We recently compiled a list of the 8 Best Cyclical Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Booking Holdings Inc. (NASDAQ:BKNG) stands against other best cyclical stocks to buy according to hedge funds.
Cyclical stocks are shares in companies whose performance is closely tied to the business cycle and economic conditions. These companies typically operate in industries that produce non-essential, or discretionary, goods and services, such as automobiles, housing, entertainment, travel, and retail.
During strong economic periods, cyclical stocks tend to perform well because consumers have more disposable income to spend on luxury items, vacations, and home improvements. Conversely, during economic downturns or recessions, people often cut back on discretionary spending, leading to a decrease in demand for these goods and services.
As the Federal Reserve lowers interest rates, it is creating a favorable environment for investing in cyclical stocks. Lower interest rates reduce the cost of borrowing, which encourages both consumers and businesses to take out loans and increase their spending. This uptick in consumer spending is especially beneficial for companies that rely heavily on discretionary purchases.
Read Also: 12 Cheapest Stocks with Biggest Upside Potential and Top 10 Undervalued Tech Stocks to Buy According to Hedge Funds.
On January 16, Reuters reported that the U.S. Commerce Department announced a rise in retail sales for December, driven by robust consumer demand for motor vehicles and a variety of other goods. The data highlights the economy’s resilience and supports the Federal Reserve’s cautious stance on further interest rate reductions this year. The upbeat retail figures, combined with recent labor market strength, prompted some economists to revise their economic growth forecasts for the fourth quarter closer to the strong pace seen in the July-September quarter.
Retail sales increased by 0.4% in December, following an upwardly revised 0.8% gain in November. Though economists had anticipated a 0.6% increase, the year-on-year growth stood at an impressive 3.9%. Auto dealership sales rose by 0.7%, while furniture stores and clothing retailers also posted gains of 2.3% and 1.5%, respectively. Miscellaneous store retailers, including gift shops and florists, led the charge with a 4.3% surge in receipts, while online store sales posted a modest 0.2% increase.
Core retail sales, which exclude volatile categories such as automobiles, gasoline, building materials, and food services, rose by a strong 0.7% in December after a 0.4% increase in November. These core sales closely align with the consumer spending component of GDP, leading economists to estimate a 3.3% annualized growth rate for consumer spending in the fourth quarter. Capital Economics revised its overall GDP growth forecast for the quarter to 2.9%, up from an earlier estimate of 2.7%.
Cyclical stocks present an attractive opportunity for investors looking to capitalize on favorable economic conditions and the Federal Reserve’s accommodative monetary policies. With consumer spending showing resilience, supported by strong retail sales and an optimistic GDP growth outlook, companies in discretionary sectors stand to benefit significantly.
A fast-paced travel agent making a bookings for a family vacation package.
Our Methodology
To compile our list of the 8 best cyclical stocks to buy according to hedge funds, we used Finviz and Yahoo stock screeners to find the 20 largest consumer cyclical companies. From that list, we narrowed our choices to the 8 stocks according to their hedge fund sentiment, which was taken from Insider Monkey’s Hedge Fund database of 900 elite hedge funds as of Q3 of 2024. The list is sorted in ascending order of their hedge fund sentiment.
Why do we care about what hedge funds do? 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).
Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Investors: 93
Booking Holdings Inc. (NASDAQ:BKNG) is a global leader in online travel and related services, operating platforms such as Booking.com, Priceline, and Agoda. The company earns revenue through commissions on bookings for hotels, flights, car rentals, and vacation packages. Booking Holdings Inc. (NASDAQ:BKNG) has a presence in over 220 countries and relies on its robust technology and data analytics to optimize user experiences.
Booking Holdings Inc. (NASDAQ:BKNG) is focusing on its vision of a “Connected Trip,” where travelers can plan and book multiple elements of their trip on a single platform. This helps integrate different travel components into a more seamless booking experience. Additionally, the company is expanding its Genius loyalty program at Booking.com into other travel verticals, such as flights and rental cars, to further enhance the value proposition for both travelers and partners. By making it easier to plan and book multiple travel elements, the company aims to drive higher engagement and loyalty.
Booking Holdings Inc. (NASDAQ:BKNG) is also focusing on the expansion of its alternative accommodations segment, to provide a diverse range of accommodation options, from hotels to vacation rentals, to meet the varying needs and preferences of its travelers. The company has also launched several AI-driven tools, such as the AI trip planner on Booking.com. The company plans to use insights from AI trip planners to develop new applications, including a smart filter that makes over 200 potential search filters findable through a free text interface. Similar AI initiatives are underway across other brands, including Priceline’s Penny, a generative AI travel assistant, and Agoda’s implementation of over 120 use cases for GenAI across various functions.
Overall BKNG ranks 4th on our list of the best cyclical stocks to buy according to hedge funds. While we acknowledge the potential of BKNG 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 time frame. If you are looking for an AI stock that is more promising than BKNG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
