In this article, we will discuss the 10 best engineering stocks to buy now.
Engineers have been in demand since ancient times. However, the most significant impact of the engineering services started in the 18th century. Engineering services are the backbone of technological growth which is one of the three main factors of Total Factor Productivity (TFP). The TFP has a correlation of 60% with economic progress in advanced countries.
The global engineering services market was worth $707 billion in 2022 and is expected to reach around $1.22 trillion in 2023, registering a CAGR of 5.9%. The market share of engineering services was largely captured by North America at 38%, which is expected to grow at a CAGR of 5.6% during the forecasted period. On the other hand, the CAGR in East Asia is expected to be 6.5%.
In the United States, engineering services contributed to 3% of the jobs and accounted for 2.8% of the country’s GDP in 2020. In addition, they were also responsible for $64.5 billion in taxes paid. According to the US Bureau of Labor Statistics, employment in architecture and engineering is expected to grow by 4% between 2021 and 2031 and their median annual income was $79,840 in May 2021, which was almost 75% more than the average median income of all occupations. The highest median income was recorded by petroleum engineers at $130,850 per year or $62.91 per hour and employment in the field is expected to grow by 8%. It was followed by computer hardware engineers with a median income of $128,170 per year or $61.62 per hour.
One of the major growth prospects of the engineering industry in the United States is The CHIPS and Science Act, an act that will provide $52.7 billion for American semiconductor research, development, manufacturing, and workforce development. The semiconductor industry is highly dependent on engineers as they are the ones who have to design, produce, and test the products. In light of the news, the semiconductor company Micron Technology, Inc. (NASDAQ:MU) announced an additional $40 billion investment in memory chip manufacturing.
The CHIPS Act is also expected to benefit the industrial sector’s engineering and construction industry as it will lead to huge construction projects of new semiconductor plants, research centers, and general infrastructure. The automotive industry which is dependent on mechanical and electrical engineering is also set to benefit from the act as semiconductors are essential for the growing demand of electric vehicles in the market.
Engineering includes a very broad scope of sciences and has significant importance in the defense, construction, software, automotive, and energy sector, along with many others. In our article, hedge fund sentiment has been used as a primary criteria for stock selection but since the engineering sector covers many companies, we won’t be able to discuss all of them. However, some of the important engineering stocks that have been discussed are Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and Apple Inc. (NASDAQ:AAPL).
Photo by ThisisEngineering RAEng on Unsplash
Our Methodology
For this article, we chose the stocks which rely heavily on engineering to function. These stocks were picked based on the hedge fund sentiment of each stock and were listed accordingly. These are thus the best engineering stocks to buy according to hedge funds.
The hedge fund sentiment around each stock has been taken from Insider Monkey’s database of 943 elite hedge funds.
Best Engineering Stocks to Buy Now
10. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 74
Micron Technology, Inc. (NASDAQ:MU) is an Idaho-based semiconductor manufacturing company that produces and sells data and memory devices for computers. The company is one of the best engineering stocks to buy now as it has won an Award for Data Engineering Transformation by Analytica India Magazine, 2023, and its DRAM and NAND flash memory chips are feats of engineering.
In Q4 2022, Connecticut-based Viking Global Investors increased its stake in Micron Technology, Inc. (NASDAQ:MU) by 55% with nearly 836 million shares worth $417.7 million. In the same quarter, 74 hedge funds were bullish on the stock.
On April 13, New Street analyst Pierre Ferragu maintained a Buy rating on Micron Technology, Inc. (NASDAQ:MU) stock and raised the price target to $100 from $70, citing recovery of “cost of goods sold”. According to the analyst, the company’s inventory disaster is in the past, and the future looks bright with “positive earnings revision”.
Other than Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and Apple Inc. (NASDAQ:AAPL), Micron Technology, Inc. (NASDAQ:MU) is a noteworthy stock of the engineering sector.
Claret Asset Management mentioned Micron Technology, Inc. (NASDAQ:MU) in its third-quarter 2022 investor letter. Here is what it said:
“Inflation is still higher than interest rates… not an incentive to save for most people. Either inflation must come down or interest rates have to go up further. Or both. And probably both. Now that they are taking the punch bowl away and the party is over, what happens next? For whatever reason, the stock market seems to always precede the economic reality: Micron reached a high of $98.45 on January 5th, 2022 and is trading at $50.00 today.”
9. Analog Devices, Inc. (NASDAQ:ADI)
Number of Hedge Fund Holders: 75
Analog Devices, Inc. (NASDAQ:ADI) is a leader in utilizing analog, mixed-signal, and digital signal processing technologies to manufacture integrated circuits, software, etc. The team of field applications and software engineers at the company is responsible for making it a leader in Intelligent Edge, an on-premises data collecting and processing system.
Analog Devices, Inc. (NASDAQ:ADI) has been increasing its dividend for nearly two decades, and at the time of writing, its dividend yield was 1.88%. On February 14, the company increased its quarterly dividend by 13.2% to $0.86 from $0.76.
As Analog Devices, Inc. (NASDAQ:ADI)’s performance was solid in the first quarter with revenue up 21% YoY, the company is now set on opening up a $200 million new R&D facility in the Philippines which will be tech-forward and boast a 300-mm Center of Excellence.
Madison Investments mentioned Analog Devices, Inc. (NASDAQ:ADI) in its first-quarter 2023 investor letter. Here is what it said:
“Analog Devices, Inc. (NASDAQ:ADI) grew profits nicely in 2022, bucking the overall semiconductor industry trend of a decline brought on by a drop in demand and excess inventory in the channels. Analog is one of the leaders in the analog semiconductor segment, where supply is much more constricted due to the shortage of engineering expertise and new capacity construction. Thus, the company often beats to a different drummer than the rest of the semiconductor industry.”
8. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 79
Exxon Mobil Corporation (NYSE:XOM) is one of the oil Supermajors and it mainly requires petroleum engineers for its upstream business, mechanical engineers for midstream, and chemical engineers for its downstream business.
Exxon Mobil Corporation (NYSE:XOM) released its first-quarter earnings report on April 28 where it posted record first-quarter earnings of $11.4 billion. In addition, the company increased the net production of oil and gas by 300,000 barrels of oil equivalent compared to the first quarter of 2022.
Exxon Mobil Corporation (NYSE:XOM) has recently been working on making the company greener. In its latest quarter, the company announced its long-term commercial agreement with Linde plc (NYSE:LIN) for carbon capture and storage. According to the agreement, Exxon Mobil Corporation (NYSE:XOM) will capture, transport, and store up to 2.2 million metric tons of CO2 from the company.
Here’s what First Eagle Investments said about Exxon Mobil Corporation (NYSE:XOM) in its Q2 2022 investor letter:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
7. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 80
General Motors Company (NYSE:GM) is a Michigan-based automotive company, and it is one of the biggest automobile companies in the US by sales. The company’s engineering marvels include its industry-famous EV batteries, Ultium Drive, and wireless battery management system.
On May 1, Morgan Stanley analyst Adam Jonas raised the price target on General Motors Company (NYSE:GM)’s shares to $38 from $35 and updated the rating on the stock to Overweight from Equal Weight. Bumping up the stock to the “top 5” position for his U.S. automotive coverage, the analyst highlighted the company’s “capital discipline” and free cash flows.
General Motors Company (NYSE:GM) is a dividend-paying stock with a dividend yield of 1.09% at the time of writing. A quarterly dividend of $0.09 was declared by the company on April 24, payable by June 15 to the shareholders of record on June 2.
Diamond Hill Capital mentioned General Motors Company (NYSE:GM) in its third-quarter 2022 investor letter. Here is what it said:
“Most recently, we initiated a position in General Motors Company (NYSE:GM), one of the largest automakers in the United States. Over the past several years, GM has taken steps necessary to focus the company on the most profitable segments and move into position to compete in an electrified and autonomous world. With the recent rise in interest rates there was a meaningful selloff in the auto industry, which presented us an attractive entry point to a name we know well.”
6. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 91
Tesla, Inc. (NASDAQ:TSLA) is an American automotive company. As an electric vehicle manufacturer, the company’s demand for engineers comes from the mechanical, production, and electrical engineering fields. This year has particularly been better than the last year for Tesla, Inc. (NASDAQ:TSLA). The stock was down almost 65% between the end of December 2021 and 2022 and in 2023, the stock is up by around 50% year to date at the time of writing.
Cathie Wood’s Ark Invest is quite bullish on Tesla, Inc. (NASDAQ:TSLA) and has been buying its shares since January 2023. Wood believes that the company’s valuation will cross over $6 trillion in the next 4 years.
Tesla, Inc. (NASDAQ:TSLA) is in the same league as other leaders of the engineering industry like Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and Apple Inc. (NASDAQ:AAPL).
Aristotle Atlantic Partners, LLC made the following comment about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2023 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) was a negative contributor to performance due to our underweight position relative to Russell 1000 Growth Index, as the company had strong performance in Q1. The strength occurred after the company partially reversed a previously announced price cut for its electric vehicles following a period of strong demand. Tesla also reported better-than-expected results for Q4 2022 during the first quarter.
Tesla Motors designs, develops, manufactures, and markets high-performance, technologically advanced electric cars and solar energy generation and energy storage products. Tesla sells more than five fully electric cars, among others, the Model X and Y SUVs, as well as the Model S sedan and Model 3 sedan. The company has a growing global network of Tesla Superchargers, which are industrial grade, high-speed vehicle chargers, typically placed along well-traveled routes and in and around dense city centers to allow Tesla owners quick and reliable charging. Tesla offers certain advanced driver assist systems under its Autopilot and Full Self-Driving options. US customers generate nearly half of Tesla’s sales.
We see Tesla as the leading manufacturer of battery powered electric vehicles (EVs). The company has achieved scaled production of EVs before the other large automobile manufacturers. The company’s technology in battery production and self-driving technology is more mature than competitors’ offerings. EVs are one of the fastest growing categories within automobile manufacturing. The profit margin in the automotive segment is significantly above automotive competitors which provides the company flexibility to price its vehicles more strategically as the competition eventually scales up their EV production. The direct-to-consumer sales model gives the company more control over its relationship with its customers as well as a source of higher profit margin since there is no dealership share of the profits.”
5. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 99
Adobe Inc. (NASDAQ:ADBE), previously known as Adobe Systems Incorporated, is a software powerhouse with a wide range of products including printing, graphics, and publishing software. The company is on our list of best engineering stocks to buy now because other than the software engineering team, its reliability, cloud perform, mobile, and product engineering subdivisions are largely responsible for the success of most of its products.
According to Insider Monkey’s database, Adobe Inc. (NASDAQ:ADBE)’s hedge fund sentiment improved slightly in the fourth quarter of 2022 as 99 funds were bullish on the company’s stock, compared to 93 in the previous quarter.
On March 28, Erste Group analyst Hans Engel upgraded Adobe Inc. (NASDAQ:ADBE)’s stock to Buy from Hold, highlighting the performance of the company and the upcoming revenue and profit growth estimates given by the management.
Polen Capital mentioned Adobe Inc. (NASDAQ:ADBE) in its first-quarter 2023 investor letter. Here is what it said:
“One area we are watching regarding Alphabet and Adobe Inc. (NASDAQ:ADBE) is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
4. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 106
NVIDIA Corporation (NASDAQ:NVDA) is an American technology company that is heavily dependent on engineers because of its portfolio of products such as GPUs, CPUs, chipsets, and groupware among others.
NVIDIA Corporation (NASDAQ:NVDA)’s biggest growth prospect is its market penetration in AI. The company is making AI-specific chips such as A100 graphic chips that were used to train ChatGPT and has now launched a new one, H100, which is significantly faster and better than the A100 according to NVIDIA Corporation (NASDAQ:NVDA).
NVIDIA Corporation (NASDAQ:NVDA) has been covered by 38 analysts in the last three months and 30 of them keep a Buy or Overweight rating on the stock. The average price target of the analysts is at $286.94.
Aristotle Atlantic Partners made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2023 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) contributed to outperformance, as the company announced better-than-expected fourth quarter earnings driven by a strong rebound in Gaming and an improving outlook for the Datacenter business due to the acceleration of Graphics Processing Unit (GPU) driven Artifical Intelligence (AI) deployment. The company also hosted its Global Technology Conference (GTC) in March where it further highlighted its leading technology being used to develop AI Large Language Models (LLM). The company announced new partnerships with hyperscalers for its AI cloud-based service while also releasing new software and hardware offerings that will support GPU-driven AI growth. Nvidia continues to see a growing addressable market for its products and services as AI uses become more prevalent.”
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 135
Apple Inc. (NASDAQ:AAPL) is one of the largest tech companies in the world and its success is majorly dependent on its engineers that work on the products’ hardware (acoustic, camera, architecture, display, AI, etc.), software (apps, cloud, iOS, etc.), and services.
On May 2, Baird raised the price target on Apple Inc. (NASDAQ:AAPL)’s stock to $180 from $170 while maintaining an Outperform rating on the shares. The rating is given because the firm believes that the company will perform strongly in the coming months and would have a solid cash flow.
According to the Insider Monkey database, in the fourth quarter of 2022, 135 hedge funds had a stake in Apple Inc. (NASDAQ:AAPL) worth $136 billion. Warren Buffett’s Berkshire Hathaway was the most significant stakeholder and held 895 million shares, making up 38.89% of the fund’s portfolio.
Apple Inc. (NASDAQ:AAPL) was mentioned in Polen Capital’s first-quarter 2023 investor letter. Here is what it said:
“Not owning Apple Inc. (NASDAQ:AAPL) and NVIDIA detracted from our relative performance. With respect to Apple, we have not felt that the combination of growth available and the valuation made for one of our best ideas. Concerning NVIDIA, while there seems to be strong demand for data center chips, the valuation and lack of clarity around pace and magnitude of that growth has kept us at bay to date.”
2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 209
Alphabet Inc. (NASDAQ:GOOG) is a technology holding company with subsidiaries such as Google LLC, DeepMind, Calico Life Sciences LLC, etc. which rely heavily on software, machine learning, and research engineers.
On March 28, the European Commission announced that it has given approval to Alphabet Inc. (NASDAQ:GOOG)’s subsidiary, Google, to purchase the Croatian math app, Photomath, which has more than 300 million downloads.
On April 25, Alphabet Inc. (NASDAQ:GOOG) released its first quarter 2023 result where the reported EPS was $1.17, up from the $1.05 EPS of the last quarter. The revenue beat the estimates of $68.8 billion as it increased by 2.6% YoY to $69.8 billion.
Alphabet Inc. (NASDAQ:GOOG) was highlighted in Polen Capital’s first-quarter 2023 investor letter. Here is what it said:
“One area we are watching regarding Alphabet Inc. (NASDAQ:GOOG) and Adobe is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based tech giant with a diverse product range including devices, software, storage systems, and more. The company employs 221,000 people all over the world and has offices in around 190 countries. As of 2021, the company employed more than 100,000 software engineers.
On April 25, Microsoft Corporation (NASDAQ:MSFT) announced its fiscal third quarter 2023 results after which the shares climbed 9%. The non-GAAP EPS reported by the company was $2.45, beating the estimates of $2.23 and the revenue grew by 7% YoY to $52.86 billion. The increase was owed to the growth of segments of productivity and business services, intelligent cloud, and personal computing which increased by 11%, 16%, and 9%, respectively.
On April 26, Deutsche Bank increased the price target on Microsoft Corporation (NASDAQ:MSFT)’s stock to $340 from $310 after the company published an impressive third quarter 2023 earnings report. The firm has a positive outlook on the company because of its record of execution and increases in market share.
Microsoft Corporation (NASDAQ:MSFT) is taking steps to enter the cloud gaming sector. In light of that, on April 28, the company reported partnering with Nware, a cloud gaming platform under which the partnership’s duration is 10 years.
Polen Capital mentioned Microsoft Corporation (NASDAQ:MSFT) in its first-quarter 2023 investor letter. Here is what it said:
“Microsoft Corporation (NASDAQ:MSFT)’s fundamentals have largely stayed intact despite the headwinds many technology companies are facing due to the macroeconomic environment. While growth has decelerated below our longer-term target (we expect low-double-digit revenue growth over the next 3-5 years), we believe the deceleration should prove to be ephemeral. Azure and Office Commercial remain bright spots, while Windows OEM has been and will continue to be a drag over the next few quarters. With respect to Azure, even at a decelerated rate, the business continues to grow well. After eight consecutive quarters of Azure’s top line growth being in the mid-to-high-40s range, over the last two quarters, growth has been 42% and 38%, respectively. Microsoft is a scaled business with multiple and interlocking competitive advantages, and we believe the company will compound at high rates for a long period of time.”
You can also look at the 10 Best Auto and Truck Dealership Stocks to Buy and 10 Best Computer Hardware Stocks To Buy Now.
Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
Suggested articles:
- 30 Most Expensive Cities to Live in the U.S.
- 16 Biggest Offshore Oil Rig Companies in the U.S.
- 25 Best Cities for Singles in the U.S.
Disclosure. None. 10 Best Engineering Stocks to Buy Now is originally published on Insider Monkey.
