We recently compiled a list of the 10 Most Promising Growth Stocks According to Hedge Funds. In this article, we are going to take a look at where Visa Inc. (NYSE:V) stands against the other Most Promising Growth Stock According to Hedge Funds.
Bull Market and Investor Sentiment
Investors had been anxiously anticipating the start of a bull market, which the S&P 500 confirmed earlier this year. The bull run has seen the market continue to rise to new record highs, supporting revenue and earnings growth across the board.
Fast forward, the upward momentum appears to have peaked, with market indices at record highs. While it was highly expected that stocks would explode on the Federal Reserve offering support to a struggling economy with interest rate cuts, that has not been the case.
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It’s become increasingly clear that investors have become more sensitive to growth scares as the global economy faces many issues. Top on the list is the rising geopolitical tensions in the Middle East that threaten to disrupt supply chain networks. Energy prices rising owing to the escalation of a full-blown war could trigger higher inflation, something that is unsettling the markets.
Analysts at UBS are already warning investors that they should get overweight on defensive names as global growth slows at the back of deteriorating fundamentals. While UBS doesn’t anticipate a severe downturn, the bank is cautious, advising its clients to focus on important sectors like utilities and pharmaceuticals, which always outperform in a downturn.
While investors are increasingly rotating into defensive plays amid concerns about geopolitical tensions and the slowing global economy, Morgan Stanley Investment Management’s Andrew Slimmon recommends against this strategy.
“Now is the time to just be cautious. Don’t chase the defensives that are working because I think when we get to the fourth quarter, that won’t work,” the portfolio manager told CNBC’s “The Exchange.
“While our expectation is for October to remain choppy, we don’t view the overall market action to be bearish and encourage investors to maintain perspective on the longer-term trends,” Robert Sluymer, technical strategist at RBC Wealth Management, wrote to clients.
The sentiments echo the need to focus on high-growth companies. Investors who diversify their portfolio into high-growth companies eventually earn great returns regardless of how much a stock rises or falls in the short term.
Analysts project that S&P 500 stocks will grow at a median annual EPS rate of 8.5% over the next five years. On the other hand, the best growth stocks are well poised to outperform this benchmark by a factor of two to three or more.
For starters, companies exposed to artificial intelligence spectacles or those leveraging technology continue to deliver record earnings and revenue growth, thus dominating most hedge fund portfolios. Additionally, the most promising growth stocks, according to hedge funds, are those whose core business would be positively impacted by improving consumer purchasing power. As the Fed steers the economy into a soft landing, consumer purchasing is expected to improve, benefiting consumer cyclical stocks. Moreover, the rate cuts will likely benefit growth and tech stocks as well.
Market fluctuations are inevitable, but the secret to a growth stock’s success lies in the robustness of its core operations. Regardless of whether a stock is rising or falling in the short term, if you consistently invest in a competitively solid business, you’ll eventually reap substantial rewards.
Our Methodology
To compile the list of the most promising growth stocks according to hedge funds, we sifted through ETFs and online rankings to find 30 popular growth stocks. Then we selected the 10 that were the most widely held by hedge funds, as of Q2 2024. Finally, we ranked the stocks in ascending order of the number of hedge funds that have stakes in them.
At Insider Monkey, we are obsessed with 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).
Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 163
Visa Inc. (NYSE:V) is one of the most promising growth stocks according to hedge funds in the financial service sector. While the company has made a name as a payment technology company offering credit debit and clearing products, it is well-positioned to benefit from the so-called war on cash.
The company is well positioned to generate significant fees from its card as consumer spending patterns improve after the Fed cuts interest rates. A booming economy is always good for Visa Inc. (NYSE:V)’s core business, which generates transaction fees.
In emerging economies, a larger percentage of the population tends to be without or have limited access to banking services. As these economies advance, Visa could see an increase in the amount of transactions it processes, leading to steady growth in its earnings.
Visa Inc. (NYSE:V)’s impressive profit margins are another strong reason why it is one of the most sought-after growth stocks. The firm reported an outstanding operating margin of 67% in the third quarter of fiscal 2024, a rare figure among other companies.
Its growth might attract little attention, but it’s incredibly resilient. Over the past ten years, the business has seen a revenue increase of over 7.8% annually (except a 4.9% decrease in the fiscal year 2020, which was heavily impacted by the pandemic).
Investors should feel confident that this positive trend will persist in the coming years as over half of Americans still rely on cash for a portion of their weekly purchases. This is an unexpectedly high percentage, particularly for one of the world’s most advanced economies. Visa Inc. (NYSE:V) is rated as a buy with an average price target of $315.42, implying a 14.28% upside potential.
By the end of Q2 2024, 163 hedge funds held stakes in Visa Inc. (NYSE:V), with Chris Hohn’s TCI Fund Management being the largest shareholder, holding stakes valued at $4.4 billion.
Here is what Wedgewood Partners said about Visa Inc. (NYSE:V) in its Q2 2024 investor letter:
“Visa Inc. (NYSE:V) detracted from performance despite healthy corporate results. The company grew earnings per share +12% as payment volume growth was up +8% and cross-border payment grew +16%, adjusted for currency. There are over 4.4 billion Visa debit and credit cards in circulation generating over $15 trillion in volume over the past 12 months. There is another estimated $10 trillion in cash and check volume, globally, which we think Visa can continue to move over to its electronic payment rails. In addition, the company has spent the past several years extending its payment capabilities into new flows of commerce, particularly for business-to-business transactions. This is another, extremely large (+$200 trillion) long-term growth opportunity for Visa that we believe investors are ignoring.”
Overall V ranks 7th on our list of 10 Most Promising Growth Stocks According to Hedge Funds. While we acknowledge the potential of V 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 V, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
