We recently compiled a list of the 10 Best S&P 500 Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Mastercard Incorporated (NYSE:MA) stands against other S&P 500 stocks.
As per AXA Investment Managers, the US dominated financial markets this year. The investment firm believes that the broader economy has been stronger than anticipated with GDP growth running at an annualized rate of 3.0% in Q2. The blue-chip benchmark, S&P 500 index, has surged ~22% on a YTD basis. Also, the US fixed-income markets saw strong returns. Overall, the financial markets were supported by the success of the US Fed in dealing with inflation.
Interest rates have started to move lower, with credit markets reflecting the strength of the broader US corporate sector, per AXA Investment Managers. At the start of October 2024, the investment firm mentioned that a 50:50 allocation to the S&P 500 Growth equity index and the ICE US High Yield bond index might have resulted in a return of ~18% YTD.
S&P 500 Index – The Road Ahead
Forbes believes that the prevailing outlook for 2025 is cautious optimism. While the momentum in technology innovation, together with the environment of lower interest rates, should help the broader S&P 500 index, investors are required to be wary of certain risks. These include elevated valuations, global tensions, and uncertainty regarding the US presidential election.
According to ClientFirst Wealth, Legacy & Estate Planning, which is an independent, fee-only registered investment advisor (RIA), the ongoing innovation in AI and lower rates should help the S&P 500 Index see growth in the range of 14.5% – 19.6%. Another firm, Running Point Capital Advisors, expects the S&P 500 to see an increase of 7% – 11% in 2025, with some volatility. As per the company, the influencing factors include economic growth, expansion in earnings, higher mergers and acquisitions activity, and a favorable interest rate environment.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Sectors To Keep on Radar
Forbes highlighted that investors are required to keep certain sectors, like technology, healthcare, and energy, on the radar in 2025. As per IDC, worldwide spending on AI, which includes AI-enabled applications, infrastructure, and associated IT and business services, should more than double by 2028 to reach $632 billion. The incorporation of AI, and generative AI (GenAI) in particular, in a range of products should result in a CAGR of ~29.0% over 2024-2028, which should help the broader technology sector.
Definitive Healthcare believes that investors should see more device makers and pharmaceutical companies jump on the D2C bandwagon in 2025. Also, ICRA, a Credit Rating Agency, expects a strong financial outlook for the broader hospital industry in FY 2025. The optimistic outlook stems from the increasing incidence of non-communicable lifestyle diseases, a rise in per capita healthcare spending, increased medical tourism, and penetration of health insurance.
US Energy Information Administration, in its short-term energy outlook report (October 2024), mentioned that the summer temperatures this year were warmer in the US as compared to last summer, mainly in the upper Midwest and Northeast regions, which supported pushing up the US electricity demand. EIA expects 2% more U.S. sales of electricity to ultimate customers in 2024 as compared to 2023, followed by another 2% expected growth in 2025. Overall, it expects electricity sales to increase throughout economic sectors. It projects that commercial electricity sales will rise by 3% this year followed by a 1% growth in 2025.
A financial planner carefully scrutinizing company’s investment portfolio.
Our Methodology
To list the 10 Best S&P 500 Stocks to Buy According to Hedge Funds, we extracted the stocks from the S&P 500 index. After getting the list, stocks that were the most popular among hedge funds were chosen. Finally, the stocks were arranged in the ascending order of their hedge fund sentiment, 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).
Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 142
Mastercard Incorporated (NYSE:MA) offers transaction processing and other payment-related products and services in the US and internationally.
Wall Street analysts opine that the continued expansion of Mastercard Incorporated (NYSE:MA)’s payment network revenue and accelerating growth of its value-added services should continue to support its long-term growth trajectory. The company’s strategic focus on VAS is a key differentiator and growth engine and this shift forms part of Mastercard Incorporated (NYSE:MA)’s strategy to diversify revenue streams and reduce cyclicality in the business model.
The company is well-placed to capitalize on the ongoing shift from cash to digital payments. Operating margins of Mastercard Incorporated (NYSE:MA) are expected to expand as a result of its scale, ongoing displacement of cash transactions, and roll-out of new service and technology offerings. Its VAS offerings, which consist of data analytics, cybersecurity solutions, and consulting services, have been experiencing quicker adoption.
As organizations look for comprehensive financial solutions, the company’s expanding suite of services places it as a one-stop shop for payment and data-driven business insights. Moreover, the acquisition of companies such as Recorded Future, which specializes in AI-powered analytics, improves Mastercard Incorporated (NYSE:MA)’s VAS capabilities. Analysts at Robert W. Baird increased their target price on the company’s shares from $545.00 to $575.00, giving an “Outperform” rating on 16th October.
L1 Capital, an investment management firm, released its second-quarter 2024 investor letter. Here is what fund said:
“The share prices of Mastercard Incorporated (NYSE:MA) and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
Overall MA ranks 6th on our list of 10 Best S&P 500 Stocks to Buy According to Hedge Funds. While we acknowledge the potential of MA as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MA 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.