We recently compiled a list of the 10 Best Conglomerate Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where NN, Inc. (NASDAQ:NNBR) stands against the other conglomerate stocks.
As per Lloyd Capital, the new year starts on the back of economic resilience. Global conditions remain benign, courtesy of a healthy US economy, moderating inflation, and a gradual easing of global monetary policy. However, investors are required to remain cognizant of the several risks looming. Notably, governments worldwide have fueled economic activity in a way that has deteriorated fiscal positions. Also, inflation is yet to fully return to the respective targeted levels and the geopolitical situation remains uncertain.
As per the investment management firm, investors are required to remain focused on analyzing the quality of the businesses they purchase and ensuring that these are done at prices offering an adequate margin of safety relative to intrinsic value.
S&P 500 to Reach 6,666 in 2025, Says Bank of America
As per BofA’s equity strategy team, led by Savita Subramanian, the S&P 500 index should reach 6,666 by 2025 end. Part of this growth is expected to stem from healthy economic growth. The investment firm’s economics team expects that the US economy should grow at an annualized rate of 2.4% in 2025, higher than Bloomberg consensus forecasts of 2% growth. As a result, the firm has favored companies that are GDP-sensitive and is now going overweight on Financials, Consumer Discretionary, and Real Estate, among others.
Bank of America went on to add that, in 2025, there will be a broadening out of the stock market rally from the “Mag 7” tech stocks to other 493 stocks of the S&P 500 Index. J.P. Morgan also has somewhat similar expectations. Let’s look at that in detail.
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How Can Investing in Conglomerates Provide Support in 2025?
J.P. Morgan believes that equity earnings should broaden moving forward. Equity returns were dominated by “Mag 7” since the beginning of 2023. Over that period, the broader market (S&P 500 index) managed to return 62%, more than half of which was made by Magnificent 7 (delivering 242% over the same period). The strong returns have a solid backing as the Mag 7 were able to grow their earnings at 40%, and the remaining 493 stocks in the index were able to post 2%.
However, J.P. Morgan expects that performance is expected to broaden in 2025 as the remaining “493 stocks” should be able to more than 5 times their earnings growth to 13% in 2025. Therefore, Wall Street analysts believe that investing in companies having a diversified presence should deliver healthy returns in contrast to pure-play (sector-specific) investments. The wealth management firm believes that reduced interest rates, renormalization of inventories and production, and easier comparables are expected to act as potential tailwinds for the cohort over the next year.
Analysts are bullish on businesses with multiple revenue streams and one group that gives investors a diversification advantage is conglomerates. With this in mind, let us now have a look at the 10 Best Conglomerate Stocks to Buy According to Hedge Funds.
Our Methodology
To list the 10 Best Conglomerate Stocks to Buy According to Hedge Funds, we used a screener and online rankings. After getting an initial list of 20-25 stocks, we selected the ones having high hedge fund holdings. Finally, the stocks were ranked in ascending order of their hedge fund sentiments, as of Q3 2024.
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).
A manager signing off on a precision stamping for a flight control component.
NN, Inc. (NASDAQ:NNBR)
Number of Hedge Fund Holders: 7
NN, Inc. (NASDAQ:NNBR) designs, manufactures, and sells high-precision components and assemblies for various end markets.
Wall Street believes that much of NN, Inc. (NASDAQ:NNBR)’s growth is expected to come from the Chinese market as the company plans to tap into its vast industrial and consumer base and leverage favorable trends in manufacturing, infrastructure, and innovation. China’s position as a global leader in manufacturing offers NN, Inc. (NASDAQ:NNBR) opportunities to supply components for various industries.
NN, Inc. (NASDAQ:NNBR) continues to expect strength in the Chinese market, despite a slowing economy. The company’s focus on innovation, such as the new rear-wheel steering product, should contribute to future success. Notably, a new rear-wheel steering product was launched in collaboration with Tier 1 suppliers in China. Amidst slowness in the economy, government incentives and increased vehicle production are benefiting NN, Inc. (NASDAQ:NNBR)’s business in the region.
China’s strong government support for EVs and clean energy initiatives is expected to create increased demand for components and materials related to EV production, like precision bearings, lightweight materials, or energy storage systems. Furthermore, China’s focus on upgrading its industrial base via initiatives such as “Made in China 2025” emphasizes the need for high-quality, precision-engineered components that NN, Inc. (NASDAQ:NNBR) specializes in.
Greystone Capital Management, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“During the quarter I sold our entire stake in NN, Inc. (NASDAQ:NNBR), despite our recent purchases along with my optimism about the investment. The reasons for the sale are two-fold. First, we made two new investments recently, one toward the end of last quarter and the other in Q3, which represent much better uses of capital than our smaller position in NNBR.
Second, I’ve been doing a fair amount of reflection on past portfolio mistakes and successes, leading me to the realization that owning higher quality businesses, with no room for anything else, is my desired path forward. NNBR is not a great business. A potentially great investment, but not a great business. There is a big difference. One is a shorter-term return stream with a fixed valuation / price target, and a larger than desired room for error. The other is what your portfolios should contain if we want to maximize long-term results. To date, my biggest investment mistakes have been selling quality businesses too early and replacing them with lower quality businesses under the guise of cheapness/opportunity cost. Our returns would be much better if I stopped doing this. Moving forward, I think it’s prudent to focus on (and own) higher quality businesses that can compound their value over a long period of time. I am currently penning more thoughts on this topic which I look forward to sharing once complete.”
Overall NNBR ranks 8th on our list of the best conglomerate stocks to buy according to hedge funds. While we acknowledge the potential of NNBR as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than NNBR 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.