In this piece, we will take a look at the lowest-scoring stocks in earnings revisions, P/E ratios, EPS growth, and other indicators according to investment bank UBS.
With November 2024 having settled in and the US presidential election in its final stages, investors are also digesting the results of the latest earnings season. As had been the case for the first and second-quarter earnings season, Q3 was also focused on artificial intelligence. While Wall Street’s AI GPU darling, the firm whose shares are up an unbelievable 206% over the past twelve months, is yet to report its earnings, other consequential firms have got the ball rolling.
Two of these are among the most important players in the software segment of the AI industry. The first is known for its tightly-knit relationship with the firm behind ChatGPT, OpenAI. The second is the world’s largest social media company that has made waves in the AI industry with its open-source Llama AI foundational AI model. Starting from the former, its ability to generate AI profits primarily through its cloud computing division is baked into the narrative.
Since its earnings report, the shares are down by 4.9%. This is even though the firm’s revenue and earnings per share of $65.59 billion and $3.30 beat analyst estimates of $64.51 billion and $3.10. Along with the earnings and revenue beat, the software company’s Azure cloud computing business which also includes its enterprise-focused AI services grew by 33% annually or 34% on a constant currency basis. These also beat analyst estimates, so on the surface, one would expect the shares to rise.
However, Wall Street isn’t always focused on current performance, and for AI stocks, their narratives are built on future expectations. These expectations are priced into the stocks. For the software company, its weak guidance is at the center of the poor share price performance as the current quarter revenue guidance of $68.1 billion to $69.1 billion missed Wall Street estimates of $69.83 billion by more than half a billion dollars.
The software company was joined by the social media firm to report its earnings on the same day. The Facebook parent’s shares are also down since the earnings report as they have lost 3.3% after recovering from the bottom of a 5.3% loss. Its earnings report, like the post-report stock performance, also mirrors the software company’s results to an extent. For starters, the social media firm also beat analyst revenue and EPS estimates. It posted $40.59 billion in revenue and $6.03 in earnings per share to beat analyst estimates of $40.29 billion and $5.25. Driving the beat was higher advertising revenue which grew by 18.7% annually to sit at $39.9 billion.
However, while the firm’s net income jumped by 35% to touch $15.7 billion, it was the slowest growth in over a year. Additionally, the firm reported that it had 3.29 billion active daily users during the third quarter, which was lower than the 3.31 billion in analyst estimates. Another factor that didn’t impress investors was its AI-driven capital expenditure. The firm raised the lower end of its full-year capital expenditure to $38 billion from $37 billion and kept the high end intact at $40 billion. Higher expenditures increase the return that investors expect and reduce payouts in the form of dividends and share buybacks. Consequently, the stock tumbled after the earnings report.
These two AI-driven earnings reports are part of a market that is now facing lower rates, higher growths, and the culmination of a bitterly fought presidential election. In a recent report, investment bank UBS took an optimistic view of the US stock market. It noted that from “a macro perspective, the combination of slowing but durable economic growth, healthy earnings growth, and continued Fed rate cuts is supportive.” The bank is also optimistic about AI and particularly about the broader category of firms apart from the GPU designer that has seen most of the share price gains so far.
In its report, it notes that “AI-related companies that span semiconductors, cloud service providers, devices, and data centers account for over one-third of the S&P 500 by market cap. We expect continued growth in AI investment spending to drive revenues and profits.” However, according to UBS, AI is not the only lucrative stock market sector offered by the US stock market. The bank adds that the “S&P 500 also offers exposure to secular growth in longevity through various US medical device companies. Many US companies are also playing leading roles in the energy transition via electric vehicles, renewables, and energy efficiency.”
On the topic of interest rate cuts, the report outlines that “50bps cuts at similar labor market conditions as today have historically been positive for equities.” These labor conditions are determined by the 3-month average for US nonfarm payrolls, and UBS also believes that rate cuts by the Federal Reserve can reverberate across global markets. It notes that “Historically, Fed rate cuts of more than 50bps when the market was within 1% of all-time highs have been rare. It only happened during the Volcker era in the mid 1980s. The S&P 500 rallied more than 20% in the 12 months following the jumbo cuts. Also, Fed rate cuts tend to reverberate positively across global equity markets, with Asia ex-Japan and emerging markets as the primary beneficiaries outside the US.”
Finally, with the 2024 US Presidential Election over, the bank’s report released ahead of the election also commented on the outcomes on Wall Street. It shared that “S elections are a short-term risk; for instance, if former President Donald Trump is elected, markets may quickly price potential tariffs. However, we would see dips as buying opportunities and recommend gradually phasing in equity exposure.”
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Our Methodology
To make our list of UBS stocks with improving quantitative indicators, we chose the firm’s top stocks that are seeing improvements in EPS growth, P/E ratio, and other indicators. Stocks within each sector were ranked by the number of hedge funds that had bought the shares during Q2 2024. The sectors themselves were ranked by the cumulative number of funds that had been invested in the firms in descending order.
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).
29. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Investors In Q2 2024: 62
Sector: Energy
Occidental Petroleum Corporation (NYSE:OXY) is a large and diversified oil and gas exploration and production company with a global operations base. Consequently, the fact that its shares are down 14.7% year to date is unsurprising given the weak oil industry globally and cratering natural gas prices in the US. For Occidental Petroleum Corporation (NYSE:OXY), its decision to acquire Permian Basin producer CrownRock for a $12 billion price tag has expanded its production during a period when the market has struggled to remain optimistic about global oil demand. The acquisition has also increased Occidental Petroleum Corporation (NYSE:OXY)’s debt and forced it to cut back on cash payouts. However, recovering oil prices stand to benefit the firm, and a potentially lower rate environment worldwide could see Occidental Petroleum Corporation (NYSE:OXY) benefit from its higher production and greater economies of scale to earn more margins.
Occidental Petroleum Corporation (NYSE:OXY)’s management commented on its debt reduction plans during the Q2 2024 earnings call. Here is what they said:
“Since the start of the year, we have closed or announced approximately $1 billion of Permian Basin divestitures. The proceeds from these sales will go directly towards debt reduction. This progress on divestitures, coupled with a robust organic cash flow underpinned by our steady focus on operational excellence has positioned us well to reduce our debt in the near term. Sunil will address this in more detail, but we’re excited that we’re on track to retire approximately $3 billion of debt during the third quarter, which means — which speaks to both the quality of our assets and our future cash flow potential.”
28. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Investors In Q2 2024: 52
Sector: Energy
Devon Energy Corporation (NYSE:DVN) is a mid-sized American oil and gas exploration and production firm. It has operations in the Delaware Basin, Eagle Ford Basin, and other regions. The stock is down 15% year to date, and while some of Devon Energy Corporation (NYSE:DVN)’s troubles have been due to the broader sluggishness in the energy industry, others are specific to the firm. For instance, amidst a trend of consolidation in the American energy industry which has seen mega-deals, Devon Energy Corporation (NYSE:DVN) has failed to emerge as a key player. While this would have been great if it hadn’t tried, its tries have led to investor loss of optimism. Word on the street is that some of Devon Energy Corporation (NYSE:DVN)’s three acquisition attempts earlier this year were rejected because the targets were wary of the effects of high production costs on the firm’s share price. However, the firm did finally complete an acquisition in September when it acquired Grayson Mill. The effects of this were immediate, with Devon Energy Corporation (NYSE:DVN) growing quarterly production by 9.5% during the third quarter to send the shares soaring by 1.5%.
Devon Energy Corporation (NYSE:DVN)’s management commented on the deal during the Q3 2024 earnings call. Here is what they said:
“Moving to Slide 10 and looking ahead to 2025, we expect another year of strong performance with total production forecasted to average around 800,000 BOEs per day. This production outlook is nearly 5% higher than what we communicated just a few months ago when we announced the Grayson Mill acquisition. Also, with the benefit of Grayson Mill and the operational momentum we established in 2024, we expect record oil volumes in 2025, averaging around 380,000 barrels per day.”
27. APA Corporation (NASDAQ:APA)
Number of Hedge Fund Investors In Q2 2024: 31
Sector: Energy
APA Corporation (NASDAQ:APA) is a mid-sized oil and gas exploration and production company based in Texas. Amidst a weak global oil industry that has seen prices dip due to weakness in China, the firm’s shares have struggled on the stock market. APA Corporation (NASDAQ:APA) ‘s stock is down 34% year to date as it has also struggled with weak natural gas prices. However, oil continues to drive the firm’s hypothesis as 81% of its production revenue is from it. APA Corporation (NASDAQ:APA) has also reportedly been forced to sell assets in the lucrative Permian Basin to raise funds and reduce its substantial debt. As of June 2024, the firm had $6.7 billion in long-term debt. For the stock to perform well in the future, oil prices have to stabilize and APA Corporation (NASDAQ:APA) has to continue working with energy giant Total for its offshore oil production project in Suriname.
Ariel Investments mentioned APA Corporation (NASDAQ:APA) in its Q2 2024 investor letter. Here is what the fund said:
“Oil and natural gas explorer, APA Corporation (NASDAQ:APA), also traded lower in the quarter following an earnings miss. Weaker-than-expected production guidance and an upcoming increase in capital investment weighed on investor sentiment. Meanwhile, APA raised its cost synergy targets from the recent acquisition of Callon Petroleum Company, which stands to enhance the scale of the company’s existing Delaware Basin assets. The increased operational savings appear accretive to key financial metrics in late 2024 and beyond. APA’s wells continue to deliver strong performance in the Permian Basin. The company also is expressing confidence in its Suriname development. Management remains laser-focused on increasing the operational efficiency of the Callon assets, free cash flow generation and returning capital to shareholders via buybacks and dividends.”
26. SolarEdge Technologies, Inc. (NASDAQ:SEDG)
Number of Hedge Fund Investors In Q2 2024: 24
Sector: Information Technology
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is a clean energy products company whose products enable users to manage and operate their solar power systems. Solar power stocks typically tend to do well in a low inflation and low interest rate environment which allows plenty of money flowing into the economy for pricey purchases. Consequently, the fact that SolarEdge Technologies, Inc. (NASDAQ:SEDG)’s shares are down 85% year to date is unsurprising as the demand for its products has slowed down significantly and forced the firm to rely on inventory optimization and pricing and promotional campaigns to stem the damage. SolarEdge Technologies, Inc. (NASDAQ:SEDG)’s situation is further complicated by the fact that it has a global operations base. While the American economy has remained robust, Europe has struggled and ended up further impacting revenues. As a result, sustained economic recovery coupled with a favorable regulatory environment in the US are the keys to SolarEdge Technologies, Inc. (NASDAQ:SEDG)’s hypothesis.
SolarEdge Technologies, Inc. (NASDAQ:SEDG)’s management commented on slower demand during its Q3 2024 earnings call:
‘This quarter, we wrote down $612 million of inventory, of which $536 million is related to our solar business and $76 million is related to our non-solar business. This is a result of our assessment of the outlook for various markets, price reductions and promotions taken as part of the market share recapture initiative as well as other steps taken to focus on core markets and product lines. These write-downs fall into the following categories: First, excess inventory, we no longer expect to sell due to lower demand in the European region which we continue to see in this quarter; Second, the accelerated increase in demand for domestic content which came sooner than anticipated and has reduced demand for some products in our inventory; Third, raw materials related to the above-mentioned SKUs; Fourth, partial write-downs of certain SKUs due to the pricing reductions and promotions that we implemented in Europe as we now anticipate selling below cost.”
25. HP Inc. (NYSE:HPQ)
Number of Hedge Fund Investors In Q2 2024: 41
Sector: Information Technology
HP Inc. (NYSE:HPQ) is one of the most iconic personal computing firms in the world. It is also one of the oldest Silicon Valley computing companies and has transformed itself over the course of the years from selling calculators to laptops and printers. Since its founding, the original HP has been split into two companies, with HP Inc. (NYSE:HPQ) being exposed to the personal computing market. This also means that a slowdown in personal computing sales driven by a sluggish consumer spending environment has hampered the stock this year. HP Inc. (NYSE:HPQ)’s shares are up by a lackluster 23% year to date despite AI taking the broader technology industry by storm and despite its consumer exposure creating the potential to benefit from AI consumer PCs. Most of these gains have come on the back of the firm’s second-quarter earnings report which saw it beat analyst revenue estimates of $12.6 billion by posting $12.8 billion in the segment. HP Inc. (NYSE:HPQ) believes that AI consumer PC demand can materialize in 2025, and if it does, then it could create tailwinds for the stock when paired with a potential consumer recovery.
Greenlight Capital mentioned HP Inc. (NYSE:HPQ) in its Q2 2024 investor letter. Here is what the fund said:
“In addition to gold, we had four material winners in our long portfolio this quarter. HP Inc. (NYSE:HPQ) jumped from $30.22 to $35.02. After seven quarters of declines, PC sales turned marginally positive during the quarter. The industry appears to be in the early stages of an upcycle, perhaps to be enhanced by recently launched AI-enabled PCs that are expected to ramp up over the next several quarters.”
24. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Investors In Q2 2024: 75
Sector: Information Technology
Intel Corporation (NASDAQ:INTC) is the beleaguered American chip manufacturing giant whose shares are down 45% year to date. Two factors are driving the firm’s troubles. First, a slowdown in the personal computing market has hit Intel Corporation (NASDAQ:INTC)’s chip sales hard at a time when it is aggressively investing in new chip manufacturing technologies. Second, the firm has not only lost its chip manufacturing technology lead to TSMC, but has also failed to capture the booming global demand for contract chip manufacturing. Consequently, these two factors will also drive Intel Corporation (NASDAQ:INTC)’s hypothesis moving forward. The firm is currently all in on the 18A chip-making technology. Successful execution of its self-set manufacturing timelines coupled with strength in the contract chip manufacturing business could create tailwinds and vice versa.
ClearBridge Investments mentioned Intel Corporation (NASDAQ:INTC) in its Q3 2024 investor letter. Here is what the fund said:
“While the market environment clearly was a headwind in the third quarter, several of our large positions also faced challenging conditions, which negatively impacted results. In the information technology (IT) sector, Intel Corporation (NASDAQ:INTC) has come under additional pressure due to continued softness in the company’s core PC and server markets as well as concerns on the company’s longer-term competitive position. While Intel’s turnaround is not happening overnight, we are constructive on the outlook into 2025: the company’s product positioning should be much improved and it should be positioned to gain market share in a cyclical upswing in which it has strong earnings power. A somewhat adverse spending environment due to AI myopia has weighed on shares, but we still think the market is undershipping PCs and general servers following a COVID normalization period that saw demand get pulled ahead and then languish as companies froze IT budgets. The installed base is now getting older, and we expect a strong refresh cycle into next year. The delay is actually beneficial to Intel, whose product positioning will be all the more improved. While our investment case is not predicated on an M&A transaction, and we believe one is unlikely, the expression of interest in the company speaks to the value of the assets, which we think still trade at a meaningful discount to fair value.”
23. CBRE Group, Inc. (NYSE:CBRE)
Number of Hedge Fund Investors In Q2 2024: 54
Sector: Real Estate
CBRE Group, Inc. (NYSE:CBRE) is one of the largest real estate services firms in the US. It has a diversified product portfolio through which the firm provides leasing advice, mortgage loans, property management services, and mortgages. This gives CBRE Group, Inc. (NYSE:CBRE) a wide exposure to the broader real estate industry, which is a sector that doesn’t perform well when interest rates are high. Yet, with the high-rate era now at its end, CBRE Group, Inc. (NYSE:CBRE) is also seeing sizable catalysts in the stock market. To understand these catalysts, consider the share price performance between January and June and from July to November start. During the first period, the stock lost 7.8% while during the second period, it gained 53.6%. This strong latter-half performance has come on the back of rising leasing activity as corporate budgets lighten and a recovery in the global property market during the third quarter.
CBRE Group, Inc. (NYSE:CBRE)’s management commented on this recovery during the Q3 2024 earnings call. Here is what they said:
“Advisory net revenue exceeded expectations, supported by leasing strength in the beginning of a recovery in property sales revenue. We continue to benefit from our strong position in the office leasing market. In fact, global office leasing revenue reached a new high for any Q3, increasing by 26% better than we expected. Greater certainty about the economic outlook is supporting occupier decision-making across primary and secondary markets, particularly in the U.S. and Europe.
As expected, demand is skewed towards the highest quality space that will encourage employees to return to the office. Global property sales returned to growth with a 14% revenue increase, exceeding expectations. Revenue grew across all global regions. In the U.S., property sales revenue rose almost 20%, driven by stronger activity in multifamily and retail.”
22. Digital Realty Trust, Inc. (NYSE:DLR)
Number of Hedge Fund Investors In Q2 2024: 44
Sector: Real Estate
Digital Realty Trust, Inc. (NYSE:DLR) is a specialty real estate investment trust that works with the data center industry. The firm provides colocation spaces that allow firms to work in proximity to each other. Its shares are up 39.5% over the past twelve months and 32% year to date driven by the fact that data center stocks are seeing considerable interest from Wall Street in the artificial intelligence era. Since it’s a real estate data center stock, Digital Realty Trust, Inc. (NYSE:DLR)’s performance depends on the percentage of its properties that are occupied and the rates that it can charge customers. On these fronts, the firm’s third-quarter earnings saw it report $521 million in bookings and 31.4% renewal rates for facilities supporting more than one megawatt of power. This indicates strong demand for its properties, and the stock’s 9.6% jump following the report was unsurprising. Digital Realty Trust, Inc. (NYSE:DLR) also ended the quarter with $860 million in backlogs and $521 million in leases which underscores the strong demand for its properties.
Digital Realty Trust, Inc. (NYSE:DLR)’s management shared its market insights during the Q3 2024 earnings call:
“Over the past few weeks, we’ve seen several examples of the lengths that some hyperscalers will go to reserve enough power for their fast growing compute requirements. We’ve seen a deal to reactivate 3 mile Island, another hyperscaler partnering with an existing utility to develop small modular reactors and the third executing power purchase agreements to purchase nuclear energy for multiple SMRs that have yet to be built.
These agreements are similar, in that they are seeking long-term carbon-free energy solutions to help power growing data center portfolios and speak to the longer-term demand outlook for data center capacity. Yet each of these plants is still years away from beginning to generate power, underscoring the value of lower capacity blocks today and perhaps for the next several years. And sourcing available power is just one piece of the data center infrastructure puzzle. Supply chain management, construction management and operating expertise are all challenges that customers rely on Digital Realty to solve, and they are clearly a critical aspect of the overall value proposition that we bring to the table. While the large hyperscale deals get plenty of focus, customers and partners are recognizing the value that Digital Realty’s meeting place can bring to their private cloud and hybrid IT applications around the world.”
21. Public Storage (NYSE:PSA)
Number of Hedge Fund Investors In Q2 2024: 30
Sector: Real Estate
Public Storage (NYSE:PSA) is one of the largest storage space operators in the world. It has a presence in the US market as well as the Western European market. These provide Public Storage (NYSE:PSA) access to wealthy nations which typically have higher spending power to rent out storage facilities whether for personal or business use. Yet, since this spending is more discretionary in nature, Public Storage (NYSE:PSA)’s shares have been lackluster in 2024 and are up by just 6.8% year to date. The impact is also visible in the minutiae of the firm’s income statement, as Public Storage (NYSE:PSA)’s same-store storage revenue dropped by 0.5% to $1.8 billion during the first half of this year. This segment accounts for 82% of the firm’s overall revenue, and therefore, its robust performance is necessary for Public Storage (NYSE:PSA)’s overall hypothesis.
Public Storage (NYSE:PSA)’s management commented on the trends in self-storage during the Q3 2024 earnings call. Here is what they said:
“In particular pricing for new customers is stabilizing with move-in rents down 9% year-over-year in the third quarter and down 5% in October.
This is a meaningful improvement from the first quarter of this year when move-in rents were down 16%. Our in-place customers are also behaving very well. Payment patterns are strong, average length of stay is long and move-outs are down year-to-date. All of this speaks to the convenience and affordability we provide to our customers. With move-in rents down nearly 30% since 2022, we have become even more affordable relative to other space alternatives. including moving into a larger home or apartment just to get the incremental space. Self-storage is the affordable and convenient choice. The supply environment is also on a favorable path with deliveries of new competitive properties slowing further over the next couple of years. Less new competition will support operating fundamentals on top of the improving demand trends.
We continue to focus on growth enhancing initiatives that are unique to us as well. Public Storage customers are fully embracing the new and modern experience we’ve created by putting a full slate of digital engagement options in their hands. These options complement the service provided by our fantastic property managers, local teams and customer care center representatives. The ability to choose between interacting digitally and in-person is a major draw to customer seeking self-storage today. I am proud of the entire team’s efforts in creating the industry’s most comprehensive, hybrid, digital operating model that cohesively connects our customers, team and systems across field and corporate operations. And we’re tracking ahead of schedule on our transformation with now 75% move-ins using eRental, our digital online lease.”
20. PPG Industries Inc. (NYSE:PPG)
Number of Hedge Fund Investors In Q2 2024: 42
Sector: Materials
PPG Industries Inc. (NYSE:PPG) is one of the biggest paints, coatings, adhesives, sealants, and other associated products providers in the world. This makes it exposed to the broader industrial sector and makes it unsurprising that the shares are down 14.61% year to date. The share price weakness is driven by the fact that 63% of PPG Industries Inc. (NYSE:PPG)’s revenue comes from its performance coatings business. This provides material typically used in construction to help guard structures against weather-related wear and tear. Additionally, PPG Industries Inc. (NYSE:PPG) also caters to the needs of the auto industry through its Performance and Industrial businesses – which introduces a broad exposure to the cyclical sector on its income statement. Auto production in America has been sluggish in 2024 due to inflation and high rates – which has also translated into PPG Industries Inc. (NYSE:PPG)’s share price.
Carillon Tower Advisers mentioned PPG Industries, Inc. (NYSE:PPG) in its Q2 2024 investor letter. Here is what the fund said:
“PPG Industries, Inc. (NYSE:PPG) shares lagged in the second quarter as softening macroeconomic data across several of its end markets (including autos, housing, and industrial) drove concerns that the path to sustainable sales volume growth was growing more difficult.”
19. LyondellBasell Industries N.V. (NYSE:LYB)
Number of Hedge Fund Investors In Q2 2024: 41
Sector: Materials
LyondellBasell Industries N.V. (NYSE:LYB) is a chemical company that makes and sells products such as polyethylene, polypropylene, and ethylene. Its products are used in a variety of industries such as oil refining, building materials, and food packaging. Roughly 54% of LyondellBasell Industries N.V. (NYSE:LYB)’s revenue comes through refined products, polyethylene, and polypropylene. This means that the firm is dependent quite a bit on the state of the oil industry, oil prices, automotive demand, and food sales. Consequently, the fact that LyondellBasell Industries N.V. (NYSE:LYB)’s shares are down 10.5% year to date is unsurprising as oil prices have been depressed due to the slow Chinese economy and the US consumer has continued to face the inflationary pinch. Looking ahead, a recovery in these segments could translate into tailwinds for the stock, with LyondellBasell Industries N.V. (NYSE:LYB) also benefiting from its recycling technologies.
LyondellBasell Industries N.V. (NYSE:LYB)’s management shared some growth strategies and potential catalysts during the Q3 2024 earnings call:
“The first project, subject to a final investment decision is to utilize a portion of the site for a second larger MoReTec unit. We expect that MoReTec-2 will be twice the size of our German plants with the capacity to produce 100,000 tons of cracker feedstocks. We plan to leverage upon our existing hydrotreaters at the refinery and retrofit them. This will allow us to upgrade both the recycled feedstocks coming from our MoReTec-2 unit and feedstocks from third-party suppliers for use in our olefins crackers for the production of circular and low carbon CirculenRevive polymers. The second project under consideration is to retrofit some of the other refining assets to produce renewable and bio-based feedstocks. These feedstocks would also be used in our existing olefins crackers for the production of circular and low carbon CirculenRenew polymers.
And with a substantial array of utilities, laboratories, pipelines, storage, logistical assets and other infrastructure on the 700-acre site, the refinery provides ample opportunity for investments and partnerships to support LYB’s continued growth in low-carbon feedstocks and products. Although crude refining at the site will end, we have several opportunities to repurpose the site to capture sustainable value. We are leveraging our existing cost-advantaged assets to satisfy growing market demand for Circular & Low Carbon Solutions.”
18. Albemarle Corporation (NYSE:ALB)
Number of Hedge Fund Investors In Q2 2024: 32
Sector: Materials
Albemarle Corporation (NYSE:ALB) is one of the biggest lithium providers in the world. This also makes it one of the worst-performing stocks on the market in 2024 as the shares are down by 34% year to date. The underperformance is driven by several factors. For starters, Albemarle Corporation (NYSE:ALB)’s target industry, namely electric vehicles, hasn’t done well due to slowing demand. The stock didn’t fare well after the 2024 Presidential Election’s results either as investors factored in the incoming Trump Administration’s potential policies towards the clean energy industry. While Albemarle Corporation (NYSE:ALB)’s sizable production base makes it a key player in the global lithium industry, the firm could see trouble in the future if the US and Western nations expand their sanctions against China’s EV industry and EV industry weakness reduces the number of battery manufacturers.
The London Company mentioned Albemarle Corporation (NYSE:ALB) in its Q2 2024 investor letter. Here is what the fund said:
“Sold our remaining position in ALB after the stock triggered our soft stop loss review. We are concerned that weaker demand in the US for electric vehicles coupled with greater than expected supply of lithium reaching the market may lead to declining lithium prices. This will likely lead to lower cash flow generation in the years ahead, which weakens the downside protection case for the stock.”
17. Zimmer Biomet Holdings, Inc. (NYSE:ZBH)
Number of Hedge Fund Investors In Q2 2024: 41
Sector: Healthcare
Zimmer Biomet Holdings, Inc. (NYSE:ZBH) is a specialty medical devices company. The firm makes and sells products that are used to support or augment the human body’s structure. These include products used after surgery, in hips and knees, and in facial reconstruction. It is one of the more interesting stocks to watch, as despite the fact that an aging American population carries the potential of high and sustained demand for some of its products such as hip and knee replacements, Zimmer Biomet Holdings, Inc. (NYSE:ZBH)’s shares are down by 10.46% year to date. This drop has come on the back of software issues that have impacted the firm’s sales and forced it to cut its 2024 annual EPS guidance. A resolution to these problems and adequate product shipping could create tailwinds for Zimmer Biomet Holdings, Inc. (NYSE:ZBH)’s stock.
Zimmer Biomet Holdings, Inc. (NYSE:ZBH)’s management commented on the disruption during the Q3 2024 earnings call. Here is what they said:
“So just on the first part of your question on the guidance for 2024, look, listen, we’re going to be somewhat conservative when it comes to the year and allow us to be conservative given the PTSD, if you will, or the recent ERP channels. In Q4, all kinds of things happen. We want to see where we end up with pricing. Pricing has been positive for the entire year. Let’s see where we end up in Q4 with all the puts and takes that, that happened around rebates, et cetera, et cetera. I want to make sure that we see the commercial execution that we need to see around new product introductions. We’ve got three very meaningful new product introductions as we speak. We’re late to get some of the sets out given the challenges with ERP.
So again, I want to get at least a solid more on than I had before I get to positive on Q4. And then look, there are some macro factors early in the quarter. We saw some disruption with the hurricane and whatnot and the IV bags. We believe those are going to come in within the quarter. As a matter of fact, we are seeing those cases coming back already in the quarter. So allow us to be somewhat conservative, and we’ll see what we end up in Q4. Relative to 2025, we’re very positive. The ERP constraint or challenge is well contained within the year. We’ll update you in early 2025 when it comes to what 2025 is going to look like. But I would say today, we’re feeling very positive, given new product introductions, the resolution of the ERP, et cetera, et cetera.”
16. West Pharmaceutical Services, Inc. (NYSE:WST)
Number of Hedge Fund Investors In Q2 2024: 37
Sector: Healthcare
West Pharmaceutical Services, Inc. (NYSE:WST) is a sizable medical instruments firm that makes and sells products such as those used in syringes, cartridges, vials, and other drug delivery systems. As of H1 2024, 79% of the firm’s revenue comes from its packaging and drug delivery business. Consequently, the stock is down 7.25% year to date as demand for the firm’s products has slowed down in the midst of broader sluggishness in the biotechnology industry. Consequently, West Pharmaceutical Services, Inc. (NYSE:WST)’s recovery is dependent on overall pharma and biotech demand picking up as drug makers cycle through their existing inventory. However, there are key long-term catalysts for the firm, with the demand for injectables as evidenced by weight loss drugs capable of rising sustainably.
Baron Funds mentioned West Pharmaceutical Services, Inc. (NYSE:WST) in its Q3 2024 investor letter. Here is what the fund said:
“West Pharmaceutical Services, Inc. (NYSE:WST) manufactures components and systems for the packaging and delivery of injectable drugs. Shares fell on lower-than-expected financial results and reduced guidance for the year attributed to ongoing inventory destocking by its pharmaceutical customers. Post-pandemic, customers continue to use the inventory stockpiled to meet elevated pandemic-era demand. West was also able to shorten the lead time needed to meet new demand, giving customers confidence to safely reduce their inventory levels. We believe the inventory-related issues are temporary, and West remains a dominant player with competitive advantages in the growing market for injectable drugs. Management has stated that end-patient demand is in line with its expectations, market share shift is not occurring, and its win rates on packaging for new molecules remains strong. They expressed confidence that West can return to the long-term financial construct of 7% to 9% revenue growth with 100 basis points of operating margin expansion annually.”
15. Henry Schein, Inc. (NASDAQ:HSIC)
Number of Hedge Fund Investors In Q2 2024: 32
Sector: Healthcare
Henry Schein, Inc. (NASDAQ:HSIC) is a specialty medical distributor that caters primarily to the needs of dentists and the dental industry. The firm provides items used by dentists in their daily activities and in patients to improve their oral health. Since the dental market is not quite as defensive against consumer spending drops as compared to some sectors of the healthcare industry, Henry Schein, Inc. (NASDAQ:HSIC)’s shares have struggled. The stock is down 8.1% year to date, and the firm hasn’t been helped by a cyberattack either that forced it to take an additional hit to revenue and EPS during the second quarter. These have forced management to pivot to a cost-saving strategy to improve its margins through which Henry Schein, Inc. (NASDAQ:HSIC) aims to deliver $100 million in cost savings through restructuring by the end of next year. Consequently, the hypothesis depends on this strategy as Henry Schein, Inc. (NASDAQ:HSIC)’s broader market continues its tepid recovery.
Artisan Partners mentioned Henry Schein, Inc. (NASDAQ:HSIC) its Q2 2024 investor letter. Here is what the fund said:
“The biggest detractors from performance during the quarter were Harley-Davidson, Henry Schein, Inc. (NASDAQ:HSIC) and Expedia. Henry Schein declined 15% during the quarter due primarily to weak traffic trends in the overall dental market. In our view, the concerns around near-term traffic trends are misplaced. The long-term trends in the dental industry are favorable. Around 90% of US dentists are currently operating at full capacity, and 50% of the US population still isn’t regularly seeing a dentist. We see penetration opportunities and demographic tailwinds in the US and internationally. And while there will be puts and takes, the dental market should grow nicely over time.
Schein’s business is performing well. It seems to have recovered from the cyberattack in late 2023. Most importantly, it is making good progress on its strategy to shift its business mix toward its own branded products, which have higher growth and margins. This shift benefits Schein by improving its margins, increasing its value to customers and giving it more leverage with suppliers. This year it expects to grow earnings 10%–15%. As it transforms from a pure distributor of third-party products into a hybrid distributor/manufacturer, we believe it will have more control over its financial model and ability to drive attractive profit growth in a variety of market environments. We find this combination very attractive for a company trading at 11X–12X earnings.”
14. Old Dominion Freight Line Inc. (NASDAQ:ODFL)
Number of Hedge Fund Investors In Q2 2024: 43
Sector: Industrial
Old Dominion Freight Line Inc. (NASDAQ:ODFL) is a logistics and shipping company that provides truck-based services. Its business is dependent on the state of the economy, which in turn is dependent on interest rates. The stock soared by 11% after former US President Donald Trump won the 2024 Presidential Election. This underscored investor optimism about the economy under a Trump Administration, with Old Dominion Freight Line Inc. (NASDAQ:ODFL)’s share price performance meeting other sectors such as hospitality and energy. Ahead of the election though the shares had gained a modest 4% year to date, as Old Dominion Freight Line Inc. (NASDAQ:ODFL) struggled with volume and revenue growth in an overall tight economy still reeling from inflation, lower consumer demand, and interest rates.
The London Company mentioned Old Dominion Freight Line Inc. (NASDAQ:ODFL) in its Q2 2024 investor letter. Here is what the fund said:
“Old Dominion Freight Line, Inc. (NASDAQ:ODFL) – ODFL reported solid results in its latest quarter, but is still feeling the negative impact of the freight recession. ODLF continues to invest in the business by adding capacity, while focusing on superior service. We trimmed the position in the Large Cap portfolio in early 2Q24 due to valuation concerns. Trimmed the position following recent strength in shares. There is no change to our long-term thesis for the company.”
13. Paychex Inc. (NASDAQ:PAYX)
Number of Hedge Fund Investors In Q2 2024: 34
Sector: Industrial
Paychex Inc. (NASDAQ:PAYX) is a business software company that enables firms to manage their payrolls and human resource operations. Roughly 73% of the firm’s revenue comes through its management solutions business which primarily covers payroll processing. Consequently, Paychex Inc. (NASDAQ:PAYX)’s performance is tied closely to the economy, and it was another stock that soared after the results of the 2024 Presidential Election were finalized. This was because investors expect the economy to perform well in a Trump Administration. Yet, Paychex Inc. (NASDAQ:PAYX) depends quite a bit on the performance of small and medium businesses. Their fortunes are tied more closely to interest rates as well as the US economy, and the firm’s dependence on the labor market makes it vulnerable to any lackluster performance.
Paychex Inc. (NASDAQ:PAYX)’s management commented on what it’s observing across small and medium businesses during Q1 2025 earnings call. Here is what they said:
“So I would say this is what we’re seeing pretty consistently across the board is we continue to see moderate growth both in the small and the mid-market. I would say from a demand perspective, certainly what we’re seeing across the board is a lot more demand for driving efficiency or HR outsourcing. I think the pure tech play particularly up in the mid-market to enterprise, I see a little bit slower decision making going on there, but we’re not seeing that in the upper end of our HR outsourcing market. So I think right now what I see across the board are businesses are trying to drive efficiency and are looking for opportunities to reduce costs in their business.”
12. A. O. Smith Corporation (NYSE:AOS)
Number of Hedge Fund Investors In Q2 2024: 33
Sector: Industrial
A. O. Smith Corporation (NYSE:AOS) is a specialty industrial products firm that makes and sells boilers, water heaters, and associated products. Roughly 97% of its sales come from China and North America, with China accounting for 21% and North America 78%. Consequently, while A. O. Smith Corporation (NYSE:AOS) benefits from a differentiated business model which makes it one of the top players in its industry, the stock is muted when it comes to growth. This is also evident in its revenue, with sales growing by a hairline of 2.6% between 2022 and 2023. It also means that A. O. Smith Corporation (NYSE:AOS) has few avenues to disrupt its industry, and consequently, it has to rely on shipping high volumes and maintaining economies of scale to drive profitability. The firm benefits from stable management hands which is evident by the fact that it has been in business for more than a century.
A. O. Smith Corporation (NYSE:AOS)’s management shared details about its long-term growth strategy during the Q3 2024 earnings call:
“As we have discussed earlier this year, we commenced several expansion projects in 2024 to support our long-term growth strategy. We recently celebrated the grand opening of our new facility on our campus in Juárez where we will manufacture gas tankless water heaters for North America. While there is still startup work to be completed, production is expected to begin in early 2025 with the ramp up through the year. We have also added additional heat pump capacity on the same site in support of increased demand for our residential heat pump water heaters. Also, we have made progress on our new state of the art commercial product development center, which is located on the same site as our Lebanon, Tennessee facility. This expanded facility, which is projected to be completed in mid-2025, will enhance our product development and testing capabilities and knowledge sharing by bringing together our commercial water heater and boiler engineering teams.”
11. Monster Beverage Corporation (NASDAQ:MNST)
Number of Hedge Fund Investors In Q2 2024: 37
Sector: Consumer Staples
Monster Beverage Corporation (NASDAQ:MNST) is one of the biggest carbonated beverage companies in the US. The firm is known for its popular Monster energy drink, and it also has other products in its portfolio such as alcoholic beverages and water. While a diversified product portfolio is beneficial to most firms in most cases, for Monster Beverage Corporation (NASDAQ:MNST) it also carries the risk of lower revenues in a tight consumer environment. This was also the case during Q3 when the firm’s $1.88 billion revenue missed analyst estimates of $1.91 billion as consumers cut down spending on pricier beverages. Monster Beverage Corporation (NASDAQ:MNST)’s decision to increase its prices for the first time in 2024 in two years came at the wrong time as well. However, the firm enjoys a sizable position in the US market courtesy of its 24% share of the energy drink market which positions it well for a recovery in consumer spending.
Monster Beverage Corporation (NASDAQ:MNST)’s management commented on the sluggish demand during the Q3 2024 earnings call:
“The energy drink category in the United States and in certain other countries experienced lower growth rates in the second quarter. Retailers have reported a reduction in convenience store foot traffic and we have seen a shift in retail towards more mass and dollar channels. Other beverage and consumer packaged product companies have also seen a tighter consumer spending environment and weaker demand in the quarter. The energy category globally continues to grow and has demonstrated resilience as we believe that consumers view energy drinks as an affordable luxury. We believe that household penetration continues to increase in the energy drink category. Growth opportunities in household penetration per capita consumption, along with consumers’ need for energy or positive factors for the category.”
10. Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Investors In Q2 2024: 36
Sector: Consumer Staples
Altria Group, Inc. (NYSE:MO) is one of the biggest tobacco companies in the world. It is known primarily for its Marlboro brand of cigarettes and has a worldwide presence. Altria Group, Inc. (NYSE:MO) benefits from the fact that its products are often hard to quit, meaning that it enjoys a stable demand even when consumer budgets are tight. At the same time, the firm has been losing market share in the US, where it faces off with equally sizable competitors such as British American Tobacco. Like Brown Forman, Altria Group, Inc. (NYSE:MO) has also struggled with its pricey cigarette brands in a tight consumer spending environment. Yet, the firm might be in line for sizable catalysts in the future as it has established a robust portfolio of nicotine pouches and e-cigarettes, which are popular among younger users and as alternatives to cigarettes. These also helped Altria Group, Inc. (NYSE:MO) in its fiscal third quarter when flavored vape shipments grew by a whopping 100% annually. However, its premium e-cigarette NJOY is being sued by Juul and could create trouble in the future.
Altria Group, Inc. (NYSE:MO)’s management commented on its pouches and e-cigarettes during the Q3 2024 earnings call:
“In the third quarter, NJOY pulled back on certain retail promotional offers to better understand consumer retention and underlying demand. Initial retention results were promising in the retail accounts where NJOY conducted tests. The promotion drove increased volume by approximately 85% compared to the pre-promotion period, and NJOY retained more than half of that volume growth following the promotional period. We believe these results reflect consumer interest in NJOY and their satisfaction after trying the brand and NJOY plans to continue testing trial focused investments with a view toward long-term profitability.
NJOY’s brand equity investments supporting its more to simply enjoy [ph] campaign are also yielding positive results today. NJOY’s, Net Promoter Score, which measures consumer loyalty and satisfaction is over 20 points higher than in 2023. We believe this improvement is attributable to product satisfaction, improved visibility and positioning at retail, and the marketing activations the brand has deployed this year. Turning to marketplace performance. NJOY consumables shipment volume grew more than 15% to 10.4 million units. In the third quarter, consumable shipment volume for the first nine months was approximately 34 million units. NJOY device shipment volume for the quarter nearly tripled versus the prior year to 1.1 million units and was 3.9 million units for the first nine months.
NJOY’s third quarter retail share of consumables was 6.2 share points, up 2.8 share points versus the year ago period and 0.8 share points sequentially.”
9. Brown-Forman Corporation (NYSE:BF-B)
Number of Hedge Fund Investors In Q2 2024: 32
Sector: Consumer Staples
Brown-Forman Corporation (NYSE:BF-B) is a well-known American alcoholic beverages firm that is known for having some of the best-known brands such as Jack Daniel’s. Yet, its somewhat premium brand lineup also means that Brown-Forman Corporation (NYSE:BF-B) is at a disadvantage in an environment where consumers are feeling the inflationary pinch. After all, pricey whiskey is not an essential product, and for the firm, the weakness was evident in its first fiscal quarter when sales fell by 5%. For Brown-Forman Corporation (NYSE:BF-B), the problem is further exacerbated by the fact that raw material price increases have squeezed its margins. Consequently, the fact that the stock is down 27% year to date is unsurprising.
8. V.F. Corporation (NYSE:VFC)
Number of Hedge Fund Investors In Q2 2024: 30
Sector: Consumer Cyclical
V.F. Corporation (NYSE:VFC) is a large apparel company that focuses primarily on recreational products. It is a classic consumer cyclical firm with brands such as Timberland under its portfolio. Consequently, the fact that the stock is up by a lackluster 14% year to date is unsurprising. In fact, if we consider its performance from January to October 28th, the shares had actually lost 8.7%. However, the narrative surrounding V.F. Corporation (NYSE:VFC)’s shares switched after its fiscal Q2 became the first after two consecutive quarters to turn a profit. As it has struggled with profitability, the firm has undertaken a cost-saving strategy to spin off some businesses. Further impacts from this strategy to boost V.F. Corporation (NYSE:VFC)’s profit could help the shares.
Curreen Capital mentioned V.F. Corporation (NYSE:VFC) in its Q3 2024 investor letter. Here is what the fund said:
“V.F. Corporation (NYSE:VFC) manages apparel brands, including Dickies, The North Face, Timberland, and Vans. Under its prior CEO, the company’s poor capital allocation (including overpaying for Supreme and maintaining a too-high dividend after spinning out Kontoor) forced it to pause its model of using excess free cash flow to acquire good brands and manage them well. The company has now cut its dividend (twice) to a reasonable level and brought on a new CEO who has a track record of successfully turning around businesses. I believe that the company has good brands, the skills to manage them well, and a management team that is righting the ship. VF Corp currently trades at an attractive upside-to-downside ratio.”
7. Tractor Supply Company (NASDAQ:TSCO)
Number of Hedge Fund Investors In Q2 2024: 35
Sector: Consumer Cyclical
Tractor Supply Company (NASDAQ:TSCO) is a diversified rural products company that sells tools, hardware products, footwear, toys, snacks, and other items. This benefits in the form of diversification, as several of Tractor Supply Company (NASDAQ:TSCO)’s products such as pet food and farming supplies are defensive in nature. Consequently, despite being a cyclical stock, the shares are up 34% year to date. Like Walmart, Tractor Supply Company (NASDAQ:TSCO) has also built its business on the ability to offer consumers the lowest prices through an everyday low-price model. This has worked well in its favor in an inflation-driven economy by allowing it to beat analyst estimates in some quarters. However, during its fiscal Q3, Tractor Supply Company (NASDAQ:TSCO)’s $3.47 billion in revenue missed analyst estimates of $3.49 billion as inflation and high rates continued to take a bite out of consumer spending. Therefore, future performance depends on consumer health in rural and agricultural communities.
Tractor Supply Company (NASDAQ:TSCO)’s management commented on consumer spending during the Q3 2024 earnings call. Here is what they said:
“As we plan for the fourth quarter, we continue to anticipate that our customers remain prudent with their spending as is typical in an election year. We are capitalizing on our strengths and enhancing our competitive edge in the market with the support of our team members, their strong connections with our customers, and our successful strategic initiatives, we continue to outpace our competitors.”
6. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Investors In Q2 2024: 38
Sector: Consumer Cyclical
eBay Inc. (NASDAQ:EBAY) is one of the oldest eCommerce retailers in the industry. Like its peers, the firm depends on high volumes to maintain robust margins and earn a profit. While eBay Inc. (NASDAQ:EBAY) hasn’t grown to the scale of Amazon, the firm is currently undertaking a strategy to revitalize its marketplace. Through this, it aims to attract high spenders on its platform and then try to entice them to spend more by marketing other products. Additionally, eBay Inc. (NASDAQ:EBAY) is also expanding its consumer-to-consumer platform internationally, to provide it with the unique advantage of offering rare-to-find items. These factors will drive its narrative moving forward, and solid execution coupled with revenue and margin growth could lead to share price tailwinds.
eBay Inc. (NASDAQ:EBAY)’s management commented on these initiatives during the Q3 2024 earnings call. Here is what they said:
“One of the key building blocks underpinning our return to positive GMV growth has been our geo-specific investment, where we leverage our innovation playbook from focused categories to better serve customer needs at the local level. While many of these product experience changes benefit all sellers and buyers, we are particularly focused on consumer-to-consumer or C2C sellers for several reasons. C2C sellers bring some of the most unique inventory to eBay and are typically less price sensitive than B2C sellers. C2C sellers accelerate e-commerce as roughly 60% of their GMV comes from used and refurbished items compared to 40% for our marketplace overall.
Selling on eBay also creates a flywheel effect that stimulates incremental GMV as buyers who sell purchased roughly twice as much on eBay as non-sellers with most of their incremental spend supporting small businesses. As a reminder, our first major geo-specific initiative launched in Germany in March of 2023, and more than 18 months later, we continue to see significantly higher customer satisfaction or CSAT and improved GMV trends for the overall German market. This past April, we rolled out significant enhancements in the UK for pre-owned apparel categories. These improvements included simplified tools for selling and new tools to drive demand through enhanced discovery like Explore and Shop the look. Since then, we have observed material improvements to key C2C metrics like CSAT and active sellers alongside a double-digit improvement in C2C GMV growth in pre-owned apparel versus our prior baseline.”
5. Raymond James Financial, Inc. (NYSE:RJF)
Number of Hedge Fund Investors In Q2 2024: 22
Sector: Financials
Raymond James Financial, Inc. (NYSE:RJF) is a diversified financial services firm that offers portfolio management, investment banking, mutual funds, and other financial vehicles and services. It is a diversified firm that also has exposure to the retail banking industry. Consequently, Raymond James Financial, Inc. (NYSE:RJF) stands to benefit once investment activity picks up and it rakes in advisory revenue. These are key to letting it taper the effect of lower rates cutting interest income and are quite important since 29% of Raymond James Financial, Inc. (NYSE:RJF)’s $10.9 billion revenue during the nine months ending in June came through interest income. However, the firm can face some near-term asset-related headwinds stemming from its split with a Florida-based advisor.
Raymond James Financial, Inc. (NYSE:RJF)’s management shared details about this split during the Q4 2024 earnings call:
“As we had mentioned in previous quarters, there are a couple of OSJ relationships in our independent contractor division who had decided to leave the platform. It takes time to effect these movements, but a portion of those assets left the firm in the fiscal fourth quarter, totaling roughly $3 billion of AUA. We anticipate approximately $5 billion of assets associated with these firms to complete their transfers off the platform in early fiscal 2025.”
4. Franklin Resources, Inc. (NYSE:BEN)
Number of Hedge Fund Investors In Q2 2024: 27
Sector: Financials
Franklin Resources, Inc. (NYSE:BEN) is one of the biggest investment management companies in the world. The firm has a vast portfolio of mutual funds and its sizable resources in the form of $4 billion in cash and $10.7 billion in investments provide it with sizable heft. Franklin Resources, Inc. (NYSE:BEN)’s business, which sees it derive 79% of its revenue from investment management fees also makes it reliant on capital markets health. So, while the flagship S&P index’s 25.94% year-to-date gains suggest that investment managers like Franklin Resources, Inc. (NYSE:BEN) should see greater returns too, the reality is different, as the stock is down 27.31%. This has been primarily driven by higher expenses, as the firm’s operating expenses have jumped by 11% during the nine months ending in June while its revenue has grown by 6.8%. The expenses are driven by Franklin Resources, Inc. (NYSE:BEN) efforts to retain investor attention in an era of high interest rates. The firm’s fortune hasn’t been helped by troubles at its fixed-income business either which have forced it to take a $623 million charge. Consequently, lower rates and streamlined operations might help Franklin Resources, Inc. (NYSE:BEN), moving forward.
During the Q4 2024 earnings call, Franklin Resources, Inc. (NYSE:BEN)’s management shared how it’s changing things in the fixed-income business:
“Since the beginning of the investigations, Western Asset’s trading policies have been reviewed by third-party experts.
Per this review, despite being aligned with industry standards, Western has further enhanced its trading policies and practices. In addition, Franklin Resources is working with Western’s management team to explore ways to assist Western Asset, including adjustments to economic arrangements, operational and revenue synergies. This may entail changes that are similar to what we have successfully implemented with our other public market specialist investment managers, while maintaining investment process independence. And I’m sure that you understand with an ongoing investigation, we are unable to provide any further information or address questions on this matter at this time. Aside from Western Assets, we think it’s important to highlight the breadth of our fixed income investment management expertise, including Franklin Templeton fixed income, Brandywine Global and Templeton Global Macro, which have non-correlated investment philosophies.”
3. FactSet Research Systems Inc. (NYSE:FDS)
Number of Hedge Fund Investors In Q2 2024: 28
Sector: Financials
FactSet Research Systems Inc. (NYSE:FDS) is one of the most well-known financial data products and services providers in the world. Its services-based revenue creates the opportunity for a high-margin business. This business also benefits from FactSet Research Systems Inc. (NYSE:FDS)’s ability to land large deals and then earn stable recurring revenue. At the same time, higher stock market activity and investor interest create higher demand for its services. As a result, a lower interest rate environment carries the chance to let FactSet Research Systems Inc. (NYSE:FDS) grow its revenue. This trend was already evident in the firm’s fiscal fourth quarter earnings report which saw the shares rise by 3.2% during the day. During the quarter, FactSet Research Systems Inc. (NYSE:FDS) beat analyst $3.62 in analyst EPS estimates by posting $3.74 in the segment and grew its projected subscription revenue by 4.8% to $2.27 billion.
During the Q4 2024 earnings call, FactSet Research Systems Inc. (NYSE:FDS)’s management shared insights about these trends:
“Turning now to our financial results. In the fourth quarter, we added $54 million of ASV, which was in line with what we delivered in Q4 last year. This was driven by several large multiyear renewals and seven-figure competitive displacements across multiple firm types. For our organic ASV performance by region, in the Americas, we had 6% growth strength from strategic wins in wealth and momentum from long-term renewals on the sell-side were offset by softness on the buy-side. In the EMEA region, growth decelerated to 2%. Gains from wealth were offset by headwinds to retention on the buy-side across the region, as market conditions continue to constrain the budgets of our mid to large-sized asset manager clients. In particular, one-third of the deceleration in the quarter was the result of a cancellation by one large buy-side client.
In the Asia Pacific region, we delivered growth of 7%. Wins across wealth with our analytics product suite and data solutions were offset by higher erosion from banking and asset management clients. Now looking at trends by firm types. Wealth management was the largest contributor to our ASV growth in fiscal 2024. Even with one-time loss earlier in the year of a client in-sourcing one of our services. In the fourth quarter, we experienced strong demand, and organic ASV growth accelerated to 12% for the year led by multiple large enterprise deals in the long-term renewal. These large wins in the fourth quarter build on our competitive displacement of an incumbent at a marquee wirehouse client in the first quarter. In the fourth quarter, we secured a win against the same competitor in the Canadian market, where we now hold significant share with three of the region’s top five wealth managers.”
2. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Investors In Q2 2024: 48
Sector: Communication Services
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is one of the biggest media and entertainment companies in the world. The firm operates through its well-known film production division as well as well-known media networks and channels such as CNN, HBO, and TNT. In terms of revenue, Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s film and direct-to-consumer businesses account for 26% and 25% of its revenue, respectively. Its Networks business is the largest overall contributor, as it accounts for $10.3 billion of the firm’s $19.7 billion in revenue during the first half of this year. Consequently, Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s fate and its hypothesis depend on the ability of Networks to retain and grow viewership and earn revenue as well. In today’s information and entertainment age which is dominated by social media and online streaming, the outlook is far from comfortably predictable for Warner Bros. Discovery, Inc. (NASDAQ:WBD) as a result. One way that the firm can thrive is by using its considerable resources to team up with other companies to expand users. This was also the case in September when Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s shares soared by 10% after it announced a deal with Charter Communications to provide Discovery Max and Discovery+ to Charter consumers free of charge.
Longleaf Partners mentioned Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q1 2024 investor letter. Here is what the fund said:
“Warner Bros Discovery (WBD) – Media conglomerate Warner Bros Discovery was also a detractor in the quarter. The market disliked the company’s lack of guidance for 2024. While there are tentative signs that the advertising market is slightly improving, we understand why the market remains in show-me mode on this part of the business. The Warner Bros Studio has gone from a big hit with the Barbie movie last summer to some misses lately. As we have discussed before, April 2024 represents the two-year anniversary of Warner Bros and Discovery merging. After this date, the company will have more options to go more on offense. Unfortunately, this is overlooked in the near term by daily Paramount headlines. We are ready to see how the rest of this year plays out. WBD still generates substantial FCF and is de-levering its balance sheet rapidly. The company remains dramatically undervalued today, but we need to see more positives before increasing our position further.”
1. The Southern Company (NYSE:SO)
Number of Hedge Fund Investors In Q2 2024: 32
Sector: Utilities
The Southern Company (NYSE:SO) is one of the biggest regulated utilities in the US. This provides it with a hedge against the ups and downs of the energy markets since the firm’s rates are fixed by regulators. It also means that The Southern Company (NYSE:SO) depends on its ROE on regulators, and any troubles on this front can significantly impact the firm’s operations and by extension, its share price. On this front, The Southern Company (NYSE:SO)’s dealings with Georgia’s regulators for help in recovering the $1.1 billion costs that it faced due to Hurricane Helene are quite important. Additionally, the firm also generates power through nuclear energy, which could create a catalyst for it to target the growing demand for nuclear power from the data center industry.
The Southern Company (NYSE:SO)’s management commented on its nuclear outlook during the Q3 2024 earnings call. Here is what they said:
“It’s — at the end of the day, it’s reflecting and projecting out scenarios under various moving parts, environmental rules, the cost of natural gas over time, the cost of capital over time. And those scenarios are solving for the most economic, reliable way to serve customers in the long term. Is it possible that one of those scenario model runs, spits out a nuclear uprate or a new nuclear unit as the solution in the model? Sure, it might. Does that mean that’s a recommendation? No. Does that mean that’s a path we’ve embarked on?
No. Does that mean it’s an option that is worth preserving and considering down the road? Of course, it is. But there’s a lot that’s going to take place before we get to that point. And that’s, I think, what you hear a lot of us in the industry talking about. Aq New nuclear is super important for them for this country, but in order to get to the right place, there’s got to be better risk mitigation than exists today. That’s got to come from changes with the federal government, that could come from some of these conversations with these large technology companies. We’re talking to as many of these companies as anyone. I’d argue we’re having conversations with the majority of them, not just around nuclear, just around different ways to solve for this load equation.”
SO is a stock with the least improving technical indicators according to UBS. While we acknowledge the potential of SO 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 SO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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