September 23, noted that while manufacturing has faced challenges, there are indications it might be recovering slightly, as evidenced by a recent production increase of 0.8%.
He referenced comments from Treasury Secretary Janet Yellen, who stated that the economy is experiencing strong growth and robust consumer spending, which he believed contradicted the concerns raised by Goolsbee. Santelli pointed out that the Dow Jones Industrial Average is currently at all-time highs, suggesting that market sentiment remains positive despite underlying economic weaknesses.
Further discussing the economic landscape, he remarked on the currency markets, noting that the US dollar has fallen to its lowest level since March 2022. In contrast, the euro has reached its strongest level since April 2022. This shift in currency dynamics reflects broader economic trends, with Santelli suggesting that Germany’s economic situation appears significantly weakened compared to its previous state.
On the topic of interest rates, Santelli reported that since Tuesday’s market close and following the Fed’s easing on Wednesday, two-year note yields have decreased by 3 basis points, while ten-year note yields have increased by ~9 basis points. He emphasized the importance of monitoring these changes closely as they could indicate shifting investor sentiment regarding future economic conditions.
While Santelli’s discussion underscores a complex economic environment where mixed signals from various sectors create uncertainty, the Dow continues to hover around its record highs and investor sentiment remains cautiously optimistic. Market participants are closely monitoring economic indicators and Fed policies to capture future trends. In this context, we’re here with a list of the 10 best-performing stocks in 2024.
Methodology
We used stock screeners to look for companies trading over $10 billion. We then selected the top 10 stocks with the best year-to-date performance and that were also the most popular among elite hedge funds. The stocks are ranked in ascending order of their year-to-date performance.
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 bright, colorful display of fresh produce in a grocery store.
Sprouts Farmers Market Inc. (NASDAQ:SFM)
Year-to-Date Performance as of September 23: 123.67%
Market Cap as of September 23: $10.77 billion
Number of Hedge Fund Holders: 35
Sprouts Farmers Market Inc. (NASDAQ:SFM) is a supermarket chain and specialty grocer that offers a wide selection of natural and organic foods, including fresh produce, bulk foods, and vitamins. It is known for its commitment to providing healthy and affordable food options to all of its customers.
Cymbiotika, a new line of supplements featured in the company’s Innovation Center, was a successful product that helped it educate customers about its benefits. The private label brand, Sprouts, also expanded with over 200 new products during the first half of the year, driving sales growth that outpaced the company average.
Two major business strides in the recent quarter include fully repaying the $125 million revolving loan and using $104 million to buy back approximately 1.6 million shares of stock. Now there’s $15 million left to spend under the new $600 million stock buyback program.
In the second quarter of 2024, the company made $1.89 billion in total sales, recording a revenue increase of 11.89% year-over-year. This growth was fueled by a 6.7% increase in sales from existing stores and the opening of new locations.
The performance was consistent across all key areas, including in-store traffic and average purchase amounts, e-commerce and brick-and-mortar sales, newer and older stores, and all geographic regions. Online sales rose by 30%, making up 14% of the total revenue. The private-label brand accounted for 22% of the sales during the quarter.
Management anticipates a total revenue growth of 9% to 10%, with same-store sales increasing by 4% to 5%. The company also plans to open around 35 new stores, mostly in the final quarter of this year. As Sprouts Farmers Market Inc. (NASDAQ:SFM) monetizes opportunities like the successful Cherry Festival in Q2, it positions itself well to use marketing and operations to make leaps in the industry.
FPA Queens Road Small Cap Value Fund stated the following regarding Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its Q2 2024 investor letter:
“Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a natural grocer with great merchandising and best-in-class gross margins.19 The company has attractive returns on capital, great new store economics, and they are accelerating their unit growth from 12 stores a year to 35 stores in 2024 on a base of roughly 400 stores. Over the past year, the stock has performed well after reporting strong operating results and from a low initial valuation. The stock price jumped when the company reported 2023Q4 results and gave strong 2024 guidance on February 22, 2024. We have maintained our position and allowed it to appreciate. Although SFM’s share price has increased faster than bottom line results, we believe SFM still trades in the “range of reasonableness” for a high-quality, non- cyclical franchise that can reinvest capital at attractive rates of return.”
Overall SFM ranks 10th on our list of the best performing stocks in 2024. While we acknowledge the potential of SFM 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 SFM 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 at Insider Monkey.
