We recently compiled a list of the 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Tesla, Inc. (NASDAQ:TSLA) stands against the other consumer discretionary stocks.
Many experts and analysts are concerned about a slowdown in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail foot traffic rose by 4.4% in June, indicating strong consumer activity despite flat overall sales.
While furniture and home improvement stores saw declines due to reduced monumental purchases and a sluggish housing market, grocery stores, and apparel retailers performed better. Grocery sales grew by 1.7%, with a nearly 5% increase in foot traffic, as consumers managed their budgets despite cutting costs. Apparel sales also increased by 3.8%, driven by early back-to-school shopping and wardrobe updates, leading to an 8.3% rise in foot traffic.
In July, consumer spending saw a modest increase compared to June, with gains across 10 of 12 retail categories, as reported by the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gas, rose by 0.7% month-over-month, slightly up from June’s 0.5%, but the year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail, which excludes restaurants, saw a 1% monthly increase. Significant sector performances included a 3.4% rise in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the healthcare, personal care, and garden supplies sectors experienced slight declines.
June and July data together indicate that consumer spending remains resilient, supported by strong household finances and a strong job market. While some sectors, particularly furniture and home improvement, are struggling due to reduced consumer confidence and a slow housing market, other categories are performing well.
The data suggests that consumers are still willing to spend, especially on essential and seasonal items, though they may be more cautious with larger purchases. Despite some areas of decline, the overall retail environment appears stable, with consumers continuing to spend where they find value, which indicates a cautiously optimistic outlook for the remainder of 2024.
Latest Updates on Interest Rates and Potential Effects On Consumer Spending
In the July meeting, Fed Chair Jerome Powell highlighted the Fed’s ongoing focus on achieving maximum employment and stable prices. He noted significant progress in the economy, with inflation dropping from 7% to 2.5% and a balanced labor market with low unemployment at 4.1%. The Fed chose to keep interest rates steady within the 5.25% to 5.5% range and continue to reduce its securities holdings to maintain a restrictive stance, which is aimed at aligning demand with supply and reducing inflationary pressures.
Powell mentioned that while inflation has eased, the Fed is not yet ready to lower rates and requires more consistent positive data before making such a move, possibly as early as September. According to the CME Fed Watch Tool, all the experts are expecting cuts in September. 50.5% of the experts predict a 25 basis points (bps) reduction in the interest rates while 49.5% expect a 50 bps cut.
Rate cuts generally have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which could lead to increased consumer borrowing and spending. This increased affordability can boost consumer confidence and promote spending on discretionary items. That’s a good set up for discretionary stocks, and with that, let’s look at the 10 best consumer discretionary stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz stock screener to identify over 50 large-cap consumer discretionary stocks then narrowed our list to 10 stocks that were most widely held by institutional investors as of Q1, and listed the stocks in ascending order of hedge fund sentiment.
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).
25 Most In Demand Cars Heading into 2024
Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 74
Tesla, Inc. (NASDAQ:TSLA) is the leading company among the global electric vehicle (EV) companies. The company also provides other clean energy solutions such as stationary battery energy storage devices, solar panels, and solar shingles.
As of 2023, it manufactured 1.8 million battery electric vehicles BEV and is only the sixth company to cross the $1 trillion market cap mark. In 2023, the company’s Model Y broke Toyota’s (NYSE:TM) dominance in the automotive market to become the most selling vehicle in the world.
Even though Tesla (NASDAQ:TSLA) faces stiff competition from Chinese EV companies, especially BYD, the company has made a significant name for itself in the EV market and is expected to remain one of the top sellers for the foreseeable future, especially in the North American market.
As of 2023, the company has a nearly 20% market share in the global EV industry. The global EV industry is expected to be over $670 billion by the end of 2024 and is expected to reach $1.9 trillion by 2032, according to Fortune Business Insights.
On August 8, RBC Capital analyst Tom Narayan slightly reduced Tesla’s (NASDAQ:TSLA) price target from $227 to $224 but maintained an Outperform rating and showed confidence in the company’s potential despite the minor adjustment. Narayan highlighted several key factors that make the company an attractive investment. It is positioned to benefit from increasing regulatory credits, which are earned by producing electric vehicles that meet emissions standards, providing a lucrative revenue stream without additional production costs.
Tesla’s (NASDAQ:TSLA) growing energy storage business is also a significant driver of future growth as demand for renewable energy solutions rises. Additionally, Narayan noted that Tesla (NASDAQ:TSLA) could potentially cut the price of its Full Self-Driving (FSD) software, a move that would likely increase its adoption and provide a substantial revenue boost. These factors collectively position Tesla as a compelling investment despite the slight downward revision in its price target.
In February, Stellantis (NYSE:STLA), the automaker behind Jeep, Ram, and Chrysler, announced plans to adopt Tesla’s (NASDAQ:TSLA) North American Charging Standard (NACS) for its electric vehicles by 2025, joining major automakers like Ford (NYSE:F), General Motors (NYSE:GM), and others in standardizing the charging connector across North America.
This comes as great news for Tesla (NASDAQ:TSLA) as the company benefits significantly from the widespread adoption of its NACS by other automakers. First, it reinforces the company’s position as a leader in the EV charging infrastructure, which is evidence of industry-wide recognition of the superiority and reliability of its supercharger network. This adoption could lead to increased usage of the company’s charging stations by non-Tesla vehicles, which could potentially create a new and stable revenue stream.
In Q1, 74 hedge funds had stakes worth $4.95 billion in Tesla (NASDAQ:TSLA), making it one of the best consumer discretionary stocks to buy. As of March 31, Cathie Wood’s ARK Investment Management is the company’s most prominent investor with nearly 5.2 million shares worth $910.316 million.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:
“The vast majority of the Fund’s underperformance this quarter stemmed from the Fund’s 10-year investment in Tesla, Inc. (NASDAQ:TSLA). Tesla’s shares fell 29.3% during the period and detracted 13.41% from the Fund’s first-quarter results. Although Tesla has contributed importantly to the Fund’s performance since 2014, on occasion it has detracted from quarterly performance. In previous instances when Tesla shares have underperformed during a discrete period, they have shortly afterwards reflected the strong growth of the underlying business and the stock has appreciated considerably. We believe that will be the case again, although cannot guarantee it.
A significant decline also occurred at the end of 2022. In that instance, investors had become concerned about a host of external factors. Investors believed the company founder, visionary, and CEO Elon Musk was distracted by his acquisition of Twitter. They also believed a weak Chinese economy emerging from COVID and U.S. government policies would curtail the purchases of Tesla vehicles. These fears proved to be overblown. As the company achieved milestones in the succeeding year, the stock subsequently doubled over the next 12 months…” (Click here to read the full text)
Overall TSLA ranks 8th on our list of the best consumer discretionary stocks to buy according to hedge funds. You can visit 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds to see the other consumer discretionary stocks that are on hedge funds’ radar. While we acknowledge the potential of TSLA as an investment, 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 TSLA 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 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
