We recently compiled a list of the 10 Best WallStreetBets Stocks To Buy Right Now. In this article, we are going to take a look at where MicroStrategy Inc. (NASDAQ:MSTR) stands against the other WallStreetBets stocks.
Is Now the Time to Cash Out?
Market trends indicate that significant gains may have already been realized as the economy approaches an easing cycle. Historically, after the first rate cut, markets tend to remain stable or slightly increase in the following weeks. Despite some recent pullbacks in tech stocks, a large portion of the S&P 500 is performing well, suggesting strong market momentum. While concerns about high valuations exist, they are not unprecedented compared to historical averages.
Caution is advised amid economic uncertainties, and shorter-duration bonds may serve as a protective strategy against rapid rate cuts by the Fed. A focus on strong fundamentals and adaptability to market changes is recommended. Just a day earlier, Liz Young Thomas, SoFi head of investment strategy, shared her insights regarding the market’s current trajectory as it seems to be reaching an easing cycle. We shared her sentiments in another one of our articles, 8 Most Active US Stocks To Buy Now. Here’s an excerpt from it:
“Historically, after the first rate cut, markets tend to remain flat or slightly up in the following 30 to 60 days. 3 months post-cut, the market evaluates whether these cuts were necessary due to cooling economic conditions or if they were merely opportunistic adjustments…
When discussing valuation concerns, Young agreed that while US market multiples are relatively high, hovering around 21 to 22, this is not unprecedented when compared to historical standards. She pointed out that current valuations are above both the 5-year and 10-year averages but not at overbought levels. Young referenced Warren Buffett’s long-term investment philosophy, emphasizing that he does not focus on timing market multiples but rather on fundamental growth.
Young expressed a desire for the market to shift towards trading based on fundamentals rather than multiple expansions. She noted that while earnings stability is crucial, there are signs of strength in sectors outside of technology, particularly in industrial stocks. However, financials have shown mixed signals.”
On October 1, Mona Mahajan, Edward Jones senior investment strategist, appeared on CNBC’s ‘Squawk Box’ to discuss these latest market trends, and where investors can find opportunities right now.
In an earlier discussion, Fed Chair Jerome Powell indicated that he is not in a rush to cut interest rates, despite a strong start to September. Building on this conversation, Mona Mahajan noted that the stock market has experienced a remarkable 20% increase year-to-date and had a solid performance in the first three quarters of the year. However, as the market heads into the seasonally volatile months leading up to Election Day, there are expectations for potential bouts of volatility.
When asked if investors should consider cashing out and taking a holiday for the remainder of the year, Mahajan advised against such a move. Instead, she suggested that if there are pullbacks or corrections in the market, it would be prudent to lean into those opportunities. Historically, when the Fed cuts rates without an impending recession, it creates a favorable backdrop for broader market performance. Additionally, rate cuts typically lead to expanded valuations, particularly for sectors that have lagged behind in this regard. She emphasized that lower borrowing costs from Fed rate cuts would benefit both consumers and corporations.
The discussion also touched on the potential impact of upcoming elections on stock market performance. From a technical perspective, it was noted that the S&P 500 has historically pulled back between 5% to 10% around election time but tends to recover a few months post-election. Mahajan expressed confidence in this trend and highlighted that with Congress remaining divided, it might become increasingly challenging for any presidential administration to enact significant legislation or regulations.
In terms of investment strategies during potential downturns, she recommended focusing on cyclical sectors such as utilities and industrials while also maintaining exposure to technology and the artificial intelligence sectors. Mahajan underscored that diversification would be key over the next 12 to 18 months.
Conversely, she cautioned against being overly invested in cash or cash-like instruments or shorter-term bonds, as interest rates are expected to decline over the next year and a half. This sentiment aligns with broader expectations regarding Fed policy and its implications for various asset classes as interest rates continue to evolve.
Mahajan’s sentiment encapsulated a cautious yet optimistic outlook for the remainder of the year, with an emphasis on strategic positioning amidst potential market fluctuations driven by both economic factors and political developments.
Methodology
We sifted through threads on WallStreetBets to compile a list of the top 25 trending stocks. We then selected the 10 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. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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 software engineer wearing a headset, collaborating with a remote team on a project.
MicroStrategy Inc. (NASDAQ:MSTR)
Number of Hedge Funds: 26
MicroStrategy Inc. (NASDAQ:MSTR) provides business intelligence, mobile software, and cloud-based services. It offers a platform that allows users to create reports, dashboards, and conduct ad-hoc analyses, as well as a server for analytical processing and job management.
A lot of the company’s revenue comes from licensing arrangements and cloud-based subscriptions. Bitcoin acquisitions also have had a mixed impact on the company. These acquisitions generated substantial returns but also led to a significant increase in net debt, from $531 million to $3.8 billion. As of August, MicroStrategy Inc. (NASDAQ:MSTR) remains the world’s largest corporate holder of Bitcoin, owning 226,500 bitcoins, with a total market value of $15 billion.
In Q2 2024, the total Bitcoin holdings increased by 5.6%. There was a 7.44% year-over-year decline in overall revenue. Some of this decline was offset by the 21% year-over-year increase in subscription services revenue due to cloud migrations and new customers.
The company is at the forefront of blockchain technology, with initiatives like the Orange Protocol focusing on decentralized identification on the Bitcoin network. Despite a net loss in Q2 2024 and a decline in revenue, the company’s 10:1 stock split and Bitcoin Yield performance indicator demonstrate its commitment to shareholder value. Its planned $2 billion equity offering for additional Bitcoin purchases highlights its continued focus on expanding its Bitcoin holdings.
It has made significant strides in AI in recent years. Its strategic initiatives, including Auto Express, MicroStrategy ONE on Google Cloud Marketplace, and partnerships with Azure and AWS, have solidified its position in the AI industry. Despite challenges, the company presents promising investment opportunities its substantial returns from Bitcoin acquisitions provide a strong financial foundation for future growth.
Artisan Small Cap Fund stated the following regarding MicroStrategy Incorporated (NASDAQ:MSTR) in its Q2 2024 investor letter:
“Regarding MicroStrategy Incorporated (NASDAQ:MSTR), our decision to avoid this company comes down to a lack of conviction in its franchise characteristics. The stock has worked this year due to a rebound in the price of bitcoin. Since 2020, MicroStrategy has been focused on converting its cash and cash equivalent holdings, as well as issuing debt, to fund the purchase of bitcoin, which now makes up most of the company’s value.”
Overall MSTR ranks 10th on our list of the best WallStreetBets stocks to buy. While we acknowledge the potential of MSTR 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 MSTR 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.
