We recently compiled a list of the 10 Most Promising Mid-Cap Stocks According to Hedge Funds. In this article, we are going to take a look at where KBR, Inc. (NYSE:KBR) stands against the other promising mid-cap stocks.
The S&P 500 May Hit 6,000 in 2024
September closed on a high note, opening a wealth of opportunities for investors. On October 1, Jay Woods, Freedom Capital Markets Chief Global Strategist, appeared in an interview on Yahoo Finance to discuss his predictions for the market.
Woods shares his anticipation for the elections and that the market will take its due course once the elections are over. He believes the technology sector is poised to strengthen as the market rotates from sector to sector. Nvidia, Apple, and Microsoft are currently 15%, 5%, and 8% off their highs and a strong tailwind may be in store for us.
September was stronger than expected and 19 out of 21 times the market hit a high during the month in the past, the market has gone way higher in the following months, or the fourth quarter. Woods reiterated that the setup for a strong comeback is there, especially with elections, and that rotational trade will continue.
Speaking of employment data, Woods suggests that the market has particularly been overreacting to data points and that anything jittery will adversely impact investor confidence. He predicts the unemployment rate to sit at 4.2% and hints that a percentage higher than this will lead to more discussions on bigger rate cuts. He advises that investors need to start blocking out some of these headlines and focus on how stocks have performed in the third quarter of 2024.
The Job Market is Extremely Crucial
On September 30, Matt Stucky, Northwestern Mutual Wealth Management’s chief portfolio manager for equities, appeared in an interview on Yahoo Finance to discuss his market thesis.
According to Stucky, the job market is extremely crucial and investors must focus on that. Since the beginning of 2024, employment data has been consistently declining to the point it may hint at a weakening economy.
On the flip side, the third quarter stood out. The third quarter of 2024 saw the market broaden to sectors other than tech. Five out of seven sectors on the S&P 500 experienced tremendous earnings growth, compared to only two in the second quarter of the same year.
As the market broadens, he expects the market to post earnings growth between 9% to 10% this year and 14% to 15% for the next year. Stucky’s expectations are rather optimistic and believes the economy will head to a soft landing. He also expects the average investor to be more inclined to stocks that have consistent high margin growth in 2025 and ahead. For this year, however, Stucky believes that the defensive sector, especially utilities, remained the strongest.
While the financial markets may remain uncertain, investors may look for cheaper and less-risky investments. That said, let’s look at some of the most promising mid-cap stocks according to hedge funds.
Our Methodology
To find the most promising mid-cap stocks according to hedge funds, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders 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).
An engineer wearing protective gear overlooking a research and development laboratory.
KBR, Inc. (NYSE:KBR)
Number of Hedge Fund Holders: 56
Market Capitalization as of October 10, 2024: $9.08 Billion
KBR, Inc. (NYSE:KBR) ranks fourth on our list of the most promising stocks to buy according to hedge funds. The engineering company operates in the science and technology departments to solve today’s critical challenges such as energy transition, national security, cybersecurity, climate change, and space exploration. KBR, Inc. (NYSE:KBR) has two primary businesses, government solutions and sustainable technology solutions.
The company is committed to delivering sustainable and net-zero solutions to its customers. Its sustainable technology solutions segment operates through two divisions: sustainable services, which include consulting and integrated solutions, and sustainable technology, which includes petrochemicals, clean fuel technologies, modular solutions, and hydro-PRT. On the other hand, its government solutions segment provides long-term technology solutions in AI, data management, cybersecurity, defense modernization, advisory and consulting, nuclear energy, and asset management.
During the second quarter of 2024, the company announced an agreement to acquire LinQuest, an engineering and data analytics company. The acquisition will help the company accelerate its position in delivering high-end technological solutions. More recently, KBR, Inc. (NYSE:KBR) marked a milestone, after its proprietary ROSE technology was selected by Zhejiang Petroleum for its largest unit in China. In addition to that the company also bagged contracts in Brazil, established training centers in Iraq, extended support for programs in Australia, and expanded supply in Europe.
Overall, KBR, Inc. (NYSE:KBR) holds a unique position in the industry. Its footprint is continuously expanding and with its diversified offerings, it sure possesses an upward trajectory. At the end of Q2 2024, 56 hedge funds were bullish on KBR.
Cove Street Capital Small Cap Value Fund stated the following regarding KBR, Inc. (NYSE:KBR) in its Q2 2024 investor letter:
“On the plus side, KBR, Inc. (NYSE:KBR) has been a strong performer so far YTD on the back of an investor day in the second quarter that highlighted the success of the last four-year plan (2020-2023) before laying out ambitious but credible targets for the next 4 years (2024- 2027). Since 2020, KBR has pivoted their commercial business away from high-risk EPC projects to a more differentiated IP-first consulting approach that now sees 20% EBIT margins and contributes 40% of their overall profitability. KBR has cleaned up their balance sheet by settling convertible notes and warrants and now sits at a healthy 2x net leverage. With the upcoming ramp of a $20B government services contract with the U.S. army, the company is well positioned to generate cash and return value to shareholders.”
Overall KBR ranks 4th among the most promising mid-cap stocks according to hedge funds. While we acknowledge the potential of KBR 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 time frame. If you are looking for an AI stock that is more promising than KBR 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.
