In this piece, we will take a look at Wells Fargo’s top growth stocks and the stocks with the highest consensus EPS growth estimates.
With the interest rate cycle kicking off in the US, stocks that are exposed to consumer and business spending are starting to see a favorable economic outlook. The stock market has also undergone a correction following the victory of President-elect Donald Trump and the Republican Party in the 2024 US Presidential Election. This correction has seen stocks that respond favorably to lower regulations, such as traditional energy, oil stocks, and banks, rise. At the same time, others, particularly green energy stocks, have not fared so well.
Consider the performance of the S&P’s bank, energy, and green energy stock indexes as a brief example. Starting from the bank stock index, it has gained 8.8% since the election on November 5th (as of writing). During the same period, the flagship S&P index is up by a more modest 1.64%. Similarly, the S&P’s energy stock index has also outpaced the benchmark index by gaining 4.29%. On the flip side, the green energy stock index is down by a staggering 8.9%.
Naturally, with the future for several sectors uncertain, this also calls for portfolio finetuning. On this front, investment bank Wells Fargo shared insights in its recent report following the election. Analyst Austin Pickle shared that his bank believes that “it is important not to let election outcomes and emotions drive investing decisions.” This is because politicians often make big policy promises during campaigns which are then watered down at the time of implementation due to “prioritization and give-and-take with Congress and the legal system.”
To prove that “equity returns are most heavily influenced by the economy’s long-term growth trend as well as fundamental supports that drive earnings growth,” the analyst shares data about stock price performance during Democrat and Republican administrations. Two key takeaways from this are particularly noteworthy. On the qualitative front, Pickle outlines that “market turbulence has occurred during both Democrat and Republican administrations, but overall, stocks have tended to advance regardless of who is in the White House.” The second takeaway is more striking and relevant since it involves money – which is, after all, the primary focus of any investor.
The WF analyst points out that if an investor in 1944 had invested $1,000 in the flagship S&P index, their investment would be worth more than $7 million today provided all dividends paid were reinvested. He goes further and cites the performance of small caps, real estate, energy, and clean energy stocks following the 2016 and 2020 US presidential elections. Its data shows that from the day of the 2016 election to year-end, small-cap and energy stocks delivered roughly 10% and 2% in excess returns, respectively, to the flagship S&P. However, from the 2016 election to the 2020 election, these categories lagged the benchmark by ~30% and ~120% in relative returns.
Similarly, after President Biden’s victory in the 2020 election to 2020 end, clean energy stocks delivered more than 20% in relative returns. Yet, by the 2024 election, they were down roughly 110%. Consequently, the bank “urges caution” for investors who are exclusively betting on campaign promises to materialize into policy action that generates tailwinds for stocks or other assets.
Shifting gears, while the tail-end of 2024 has seen the stock market driven by the election, other factors are also important to determine its performance. One factor that has been all the hype for more than a year is artificial intelligence. So far, AI-based stock returns have focused on a handful of companies. One of these is the GPU-designer whose shares are up by 736% since the start of December 2022 – or soon after OpenAI publicly unveiled ChatGPT. Between September 2023 and now, Wells Fargo uses the Gartner Hype Cycle to evaluate the sentiment surrounding AI in its report titled ‘Generative AI — AI buildout continues as monetization challenges emerge.’
Between then and now, the bank believes that “generative AI has likely progressed from the “peak of inflated expectations” stage in the Gartner Hype Cycle into the “trough of disillusionment” stage.” This means that businesses using or looking to use AI are now balancing costs with the productivity and other benefits offered by the technology. The firm also concurs with investment bank Goldman Sachs for the fact that investor attention to AI is now broadening out to firms that will provide the infrastructure needed to build out AI facilities. We covered these trends in detail as part of our coverage of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks, and Wells notes that interest is now shifting to firms “building out the data-center infrastructure and supporting the need for reliable power and efficient cooling.”
While generative AI might be in the “trough of disillusionment,” the disillusionment doesn’t mean that generative AI won’t generate economic value. According to Wells Fargo’s research, the “overall market for generative AI could grow at a compound annual growth rate of approximately 49%, from $11 billion in 2020 to $1.36 trillion in 2032” and generate revenue for supportive products such as chips and networking solutions.
Within the AI market, two key functionalities drive performance. These are AI training and AI inference. Both require GPUs and other data center infrastructure. The first is the ‘back-office’ of AI where companies prepare their models for the second feature which involves ‘consumer-facing’ operations of generating inferences in response to queries. In terms of revenue generation potential, training is naturally larger in 2024 and will continue to remain so for every year until 2032 since it includes building facilities to create AI software.
However, Wells cites OpenAI’s o1 to share that inference revenue will grow faster. o1 was the first true upgrade to GPT from OpenAI. OpenAI’s data shows that the new artificial intelligence model ranks in the 89th percentile for complex coding problems and improves performance on the LSAT and MATH Benchmark by more than 20 percentage points. The strong performance requires significantly more computing power for inferences, and it underscores the faster growth rate for this portion of the AI market.
According to WF’s research, the training market can sit at $471 billion in 2032 while the inference market could touch $169 billion. While this potential is all well and good, it represents only a part of the AI debate and does not cover all of the risks. Most AI use cases right now are limited to the business world through enterprise and cloud computing. For the everyday consumer, AI use cases at the ‘edge’ are relevant. These include smartphones and laptops and are a major reason why the firm behind the iPhone has seen its shares rise by 16.5% since WWDC 2024 when it unveiled Apple Intelligence. Apple Intelligence is one of the first across-the-board edge AI use services, and as per WF, there is “more evidence of generative AI moving to the edge, meaning that generative AI models are being deployed directly onto local edge-computing devices (such as PCs and smartphones) that allow devices to process data locally instead of relying on the cloud.” This evidence could also drive a new PC replacement cycle in 2025, believes the bank.
Yet, at the same time, the bank is also cautious. It notes that while AI has the potential to proliferate across a wide range of industries ranging from healthcare to retail, there is a need for caution as well since investors often heavily invest in emerging technologies before the technologies can fully deliver.
A close-up shot of a stock ticker reflecting the performance of Indian equity markets.
Our Methodology
To make our list of Wells Fargo’s best growth stocks, we used the bank’s recent Growth List, ranked the stocks by the consensus long-term EPS growth estimate, and picked those with 7% or higher growth. Wells selected the stocks by focusing on firms with a market cap greater than $1.5 billion, annual revenue of $500 million or more, and a forward EPS CAGR of 5% or more.
For these stocks, we also mentioned the number of hedge fund investors. 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).
28. Tesla, Inc. (NASDAQ:TSLA)
Consensus Long-Term EPS Growth Estimate: 9%
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is a well-known electric vehicle company spearheaded by Elon Musk. While most companies’ narratives are mostly divorced from their leadership and based on their products and operations, Tesla, Inc. (NASDAQ:TSLA) also benefits from Musk’s reputation as one of history’s most successful entrepreneurs. Musk’s role means that the firm’s hypothesis is two-fold. At one end, and as has been the case throughout 2024, Tesla, Inc. (NASDAQ:TSLA) is dependent on the health of the electric vehicle market. Prior to the 2024 Presidential Election, the stock was down 2.25% year-to-date as dropping EV demand stressed the firm’s margins through low-volume shipments and defensive pricing. Following the election, Musk’s proximity with the Trump campaign has injected fresh fervor in investors surrounding Tesla, Inc. (NASDAQ:TSLA)’s ability to benefit from favorable regulations. Consequently, the stock has gained 32% since then. On a broader note, the firm is still dependent on its ability to launch a low-cost electric vehicle, the success of its autonomous driving software, and the Cybercab.
Baron Funds mentioned Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter. Here is what the fund said:
“As discussed in the Fund’s prior shareholder letter, the fears about Tesla’s products were misplaced. Instead of the company being exclusively dependent on limited vehicle models and software advancement, the company announced it will more rapidly introduce products that appeal to a wider audience. It also demonstrated that its price reductions were the result of efficiencies rather than only to spur demand. Margins exceeded expectations. And the company’s integration of its hardware with proprietary AI software should facilitate full self-driving capabilities and subsequent new revenue streams. This integration of hardware with software creates a dynamic growth company as it more fully explores its potential with Optimus, humanoid robotics. The combination of these catalysts resulted in Tesla’s stock increasing meaningfully and rapidly in the second half of the quarter. This stock price momentum has continued into the next period.”
27. Zoetis Inc. (NYSE:ZTS)
Consensus Long-Term EPS Growth Estimate: 10%
Number of Hedge Fund Holders: 61
Zoetis Inc. (NYSE:ZTS) is a specialty drug company that focuses on animal health. Its products include medicines to combat skin diseases, infections, and other ailments. Since the firm also targets the consumer market, its revenue is somewhat discretionary and depends on consumer spending power. As a result, it is unsurprising that Zoetis Inc. (NYSE:ZTS)’s shares are down by 10.9% year to date. To understand how dependent the firm is on consumers, consider its revenue during the first half of the year. In this time period, Zoetis Inc. (NYSE:ZTS) raked in $4.6 billion in sales, out of which 65% were through its companion health business. Within companion health, cats and dogs account for 98% of the revenue. Consequently, a broader recovery in consumer spending is the only factor that can introduce tailwinds for Zoetis Inc. (NYSE:ZTS).
Just like any pharma company though, Zoetis Inc. (NYSE:ZTS)’s success depends on key drugs. Here’s what management shared during the Q3 2024 earnings call:
“By maintaining a strong focus on innovation, we set the standard for improving patient outcomes, higher customer satisfaction, and strong partnerships with veterinarians and pet owners. Our osteoarthritis pain franchise, Librela and Solensia, continues to make a transformative impact by addressing a critical unmet need, delivering 97% operational revenue growth globally. From our conversations with customers around the world, it’s clear that our safe effective solutions are making a meaningful difference in patients’ lives. We recognize the profound impact of our work, which only strengthens our commitment to developing this market. We have navigated this path before and understand that building a new category of care requires a steady strategic approach.
As we lap the U.S. Librela launch, we continue to grow share, even in a market where canine pain visits typically slow down from Q2 to Q3. In fact, Librela is actively disrupting this trend by driving more clinic visits and increasing engagement. With $55 million in U.S. quarterly sales, we see significant opportunity to further expand share and utilization. In just 11 months, we have treated 1 million dogs, compared to an estimated 8 million receiving other treatments, and Librela have already become the fourth largest product in U.S. pet care. This highlights the demand and long-term growth potential, reinforcing our confidence in the franchise’s $1 billion trajectory. With record market penetration in the U.S., we’re only scratching the surface of broader utilization potential.”
26. Intercontinental Exchange, Inc. (NYSE:ICE)
Consensus Long-Term EPS Growth Estimate: 10%
Number of Hedge Fund Holders: 70
Intercontinental Exchange, Inc. (NYSE:ICE) is a financial technology company that operates the world’s most valuable stock exchange, the New York Stock Exchange (NYSE). This simple fact means that the firm has a wide competitive moat that is unlikely to be challenged unless significant disruption upends the financial industry. Companies worldwide froth at the opportunity to list on the NYSE due to the billions in dollars of capital available from US investors. Yet, its place in the finance industry also means that Intercontinental Exchange, Inc. (NYSE:ICE) is also dependent on the health of capital markets. Higher trading activity and easily accessible capital mean that the firm generates revenue via listings and other activities. Additionally, Intercontinental Exchange, Inc. (NYSE:ICE) is particularly sensitive to exchange volumes since 62% of its revenue comes through the exchange business, and it has continued to rely on exchanges despite a $6 billion decision to buy a data analytics company. However, the firm benefits from running a myriad of non-stock exchanges such as those for bonds some of which typically fare well during economic turbulence.
Aristotle Atlantic Partners mentioned Intercontinental Exchange, Inc. (NYSE:ICE) in its Q3 2024 investor letter. Here is what the fund said:
“Intercontinental Exchange, Inc. (NYSE:ICE) contributed to portfolio performance in the third quarter, driven by continued strength in the company’s Exchanges segment and expectations that the Mortgage Technology segment’s revenues have troughed ahead of an eventual recovery in U.S. housing market activity. Exchanges’ revenues continue to be driven by growth in energy and interest rate futures trading volumes, with energy trading activity expected to remain elevated, primarily bolstered by increasing data center-driven electricity demand.”
25. Trex Company, Inc. (NYSE:TREX)
Consensus Long-Term EPS Growth Estimate: 11%
Number of Hedge Fund Holders: 36
Trex Company, Inc. (NYSE:TREX) is a building products firm that sells outdoor items such as decks, railings, pickets, and other items. This ties its fate to the construction industry and makes strong building activity indispensable to the stock performance. As a result, Trex Company, Inc. (NYSE:TREX)’s shares are down 15.5% year to date since the firm has struggled with managing inventory levels. Companies like Trex Company, Inc. (NYSE:TREX) rely on shipping high volumes in their sales channels to enjoy margins. However, if construction activity is muted, then their channels can become overfilled and take longer to ‘digest’ inventory. This has also been the case with Trex Company, Inc. (NYSE:TREX), and as its channel remains filled, the firm is in a wait-and-watch mode before it can ramp shipments again.
Conestoga Capital Advisors mentioned Trex Company, Inc. (NYSE:TREX) in its Q3 2024 investor letter. Here is what the fund said:
“Trex Company, Inc. (NYSE:TREX) is the market share leader in composite decking and railing and has been a long-term holding. After the stock price reached a two-year high in late March, shares sold off over the last six months given some macro concerns and several decking surveys that showed a weakening decking market. Also, TREX management lowered their guidance for earnings in the year ahead. Despite the near-term headwinds, we remain positive on TREX given the continued consumer preference for composites over wood, as well as some exciting new products from TREX such as TREX’s Lineage Decking which has heat mitigation technology.”
24. Paycom Software, Inc. (NYSE:PAYC)
Consensus Long-Term EPS Growth Estimate: 11%
Number of Hedge Fund Holders: 32
Paycom Software, Inc. (NYSE:PAYC) is a sizable software-as-a-service (SaaS) firm that focuses primarily on businesses’ human resource management needs. Its software provides customers with a wide variety of solutions such as application tracking and background checks. As a result, since its revenue is tied to the labor market, Paycom Software, Inc. (NYSE:PAYC)’s stock has been on a roller coaster in 2024. From the start of the year to the end of October, the shares had lost 18% as investors remained wary of the labor market. However, Paycom Software, Inc. (NYSE:PAYC)’s third-quarter earnings, which saw the firm report $452 million in revenue and beat $447 million in analyst estimates sent the stock soaring by 6%. The firm’s full-year guidance was also nearly in line with estimates, and since the report, Paycom Software, Inc. (NYSE:PAYC)’s shares are up 27.6%. The firm’s revenue is heavily dependent on recurring sources, as it accounted for 98% of revenue in H1 2024. The dependence on recurring revenue means that Paycom Software, Inc. (NYSE:PAYC) can rely on customer loyalty provided it continues to meet expectations.
Polen Capital mentioned Paycom Software, Inc. (NYSE:PAYC) in its Q3 2024 investor letter. Here is what the fund said:
“We added to several existing positions in the quarter including Adobe, Workday, Shopify, MSCI, and Paycom Software, Inc. (NYSE:PAYC). Finally, we modestly added to our small position in Paycom Software, given our view that the growth slowdown the company is still experiencing is due to temporary dynamics, and growth should reaccelerate with normal blocking and tackling around product development and salesforce training. While macroeconomic headwinds and lower float income (due to lower interest rates) will be a challenge, we believe Paycom remains an advantaged payroll/human capital management (“HCM”) software player with a long runway for growth ahead.”
23. Planet Fitness, Inc. (NYSE:PLNT)
Consensus Long-Term EPS Growth Estimate: 12%
Number of Hedge Fund Holders: 34
Planet Fitness, Inc. (NYSE:PLNT) is a fitness center operator that operates through franchises and equipment sales. The firm’s self-owned stores which it operates under the Planet Fitness brand are its largest source of revenue. These stores accounted for 45% of Planet Fitness, Inc. (NYSE:PLNT)’s revenue during H1 2024, and they were followed by franchise revenue which accounted for 31% of the firm’s sales. Consequently, consumer spending on fitness and Planet Fitness, Inc. (NYSE:PLNT)’s ability to increase its memberships along with stable operations are the keys to the firm’s hypothesis. The firm also depends on the ability to open new stores, which has been constrained lately due to the slowdown in the real estate industry because of high interest rates. Planet Fitness, Inc. (NYSE:PLNT) is currently seeking to grow revenue by increasing its Classic membership fees, as it hopes to attract more consumers after witnessing growth in the premium Black membership segment. Consequently, membership growth and store expansion can lead to tailwinds or headwinds for the shares.
During the Q3 2024 earnings call, Planet Fitness, Inc. (NYSE:PLNT)’s management shared how retail store closures can play into its store expansion plans. Here is what they said:
“We – I read a recent study that said there were about 5,300 closures last year and there will be north of 6,000 closures this year. And we do see that as an opportunity for Planet Fitness and to work in partnership with our franchisees. Our real estate team is engaged with brokers on a very regular basis to have line of sight to where space maybe becoming available and then partnering with our franchisees on that availability where there’s an opportunity to develop a new club. So I think you’re spot on. And we’re seeing the same trends. We know that’s market specific. It’s not in every market, but there’s a lot of space coming online.
And I think the other thing we’ve talked about it a little bit but have an opportunity to talk about it more is really the resilience of our business and the durability of our cash flows. When you think about even coming through a once in a lifetime global pandemic where our clubs were closed for in some municipalities for extended periods of time. We did not have one club permanent closure during COVID for financial reasons. I think that absolutely speaks to the resilience of our business and should make us very attractive to developers and landlords when space becomes available because of their confidence in our ability to fulfill lease terms. So we see that as certainly a potential tailwind.”
22. O’Reilly Automotive, Inc. (NASDAQ:ORLY)
Consensus Long-Term EPS Growth Estimate: 12%
Number of Hedge Fund Holders: 52
O’Reilly Automotive, Inc. (NASDAQ:ORLY) is an American car parts retailer headquartered in Missouri. The firm sells new and refurbished parts through its stores. It’s another stock that has been hit hard by the weak consumer spending environment in the US. Ahead of the November election, O’Reilly Automotive, Inc. (NASDAQ:ORLY)’s shares had gained a modest 23% as consumer demand has remained muted. However, the firm benefits from a diversified income statement that depends on consumers and repair shops. The latter business has helped O’Reilly Automotive, Inc. (NASDAQ:ORLY) avoid a sharper stock price downturn. This is because during H1 2024, while the firm’s consumer revenue grew by 2.5%, the revenue from parts sold to shops grew by 8.5%. Additionally, there might be pent-up potential built up in the stock that can be released due to robust economic activity. This potential was hinted at when O’Reilly Automotive, Inc. (NASDAQ:ORLY)’s shares gained 6% after the election and are up by 4.3% since then.
ClearBridge Investments mentioned O’Reilly Automotive, Inc. (NASDAQ:ORLY) in its Q3 2024 investor letter. Here is what the fund said:
“Skepticism over the consumer has left some high-quality stocks with depressed valuations and allowed us to reduce our consumer discretionary underweight with the addition of O’Reilly Automotive, Inc. (NASDAQ:ORLY) and Starbucks. While we have been cautious on retailers for quite some time, auto parts retailer O’Reilly is a best-in-class, high-quality operator with high returns on invested capital and a solid history of consistent execution and sustainable share gain, and it enjoys rational competitive dynamics in the broader industry. In addition, auto parts retailing carries some counter-cyclicality as consumers tend to hold on to their cars longer, requiring more repair and maintenance, during softer economic environments. We think a high-quality franchise like O’Reilly trading at a reasonable valuation in an otherwise expensive market is worth our attention and we initiated a starter position.”
21. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Consensus Long-Term EPS Growth Estimate: 12%
Number of Hedge Fund Holders: 68
Chipotle Mexican Grill, Inc. (NYSE:CMG) is an American fast-food restaurant chain that sells Mexican food items such as burritos and tacos. This makes it a consumer cyclical stock that fluctuates in tune with the economy. As a result, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s narrative depends on its same-store sales, which have benefited in 2024 from the firm’s brand presence. Additionally, the restaurant chain has also been able to use its brand image to offset the impact of higher prices which have somewhat been forced on it because of inflation and other factors like labor laws. Brand loyalty saw Chipotle Mexican Grill, Inc. (NYSE:CMG) raise its 2024 sales guidance in April and beat analyst revenue and earnings estimates for its second-quarter results. Therefore, the firm’s narrative now depends on its ability to control costs and execute its strategy of opening at least 315 and as many as 345 restaurants in 2025 along with expanding digital sales.
Artisan Partners mentioned Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2024 investor letter. Here is what the fund said:
“Notable trims in the quarter included Chipotle Mexican Grill, Inc. (NYSE:CMG) and Arista Networks. Chipotle is currently expanding its store count at a growth rate of 8%–10% annually, which is supported by attractive store-level economics. At the same time, execution within these stores is strengthening due to increased accessibility and convenience, which is resulting in higher productivity during peak times. While the profit cycle remains nicely in motion, we trimmed the position due to our valuation discipline and its market cap outgrowing our mid-cap mandate.”
20. GXO Logistics Inc (NYSE:GXO)
Consensus Long-Term EPS Growth Estimate: 13%
Number of Hedge Fund Holders: 29
GXO Logistics Inc (NYSE:GXO) is a Connecticut-based logistics company that provides supply chain services such as fulfillment and warehousing for well-known brands such as Levi’s and L’Oreal. As a result, its sales and stock are dependent on economic health. As of H1 2024, 41% of the firm’s revenue came from the United Kingdom, with omnichannel retail accounting for 43% of the overall sales. GXO Logistics Inc (NYSE:GXO)’s geographical dependence on the UK and Europe for 66% of its revenue has also meant that its shares have struggled this year. Unlike the American economy which has continued to grow, Europe, in the wake of the Russian invasion of Ukraine and high rates, has failed to keep up. As a result, from the start of the year to early October, GXO Logistics Inc (NYSE:GXO)’s shares had lost 15% on the market. However, a Reuters report of a potential sale lifted the stock by 14%, and future movements should depend on the deal as well as European economic recovery.
GXO Logistics Inc (NYSE:GXO)’s management believes that Q4 will be a ‘peak season’ for the firm. Here’s what they shared during the Q3 2024 earnings call:
“As of the end of third quarter, we’ve won about $750 million of new business year-to-date. We’ve got several major projects that we expect to sign in the fourth quarter. 2024 has the making of being a record setting year for new business wins for GXO. Looking ahead to the fourth quarter, we’re ready for the peak season. We’ve mentioned that we saw the bottom of the inventory cycle in the fourth quarter of last year. As we head into this year’s peak, we’re seeing inventory levels returning to normal and demand for ecommerce capacity is accelerating. Our customer service satisfaction scores are at an all-time high, and our dependability has recently been recognized by Newsweek, which ranked us the top logistics provider among America’s Most Reliable Companies.
As commercial activity picks up momentum, our technology differentiation through the deployment of automation and AI is creating a multiplier effect in the efficiencies we deliver for our customers. On the back of our real world results, we are proud to have been recognized with a Supply Chain Excellence Awards for our leadership in warehouse AI by Logistics Manager a few weeks ago. Our technology differentiation is also helping us win new business. Our ongoing strong sales performance, coupled with our targeted M&A in key geographies and hard-to-penetrate verticals, is driving our long-term growth. In Germany, we jump started the growth of our business on the back of our acquisition of Clipper in 2022. Our state-of-the-art site in Dormagen is at full capacity.”
19. Visa Inc. (NYSE:V)
Consensus Long-Term EPS Growth Estimate: 13%
Number of Hedge Fund Holders: 163
Visa Inc. (NYSE:V) is the largest payment processing company in the US. It holds 52% market share of the US credit card market and 47% of all the outstanding balances. This makes Visa Inc. (NYSE:V) a key player in the US financial system, and it also offers the firm a wide moat over its nearest rival, Mastercard. Like other payment processors, the firm is also dependent on consumer spending since its business model relies on taking a percentage of all transactions as fees. Consequently, Visa Inc. (NYSE:V) does well when the economy is strong, and recent economic turmoil has also forced the firm to diversify. During its third quarter, the firm’s value-added services revenue and new flows grew by 22% to reduce its dependence on existing customers. However, Visa Inc. (NYSE:V)’s payment fee model also creates troubles as evidenced by the $30 billion settlement it and Mastercard have agreed to with merchants. Should merchants switch en-masse from its products, then the firm could face headwinds.
Another looming threat is Visa Inc. (NYSE:V)’s market share attracting regulatory action. Here’s what management had to say during the fiscal Q4 2024 earnings call about one such action against it by the Justice Department:
“Before I close, I wanted to make a few comments on the recent lawsuit by the Department of Justice. We believe the lawsuit is meritless and shows a clear lack of understanding of the payments ecosystem in the United States.
We will defend ourselves vigorously and are confident in our ability to demonstrate that Visa competes for every transaction in a thriving debit space that continues to grow and see new entrants.”
18. Electronic Arts Inc. (NASDAQ:EA)
Consensus Long-Term EPS Growth Estimate: 14%
Number of Hedge Fund Holders: 40
Electronic Arts Inc. (NASDAQ:EA) is one of the most well-known video game developers in the world. The firm has been behind the release of some of the most well-known video games in the world such as Need for Speed and FIFA. Electronic Arts Inc. (NASDAQ:EA)’s hypothesis depends on its ability to continue to launch popular video game titles. The recent shift towards online video game downloads has also benefited the firm since it has enabled Electronic Arts Inc. (NASDAQ:EA) to deliver games over-the-air via the Internet rather than incur the costs of shipping physical disks. The company also benefits from its ownership of sports-related titles to which it has exclusive rights. These titles, like FIFA and NFL, have dedicated fans who buy games each year to keep up with real-life team changes. Electronic Arts Inc. (NASDAQ:EA)’s near-term fate also depends on two key titles that are performing well. These are College Football and Madden NFL, both of which have enabled the firm to increase its full-year midpoint bookings guidance to $7.65 billion.
During its Q2 2025 earnings call, Electronic Arts Inc. (NASDAQ:EA)’s management shared details about these titles:
“With Madden NFL connecting real world events with our own community driven moments, we are extending the in-game experiences to drive engagement 365 days a year. And combined with the launch of College Football this quarter, we have seen incredible success expanding our audience. New players into the community more than doubled year over year, and represented around a quarter of the player base. Through September, College Football 25 was not only the best-selling HD title in North America, it has also proven to be a wholly unique moment of sports culture, connection, and fandom. The impressive launch with the world’s largest NIL program, support from universities, colleges, athletes, partners, and fans, has arguably become one of the biggest moments in American sports entertainment so far this year.
Each week, conversations from the stadiums to social media, from broadcast booths to tailgates, from dorm rooms to wherever fans are, we are seeing our experience at the epicenter of fandom around the sport. This success demonstrates our strategy at work. Combining College with the long history of our success in Madden NFL, we have built the most immersive and deepest American Football experience, making it part of the very fabric of the sport. With new offerings like the MVP bundle and connected modes between the titles, we have seen incredible engagement in our American Football community. We have more players than ever immersed in the sport: for example, total hours played in Q2 are up over 140% year-over-year, demonstrating fans are playing both games.”
17. Corpay, Inc. (NYSE:CPAY)
Consensus Long-Term EPS Growth Estimate: 15%
Number of Hedge Fund Holders: 33
Corpay, Inc. (NYSE:CPAY) is a software company that caters to the needs of businesses. It allows firms to manage their vehicle fleets, make payments, and run other operations. As of H1 2024, $1 billion of its $1.9 billion in revenue came through vehicle payments. The reliance means that Corpay, Inc. (NYSE:CPAY) is quite dependent on the strength of logistics in the economy. As a result, while prior to the November Elections, the shares had gained a modest 17% year to date, they are up by 9.8% since then. Corpay, Inc. (NYSE:CPAY) also benefits from somewhat of a diversified business model. While 54% of its H1 2024 net revenues came from the US, 16%, 13%, and 17% came from Brazil, the UK, and other countries. Its presence in Brazil provides Corpay, Inc. (NYSE:CPAY) access to a high-growth economy and helps it weather turbulence in other regions. As a whole, as long as its geographic regions continue to have robust economic growth and the firm avoids mismanagement, Corpay, Inc. (NYSE:CPAY) can see tailwinds.
Third Point Management mentioned Corpay, Inc. (NYSE:CPAY) in its Q2 2024 investor letter. Here is what the fund said:
“This quarter we added to Corpay, Inc. (NYSE:CPAY) (formerly FLEETCOR), a position we initiated in the Fourth Quarter of 2023. Corpay is a collection of network assets in the payments space, most notably a fuel card business, where the company processes fuel purchases by commercial vehicle operators, and a B2B payments business where Corpay facilitates vendor payments for midmarket clients. These two segments together make up >70% of Corpay revenues. The company is run by CEO of 24 years, Ron Clarke, who in our view has delivered an impressive track record for shareholders of 20% compounded EPS growth since going public in 2010, including 15% over the last 10 years, through a combination of revenue growth, margin expansion, and accretive capital allocation in M&A and share repurchases.
Over the last five years, CPAY has seen its P/E multiple significantly de-rate from the mid-20s to ~13x as market sentiment toward the company’s core fuel card business soured. Firstly, growth in the segment has slowed as the market has matured. Secondly, the rise in popularity of electric vehicles (EVs) as a theme has made investors question the terminal value of a business whose main function is to process gasoline and diesel payments. Corpay has proactively prepared for an EV transition by making acquisitions in EV charging payments and adding mixed/EV fleets to its customer base, wherein CPAY earns higher unit economics on mixed fleets than it does on pure internal combustion engine fleets. Finally, the last year has demonstrated that a transition to an electric fleet is more easily said than done. With EV sales declining for industry bellwether Tesla, European EV sales declining overall, and flattening in the US, it is becoming clear that the journey of automotive electrification will be a long one…” (Click here to read the full text)
16. Ecolab Inc. (NYSE:ECL)
Consensus Long-Term EPS Growth Estimate: 15%
Number of Hedge Fund Holders: 42
Ecolab Inc. (NYSE:ECL) is one of the biggest chemicals companies in America. The firm caters to the cleaning, sanitation, and infection prevention needs of industrial, healthcare, mining, food, manufacturing, and other companies. With a fortress balance sheet as evidenced by $3 billion in receivables and trailing twelve-month revenue of $15.6 billion, Ecolab Inc. (NYSE:ECL) enjoys a vast market presence. Yet, its reliance on industrial output makes robust economic output a precondition for financial prosperity. With US manufacturing activity being subdued for most of the past 12 months, a resurgence could bode well for Ecolab Inc. (NYSE:ECL). The pent-up potential was evident after the firm’s third quarter results which saw its global industrial segment grow revenue to $1.99 billion from the year-ago quarter’s $1.94 billion. Ecolab Inc. (NYSE:ECL) has also set a mid-term operating margin goal of 20%, and this, along with broader economic recovery should drive its hypothesis moving forward.
Ecolab Inc. (NYSE:ECL)’s management shared details about its growth plans during the Q3 2024 earnings call. Here is what they said:
“Now I’d like to transition our attention from Q3 to what our teams are focused on to fuel long-term growth and margin expansion. Our growth engines in clean tech, high tech and biotech are showing strength and momentum, even if each are at the different stage of development.
In the clintech area, institutional and specialty as well as pest elimination are both delivering strong performance, growing 7% and 8%, respectively, with operating income margins north of 20%. Global High Tech, which includes data center cooling and water for microelectronics is growing at strong double digits. And in biotech, our Life Sciences business remains ahead of the curve in what we believe will be a huge long-term growth opportunity. Our innovation pipeline also continues to build as we shift our focus from renovation to breakthrough innovation. With nearly $1.5 billion, our 2024 pipeline is at record levels and laser-focused on the biggest opportunities across our clean tech, high tech and biotech platforms. Finally, our One Ecolab growth initiative, which seeks to leverage our digital technologies to deliver best-in-class business outcomes, operational performance and environmental impact that every customer location around the world is progressing very well.
Over the next few years, One Ecolab looks to more quickly unlock our current $55 billion penetration opportunity. Our early focus on our largest and fastest-growing certified customers is showing promising results with significant total value delivered for our customers and a great growth opportunity for Ecolab. With strong long-term business momentum, record free cash flow and the proceeds from the sale of the Surgical Drapes business, our balance sheet is in a very healthy position. This provides us with many options to allocate capital to organic and inorganic growth opportunities. On organic growth, we are well positioned to scale unique customer solutions like our AI dish machine program for QSR and circular water systems for data centers and microelectronic manufacturers.”
15. SBA Communications Corporation (NASDAQ:SBAC)
Consensus Long-Term EPS Growth Estimate: 16%
Number of Hedge Fund Holders: 45
SBA Communications Corporation (NASDAQ:SBAC) is a real estate investment trust whose properties are geared towards catering to the needs of the communications sector. The dependence on communications properties hasn’t boded well for the firm in 2024 as the shares are down 13% year to date. Investor pessimism surrounding SBA Communications Corporation (NASDAQ:SBAC)’s shares is due to two primary factors. Firstly, high interest rates tend to depress real estate stocks as a whole. However, while other REITs, such as those exposed to data centers, have managed to weather the storm, SBA Communications Corporation (NASDAQ:SBAC)’s primary customers are equally sensitive to high rates. Telecommunications firms typically expand their operating footprint and tower count when cheap money is available. Teleco spending also depends on consumer spending, which hasn’t fared well in 2024. However, SBA Communications Corporation (NASDAQ:SBAC)’s considerable resources, as evidenced by $6.2 billion in net property, plant, and equipment positions it well to benefit from any recovery in its industry.
ClearBridge Investments mentioned SBA Communications Corporation (NASDAQ:SBAC) in its Q3 2024 investor letter. Here is what the fund said:
“We initiated a new position in SBA Communications Corporation (NASDAQ:SBAC), in the real estate sector. SBA is a leading owner and operator of wireless communications infrastructure, including cellular towers. We believe consistent growth in demand for cellular data and devices allows the company greater pricing power and high levels of customer retention. Additionally, while investment in telecommunication infrastructure has been subdued recently, we believe continued rollout of 5G devices will result in a rebound in customer spending over the long term.”
14. Airbnb, Inc. (NASDAQ:ABNB)
Consensus Long-Term EPS Growth Estimate: 16%
Number of Hedge Fund Holders: 63
Airbnb, Inc. (NASDAQ:ABNB) is the most well-known travel accommodation services provider in the world. Since it’s a hospitality firm, its hypothesis depends on gross bookings, which in turn are driven by the travel industry and consumer spending power. However, even though Airbnb, Inc. (NASDAQ:ABNB) is the largest company of its kind and a brand name in its industry, the shares are down 1.5% year to date. The pessimism is attributed partly to rising costs, with Airbnb, Inc. (NASDAQ:ABNB)’s 34% operating expense growth between 2022 and 2023 outpacing its 17.8% revenue growth. Additionally, global inflation which is driven by housing costs has also seen governments crack down on short-term rentals to increase housing supply. Subsequently, Airbnb, Inc. (NASDAQ:ABNB)’s hypothesis depends on its growth initiatives such as a focus on long-term rentals and co-hosting can play a larger role in its hypothesis along with cost control.
Polen Capital mentioned Airbnb, Inc. (NASDAQ:ABNB) in its Q3 2024 investor letter. Here is what the fund said:
“Airbnb, Inc. (NASDAQ:ABNB) declined in the period on concerns around a weaker demand outlook for the quarter as well as increasing marketing spend planned for the second half of 2024, pressuring near-term margins. Given the company’s exposure to the health of the consumer and related willingness to spend on leisure travel, we believe it’s important to take a step back to see the larger picture. Global accommodations have been and will likely continue to be a mid-single-digit growth market. Still, as private rentals become increasingly mainstream and the dependability of those private listings improves, we would expect private rentals to continue to gain market share. We continue to see Airbnb as a likely double-digit revenue grower over the next five years, and with modest margin expansion, we could expect mid-to-high-teens earnings growth.”
13. Salesforce, Inc. (NYSE:CRM)
Consensus Long-Term EPS Growth Estimate: 18%
Number of Hedge Fund Holders: 117
Salesforce, Inc. (NYSE:CRM) is a customer relationship management software provider. A software-as-a-service (SaaS) company, its hypothesis depends on keeping margins high and earning stable recurring revenue through sizable contracts. The firm’s shares have demonstrated mixed-bag performance in 2024. From the start of the year to November 5th, they had delivered a modest 16% in gains. Since then, the shares have gained 9.33% to increase the year-to-date performance to 27%. Since Salesforce, Inc. (NYSE:CRM) is a CRM provider, it has benefited from introducing AI into its product mix. Its AI product Agentforce has enabled businesses to increase customer responses and handle billing among other tasks. Salesforce, Inc. (NYSE:CRM) also benefits from providing customers with a use-based model as opposed to a seat-based model, with use-based charging customers only when the product is used. The firm is also one of the biggest customer relationship management software providers as it commanded a 21.7% market share in 2023.
Polen Capital mentioned Salesforce, Inc. (NYSE:CRM) in its Q3 2024 investor letter. Here is what the fund said:
“In the third quarter, we purchased new positions in Apple and Oracle and eliminated our small positions in Nike and Salesforce, Inc. (NYSE:CRM). We exited our position in Salesforce to fund better opportunities in Shopify and MSCI. Salesforce is seeing slower revenue growth than we would have expected, given the weakening macroeconomic environment. Furthermore, since its core end markets in customer relationship management (“CRM”) and Service are fairly mature, a lower growth level versus our expectations could persist for some time.”
12. Penumbra, Inc. (NYSE:PEN)
Consensus Long-Term EPS Growth Estimate: 19%
Number of Hedge Fund Holders: 24
Penumbra, Inc. (NYSE:PEN) is a mid-sized medical device manufacturer headquartered in Alameda, California. The firm primarily makes and sells thrombectomy and embolization products. As of H1 2024, 74% of Penumbra, Inc. (NYSE:PEN)’s revenue came through its thrombectomy products. Consequently, Penumbra, Inc. (NYSE:PEN) has to stay on top of its game in this industry or risk losing market share to rivals. To maintain share, the firm has to ensure adequate channel penetration of its products and continuously launch new products to stay ahead of competitors. On the latter front, Penumbra, Inc. (NYSE:PEN) scored a win earlier this year when the FDA cleared its new below-the-knee blood clot removal system. The firm is also developing a computer-assisted vacuum thrombectomy system to help prevent heart strokes. Potential FDA approval could generate tailwinds.
Penumbra, Inc. (NYSE:PEN)’s management shared details about its new systems during the Q3 2024 earnings call. Here is what they said:
“FDA clearance of Lightning Bolt 6X in September further expands the reach of our advanced CAVT technology to smaller arteries including below the knee arterial occlusions where our legacy catheters are currently used to treat a portion of the patient population. The introduction of Bolt 6X will deliver CAVT’s benefits, improved procedure efficiency and a reduction in procedure times to these patients. Similar to Lightning Bolt 12, we expect modest contributions from 6x in the fourth quarter as we commence commercialization. That said, we see a meaningful opportunity for our arterial focused CAVT portfolio currently including Bolt 7 and Bolt 6X to accelerate physician conversion from open surgery or the use of lysics to a computer assisted endovascular first approach to treating arterial clot.
Despite significant progress to date, we remain in the early stages of helping the over 800,000 patients annually in the U.S. who suffer from VTE and arterial clot with our proprietary CAVT technology. Turning to the neurovascular business, our team delivered another solid double digit performance in stroke thrombectomy. As interest wanes in the Super Large Bore OE8 catheters as aspiration catheters, most of the companies with those products have switched to positioning them as guide catheters. This positions us very well with our market leading aspiration portfolio led by RED72 with our proprietary SENDit technology and RED43. As we prepare to bring Thunderbolt and the benefits of our CAVT technology to the neurovascular field. As we previously announced, our Thunder trial recently completed enrollment with follow up scheduled to be completed by the end of the year.
We will provide additional future updates as appropriate, but needless to say, we are excited about the prospect of bringing CAVT and its demonstrated clinical benefits and procedural advantages to the neurovascular field, further solidifying and enhancing our market leading position in the field of stroke thrombectomy.”
11. Meta Platforms, Inc. (NASDAQ:META)
Consensus Long-Term EPS Growth Estimate: 20%
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) is the leading social media company in the world. The firm operates through Facebook, Instagram, and WhatsApp, and courtesy of Facebook, it can boast about having 3.2 billion users under its wing. These users also form the backbone of Meta Platforms, Inc. (NASDAQ:META)’s hypothesis as they allow the firm to have bargaining power with advertisers. Advertisement revenue is key for the firm as it accounted for 96% of its revenue during H1 2024. As a result, Meta Platforms, Inc. (NASDAQ:META) depends on broader economic health for its revenue as advertisers spend more in a robust economy. Its dominance in the social media industry has allowed the firm to establish a fortress balance sheet as is evident from $43.9 billion in cash. These resources, in turn, have enabled Meta Platforms, Inc. (NASDAQ:META) to gain a strong foothold in the AI industry courtesy of its investment in training infrastructure and the Llama foundational AI model. As a result, the firm’s hypothesis also depends on its ability to generate profit from its AI investments. On this front, Meta Platforms, Inc. (NASDAQ:META) offers AI marketing services to advertisers to streamline their operations.
Polen Capital mentioned Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter. Here is what the fund said:
“Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
10. Workday Inc. (NYSE:WDAY)
Consensus Long-Term EPS Growth Estimate: 21%
Number of Hedge Fund Holders: 86
Workday Inc. (NYSE:WDAY) is an enterprise-focused software company that provides human resource and financial management software. This exposes the firm to the labor market as HR software typically does well when firms have adequate hiring budgets in a relaxed monetary environment. Consequently, with interest rates in the US just recently coming off of a 24-year high, it’s unsurprising that Workday Inc. (NYSE:WDAY)’s shares are down 4% year-to-date. However, the pent-up potential in the stock due to monetary constraints is also evident through the fact that since the November presidential election, the shares have gained 6.70%. Workday Inc. (NYSE:WDAY) has struggled particularly hard due to increasing costs as it posted operating losses each year between 2021 and 2023. However, improved financial performance can carry significant tailwinds, as was evident following Q2 results when the stock jumped by 12.5% after Workday Inc. (NYSE:WDAY)’s $2.085 billion revenue and $1.75 in EPS beat analyst estimates of $2.071 billion and $1.65.
Polen Capital mentioned Workday Inc. (NYSE:WDAY) in its Q3 2024 investor letter. Here is what the fund said:
“We added to several existing positions in the quarter including Adobe, Workday, Inc. (NASDAQ:WDAY), Shopify, MSCI, and Paycom Software. Workday is still growing revenue at a mid-to-high-teens rate, but in recent years, slower macroeconomic growth has made closing deals more challenging. Amidst a pullback, we increased our position as we found the valuation attractive for a well-positioned, recurring revenue business with still strong growth potential. The company also recently stated publicly that it will be focused on expanding profit margins meaningfully over the next five years—something we have expected and are pleased to see.”
9. Burlington Stores, Inc. (NYSE:BURL)
Consensus Long-Term EPS Growth Estimate: 23%
Number of Hedge Fund Holders: 42
Burlington Stores, Inc. (NYSE:BURL) is an American off-price retailer whose shares are up 39% year-to-date. As is the case with any retailer, the firm depends on its ability to ship high volumes to maintain robust margins. Margins have been key to Burlington Stores, Inc. (NYSE:BURL)’s stock performance in 2024. A tight economy based on lower consumer spending has helped the firm with its shares jumping by 21% in May after the firm’s first-quarter earnings. These saw Burlington Stores, Inc. (NYSE:BURL) grow its gross and Merchandise margins by 1.2 percentage points and 90 basis points, respectively. The margin improvement came on the back of the firm growing its revenue by 11% to $2.36 billion. Burlington Stores, Inc. (NYSE:BURL) is currently undertaking a strategy to optimize its supply chain, and the results from this strategy will also improve its margins. Consequently, cost control will drive the hypothesis moving forward.
Burlington Stores, Inc. (NYSE:BURL)’s management commented on its important supply chain improvement strategies during the Q2 2024 earnings call. Here is what they said:
“We continue to be pleased by the faster-than-expected progress we’re making in driving productivity gains and cost savings in supply chain. As we shared in the prepared remarks, supply chain leveraged 60 basis points in Q2. And this was despite the start-up of a new distribution center in the second quarter and the receipt shift that we talked about from Q1 into Q2, we referenced this on last quarter’s call. We do have a number of productivity initiatives. These are more within the four wall process improvements that streamline our DC operations, reduce touches, reduce steps, reduce time to process and ultimately save labor dollars in the DC, and we’re harvesting these savings a little bit faster than we’d originally planned.
On previous calls, we had described supply chain productivity improvement as driving potentially 100 basis points of the 400 basis points of margin improvement we laid out last year in our long-range model. And we’ll see how the rest of this year plays out, but expect supply chain to continue to drive leverage in the back half. And in getting to the second part of your question, longer term, probably beyond the long-range model we’ve laid out, we do have an opportunity to drive incremental leverage as we modernize our supply chain with new larger, much more automated DCs that we expect to open. As I mentioned, we recently opened a new DC this year and we have another much larger DC under construction, which we expect to open in 2026. And with these new DCs, we have an opportunity to design DCs for off-price and with much, much more automation.”
8. Amazon.com, Inc. (NASDAQ:AMZN)
Consensus Long-Term EPS Growth Estimate: 23%
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is a dominant player in the eCommerce and cloud computing industries. As a result, its narrative is driven by consumer and enterprise spending. Consumer spending is important for Amazon.com, Inc. (NASDAQ:AMZN) since it enables the firm to generate adequate merchandise volume shipments to maintain margins. Similarly, high enterprise spending means that the company is able to generate revenue through its cloud computing business. Amazon.com, Inc. (NASDAQ:AMZN)’s sizable moats in these two key industries have enabled it to establish a fortress balance sheet as is evident from its $71 billion in cash and equivalents. In turn, the sizable resources have allowed Amazon.com, Inc. (NASDAQ:AMZN) to expand its presence in the AI industry through its partnership with Anthropic. The firm is also one of the leading players in custom chip development for data center workloads, and it is developing custom chips to help reduce reliance on NVIDIA’s expensive GPUs. To sum it up, Amazon.com, Inc. (NASDAQ:AMZN)’s tailwinds depend on robust consumer spending, cost efficiencies in the retail business, and enterprise spending on AI and cloud products.
Polen Capital mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter. Here is what the fund said:
“The largest absolute detractors were Alphabet, Airbnb, and Amazon.com, Inc. (NASDAQ:AMZN). Amazon’s position as a notable detractor speaks more to the size of the position than the magnitude of the underperformance, as the company delivered a solid set of results during the quarter.
We trimmed our positions in Amazon, Alphabet, and Microsoft during the quarter. As we have previously, we trimmed Amazon slightly to bring the weight back to 15% for risk management purposes. We remain very positive on our investment thesis of strong revenue growth and even stronger earnings and free cash flow growth continuing over the next few years.”
7. DexCom, Inc. (NASDAQ:DXCM)
Consensus Long-Term EPS Growth Estimate: 30%
Number of Hedge Fund Holders: 64
DexCom, Inc. (NASDAQ:DXCM) is a medical device manufacturer that caters to the needs of diabetics. Its products enable round-the-clock monitoring of insulin levels to ensure that patients are able to take their insulin on time. Since DexCom, Inc. (NASDAQ:DXCM) is one of the few companies that sells such products, it enjoys a large moat in its niche. Additionally, unless medical science discovers a cure for diabetes, the firm is also guaranteed a strong base of customers that it can help. Yet, on the flip side, since 94% of DexCom, Inc. (NASDAQ:DXCM)’s revenue comes from its sensors, the firm has to be on its toes to continually innovate and maintain robust market penetration. Failing to do either risks opening its bread-and-butter market to competitors, which can deal a sharp blow to finances. DexCom, Inc. (NASDAQ:DXCM) also relies to a large extent on distributors to ship its products. As of H1 2024, 85% of the firm’s revenue came via distributors which means that it has to carefully monitor channel inventory and maintain key partnerships.
Artisan Partners mentioned DexCom, Inc. (NASDAQ:DXCM) in its Q2 2024 investor letter. Here is what the fund said:
“Dexcom detracted from performance in the quarter as the stock price gave back all the strong gains from the first quarter of this year. The company reported strong first quarter earnings, beating consensus estimates for the top and bottom lines, highlighted by 25% organic revenue growth. Additionally, it raised the low end of full-year revenue guidance based on the strong start to the year, with record new patient starts. Dexcom is launching an over-the-counter continuous glucose monitoring device set to target the over 25 million Type 2 diabetes patients who are not dependent on insulin. Furthermore, the medical device company recently expanded its salesforce to better address the ~200K primary care physicians in the United States. We see several catalysts going forward, and the stock is trading at a discount to historical valuation metrics.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Consensus Long-Term EPS Growth Estimate: 30%
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) is the world-leading GPU designer whose products are powering the artificial intelligence industry. Since the release of ChatGPT to the public, NVIDIA Corporation (NASDAQ:NVDA)’s shares have gained 730%, making it clear that AI is baked into the firm’s hypothesis. The firm’s fortunes depend on its ability to not only design the best-performing chips but also to sustainably and predictably ship them in high volumes to customers while keeping margins high. Consequently, any turbulence on either the product design, shipping, or cost control fronts leads to tailwinds for NVIDIA Corporation (NASDAQ:NVDA)’s shares. Additionally, the high demand for its chips has meant that big tech is eager to find alternatives. The urgency for alternatives is also making companies design in-house AI chips, such as those from Amazon. As a result, unless NVIDIA Corporation (NASDAQ:NVDA) maintains its performance edge and logistics capabilities, the firm might see trouble in the future.
Polen Capital mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter. Here is what the fund said:
“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”
5. ServiceNow, Inc. (NYSE:NOW)
Consensus Long-Term EPS Growth Estimate: 31%
Number of Hedge Fund Holders: 97
ServiceNow, Inc. (NYSE:NOW) is a software-as-a-service (SaaS) company that enables businesses to automate their functions and manage human resources. Since it’s a SaaS company, the firm’s narrative is driven by its ability to land large deals and generate stable subscription revenue. ServiceNow, Inc. (NYSE:NOW)’s shares are up 46% year to date, and before October start, the stock had gained 26%. The pre-October modest performance is driven by sluggish non-AI IT spending due to high rates constraining budgets. However, ServiceNow, Inc. (NYSE:NOW) has started to play on the front foot for AI, as it plans to start providing AI agents to businesses to automate their operations and reduce costs. The shares have gained 10.8% since the firm’s third-quarter earnings which saw its fourth-quarter subscription revenue guidance of $2.875 billion – $2.880 billion beat analyst estimates of $2.85 billion. ServiceNow, Inc. (NYSE:NOW)’s ability to deliver and surpass these estimates coupled with a penetration of the AI assistant market could create additional tailwinds.
Polen Capital mentioned ServiceNow, Inc. (NYSE:NOW) in its Q3 2024 investor letter. Here is what the fund said:
“In the third quarter, the top relative contributors to the Portfolio’s performance were NVIDIA (not owned), Shopify, and ServiceNow, Inc. (NYSE:NOW). ServiceNow reported better-than-expected sales and bookings during the quarter, with subscription sales up +23%. Encouragingly, GenAI offerings within its product suite, rolled out in late 2023, already appear to be an incremental driver of this growth. In our view, ServiceNow is a great example of a consistent grower, with a strong moat serving diverse and growing end markets with expanding margin opportunities over time.”
4. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Consensus Long-Term EPS Growth Estimate: 32%
Number of Hedge Fund Holders: 69
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a cybersecurity products and services provider whose Falcon system was at the heart of one of the biggest IT outages earlier this year. Its shares are down 9% since the blackout and have gained 53% since the post-outage bottom. The recovery in CrowdStrike Holdings, Inc. (NASDAQ:CRWD)’s stock is based on shifting investor attitudes about the firm’s subscription revenue and legal implications stemming from the outage. As few legal troubles and customer switching surface, investors are slowly creeping back to CrowdStrike Holdings, Inc. (NASDAQ:CRWD)’s stock. However, the firm is continuing to face pressure from Delta Airlines because of the outage as the two companies have sued each other. Apart from the implications of the outage, CrowdStrike Holdings, Inc. (NASDAQ:CRWD)’s $10 billion recurring revenue guidance for 2031 and a midpoint free cash flow margin guidance of 36% will continue to drive its margin due to the central role that the metrics play in any software company’s hypothesis.
Baron Funds mentioned CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q2 2024 investor letter. Here is what the fund said:
“CrowdStrike Holdings, Inc. is a cloud-architected SaaS cybersecurity vendor offering endpoint security, threat intelligence, and cyberattack response services. Shares continued their strong performance from the first quarter and were again a top contributor, rising 19.5% in the second quarter on better execution than peers in the broader security space. The company reported strong quarterly results with 33% year-over-year revenue growth, driven by customers consolidating their cybersecurity spend on CrowdStrike with free cash flow margins reaching 35%. With accelerating market share gains in its core endpoint detection and response offering, emerging products including Cloud, Identity, and SIEM reaching material scale, and newer products in data protection and AI ramping quickly, net new annual recurring revenue and total revenue look to sustain a long duration of growth. With its leading competitive positioning in cybersecurity, the growing threat landscape (which is also driven by the advancements in AI, making hackers more dangerous), its unique lightweight, single-agent, architecture, and its platform approach, we retain conviction in CrowdStrike, which is emerging as the security platform to beat in terms of scale, profitability, and free cash flow conversion.”
3. Block, Inc. (NYSE:SQ)
Consensus Long-Term EPS Growth Estimate: 36%
Number of Hedge Fund Holders: 59
Block, Inc. (NYSE:SQ) is a financial technology company that provides payment software and products. Its products make it a new-age financial technology firm which is one of few that are jostling to take customers away from well-entrenched rivals such as Visa and Mastercard. Consequently, Block, Inc. (NYSE:SQ)’s hypothesis depends on the firm’s ability to target new markets, retain and grow customers, and capture share away from incumbents. The firm’s reliance on transactions also means that it depends on the broader economic health for its performance. Block, Inc. (NYSE:SQ)’s goal of becoming a Rule of 40 firm by FY2026 end is another key driver of investor sentiment since margins play a key role for software firms. Some strategic initiatives that the firm is undertaking to expand and grow customers include partnering up with restaurant and beauty companies.
Columbia Threadneedle Investments mentioned Block, Inc. (NYSE:SQ) in its Q2 2024 investor letter. Here is what the fund said:
“Block, Inc. (NYSE:SQ) – It is hard to pinpoint why the stock moved lower in the last two months of the quarter, but the most likely reason seems to be simply that investor sentiment on the stock remains generally quite negative for the near term. Investors seem to be taking recent comments from Jack Dorsey (CEO of Square, who also heads Square’s parent company, Block) to mean that a lot still needs to be fixed, rather than the perspective that Mr. Dorsey is being honest and straightforward that things weren’t working and that Square now has a clear plan and a lot of urgency behind its initiatives. The reinvigoration of Square appears very real, with a bold vision to become a generational technology company. The organization is aligned on making Square and Cash App a vertically integrated commerce platform for both sellers and consumers. For Square, this means achieving a growth rate similar to its early days with much better technology while, for Cash App, success is defined as becoming the leading primary bank for those making less than $150,000 per year, along with significant success combining the two ecosystems. The experimentation and innovation culture is back with buy-in across the organization, with a key focus on engineering discipline and exceptional products. This discipline had been lost and is now coming back and should create much better product experiences that are customer-problem focused and enable the company to regain its prior pace of market share gains.”
2. Uber Technologies, Inc. (NYSE:UBER)
Consensus Long-Term EPS Growth Estimate: 38%
Number of Hedge Fund Holders: 145
Uber Technologies, Inc. (NYSE:UBER) is the most widely used ride-sharing service provider in the US. As of H1 2024, $9.2 billion or 51% of the firm’s revenue came from its Mobility business while an additional 34% was accounted for by the Delivery business. Consequently, consumer spending power in the food and travel industry is the key driver of Uber Technologies, Inc. (NYSE:UBER)’s hypothesis. For its Mobility business, spending is measured by bookings and these tend to make or break the stock. The stock’s dependence on bookings was clear after Uber Technologies, Inc. (NYSE:UBER)’s third-quarter earnings saw the shares fall by 7% when its bookings missed analyst estimates. The firm is also one of the most growth-focused players in the industry. Its initiatives in autonomous ride-sharing, urban air mobility, and shuttle services show its management has one eye on the future. Uber Technologies, Inc. (NYSE:UBER) stands to benefit particularly from these up-and-coming markets since its brand image makes it the go-to platform for mobility.
RiverPark Advisors mentioned Uber Technologies, Inc. (NYSE:UBER) in its Q1 2024 investor letter. Here is what the fund said:
“UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
1. Illumina, Inc. (NASDAQ:ILMN)
Consensus Long-Term EPS Growth Estimate: 54%
Number of Hedge Fund Holders: 56
Illumina, Inc. (NASDAQ:ILMN) is a medical products provider that sells consumables, sequencing instruments, and other products to the gene testing industry. This makes it a niche player, and with it, introduces a host of pros and cons. Illumina, Inc. (NASDAQ:ILMN)’s shares are down 2.25% year to date due to constrained spending in the pharmaceutical industry. Since it is a specialty firm, the firm enjoys a wide moat in its industry of providing products to gene testing firms. Yet, this also means that it isn’t insulated against spending drops in its target industry. The dependence is also the reason why Illumina, Inc. (NASDAQ:ILMN)’s shares are down by 14.8% since its third-quarter earnings. The earnings saw the firm increase its 2024 revenue drop guidance to 3% annually from an earlier 2%. Consequently, much of the narrative is built on a recovery in the gene industry.
Artisan Partners mentioned Illumina, Inc. (NASDAQ:ILMN) in its Q3 2024 investor letter. Here is what the fund said:
“Notable adds in the quarter included Samsara, Illumina, Inc. (NASDAQ:ILMN) and Onto Innovation. Illumina is a leading provider of next-generation sequencing instruments for genetic testing. As costs have fallen, genome sequencing has become more mainstream, expanding within academic research and beyond into high-value clinical diagnostic testing applications. The company has gone through a difficult few years after an unwise acquisition of Grail (a company that develops blood tests designed to detect cancers), a difficult transition to a new sequencing system and significant margin contraction. However, new management has focused on controlling costs, has spun out Grail and, in our view, is putting the company back on a path of sustainable growth. With a stock price that we do not believe reflects Illumina’s value as a unique life science tools franchise, we continue to build our GardenSM position.”
ILMN is a stock with high projected EPS growth according to Wells Fargo. While we acknowledge the potential of ILMN 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 ILMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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