We recently compiled a list of the 12 Best Large Cap Stocks To Buy Now. In this article, we will look at where Uber Technologies Inc. (NYSE:UBER) 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).
Uber Technologies Inc. (NYSE:UBER)
Market Capitalization as of September 13: $150.32 billion
Number of Hedge Fund Holders: 145
Uber Technologies Inc. (NYSE:UBER) is a multinational transportation company that provides ride-hailing services, courier services, food delivery (Uber Eats), and freight transportation. Its platform has disrupted the transportation industry and is now a widely used service in many cities globally.
In the delivery space, Uber Technologies Inc. (NYSE:UBER) maintains a leading position in 7 of its top 10 markets. The company’s ongoing market share rise and the projected 9% compound annual growth rate for the delivery industry indicate its potential to achieve double-digit growth in the near future.
In the global ride-hailing market, it is the clear leader with a significant 25% market share. This dominance is evident in its brand value of $30 billion, reflecting a 28% year-over-year increase, along with its expanding footprint in the global taxi network. Hence, the ride-hailing industry’s anticipated 13% compound annual growth rate is a tailwind for Uber.
The company’s revenue grew by 15.93% year-over-year in Q2 2024 and reached $10.70 billion. There was a 21% year-over-year increase in trips and a 19% rise in gross bookings, which reached $40 billion. Both the mobility and delivery segments demonstrated strong performance as well. The advertising business now contributes over $1 billion in revenue.
The company is growing well by partnering with autonomous vehicle (AV) companies. As AV manufacturers face high costs, Uber Technologies Inc. (NYSE: UBER) offers valuable passenger transportation solutions. It is actively engaging with multiple AV firms to integrate their technologies into its platform, enhancing its market presence in the high-growth AV sector.
This is a top large-cap stock to buy now and is held by 145 hedge funds as of Q2 2024. The largest position is held by Altimeter Capital Management and is worth $982.2 million.
RiverPark Large Growth Fund stated the following regarding Uber Technologies, Inc. (NYSE:UBER) in its first quarter 2024 investor letter:
“Uber Technologies, Inc. (NYSE:UBER): UBER was a top contributor in the quarter following better than expected 4Q23 earnings and 1Q24 guidance. Gross bookings of $37.6 billion were up 22% year over year. Mobility gross bookings of $19.3 billion grew 29% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $17 billion were up 19% from last year and continued to be strong throughout the quarter. 4Q Adjusted EBITDA of $1.3 billion, up $618 million year over year, was better than management’s guidance of $1.2 billion, and the company generated $768 million of free cash flow, up from a cash loss of $303 million last year. Management guided to continuing growth in 1Q Gross Bookings (20% growth) and Adjusted EBITDA (of $1.3 billion). The company hosted a well-received analyst day in February during which it guided to three year compounded annual growth rates for gross bookings of mid-to-high single digits and EBITDA of 30-40%, both above investor expectations. The company also guided to free cash flow conversion of 90% of EBITDA.
UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
Overall UBER ranks 1st on our list of the best large cap stocks to buy. While we acknowledge the potential of UBER 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 UBER 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.
