In this piece, we will take a look at ten stocks that will bounce back according to hedge funds.
With 2024 coming to a close, investors have left several unknown variables behind them. They started out the year wondering when and if the Federal Reserve would start cutting interest rates. Then, as the year progressed, uncertainty about the outcome of the 2024 US Presidential Election came to the forefront due to the significantly different policy objectives of the two candidates.
Now, with President-elect Donald Trump waiting to be sworn in and the Fed’s interest rate cut cycle having kicked off in September, Wall Street is now focused on the impact of tariffs on global trade and the speed and depth of the interest rate cutting cycle. After the results of the election were clear, several sectors fluctuated in response.
Since this post is about stocks that can bounce back based on hedge fund holdings, it’s relevant to see which stocks tumbled in November. One of the hardest hit sectors was clean energy. The S&P’s clean energy stock index lost 10.4% in the days following the election as investors were worried about the rollback of clean energy subsidies rolled out during the Biden Administration and the incoming Trump Administration’s focus on traditional energy stocks and oil drilling.
While clean energy as a sector took the hardest hit, other stocks linked to China and the German automotive industry did not do well either. Shares of the Chinese stock that is known to have been a part of Warren Buffett’s investment portfolio fell by 4.8%, while shares of German car companies fell by as much as 6.6%. The drops were natural as investors were worried about tariffs against China impacting the car company’s business and tariffs against all countries that export to the US hampering the German car industry.
Along with the outcomes of a change in government, investors have also spent 2024 positioning themselves for the Fed’s monetary easing. The central bank started its rate cut cycle in September through a jumbo 50 basis point rate cut. In December, investors were greeted by the first set of economic data free of election worries in the form of the consumer price index. The CPI data was a mixed bag of results since while inflation grew at the fastest pace since April, two key inflationary components that have long held up strong against interest rates finally fell.
In numerical terms, US inflation sat at 0.3% in November and 2.7% in the twelve months ending in November. Additionally, core CPI, which removes the impact of volatile food and energy prices from the data, jumped by 0.3% in November to stay at the same level since August. Within this data, rents jumped by 0.2% and decelerated to levels last seen in July 2021. This marked a deceleration over the 0.3% reading for October, and the overall core CPI for the twelve months through November sat at 3.3%. This was lower than the three-month annualized average of 3.7%. This inflation data is crucial as it helps investors determine whether the Federal Reserve will cut interest rates thrice in 2025 or increase the number of cuts to four.
Shifting gears, while artificial intelligence has caught the market and public’s attention throughout 2024 and allowed investors to push the broader economic weakness to the background, not all stocks have performed well. Sectors such as oil shipping, biotechnology, industrials, and non-AI information technology have all struggled to impress in 2024. Some stocks, such as this oil tanker firm, are close to 52-week lows as 2024 ends after having lost 26% year-to-date. Sectors like biotechnology, as evidenced by the NASDAQ’s index of biotechnology stocks have gained a modest 2.6% year-to-date. Others, such as this Brazilian oil and fuel distribution stock have bled 60% of their value so far in 2024.
It’s safe to say that not all sectors of the market have performed well. However, as any prudent investor knows, not all stocks at the bottom of the barrel have to be shunned. Therefore, in this piece, we will look at those stocks that are trading at low levels but attract hefty hedge fund interest during the third quarter.
An executive gazing over a trading floor with illuminated screens tracking stock market movement.
Our Methodology
To make our list of stocks that can bounce back according to hedge funds, we ranked the 40 most valuable stocks with a market cap greater than $300 million that are down 50% or more year-to-date by the number of hedge funds that had bought the shares in Q3 2024. Out of these, we picked the top ten stocks with the highest number of hedge fund investors.
Why are we interested in 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).
10. Teladoc Health, Inc. (NYSE:TDOC)
Year-To-Date Loss: 52.49%
Number of Hedge Fund Investors In Q3 2024: 32
Teladoc Health, Inc. (NYSE:TDOC) is a new-age company that uses the Internet to provide people with healthcare options. Since it operates on primarily a software-based model, the firm’s narrative is dependent on its membership size, margins, and customer acquisition costs. Teladoc Health, Inc. (NYSE:TDOC) is also a high-growth stock due to the nascent nature of its market. The fact that its shares sank by 20% in February and to a record low in August after the firm cut down annual guidance and withdrew it entirely is unsurprising. Teladoc Health, Inc. (NYSE:TDOC) has struggled with low site visits in 2024, which has impacted its revenue and led to surging customer acquisition costs. However, the firm enjoys a wide moat in its industry, particularly through businesses such as the BetterHealth division which is one of the biggest virtual mental health care providers in America.
Teladoc Health, Inc. (NYSE:TDOC)’s management commented on its BetterHealth business during the Q3 2024 earnings call. Here is what they said:
“We expect to further invest in our International Integrated Care business, as a core priority as well to support our growth agenda. With respect to BetterHelp, our current focus is on running it effectively, by balancing top line growth with profitability, and evaluating initiatives aimed at generating greater value from the business.
BetterHelp has become the largest direct-to-consumer virtual therapy business of its kind, by addressing an unmet need and serves over 1 million people per year, and with a consumer Net Promoter Score of over 70. With that said, challenges remain, including declining revenues, when compared to prior periods. Solid progress is being made towards stabilizing results in the U.S. and growing internationally. Mala will comment more on that in a moment. BetterHelp is also making progress on an initiative, to provide consumers with the ability to access their coverage benefits. Capability milestones are on track, and exploratory discussions have begun with select health plans, and other potential partners. As I mentioned in the second quarter call, a measured approach is being taken with this initiative, and the primary focus remains on improving direct-to-consumer results.”
9. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Year-To-Date Loss: 61%
Number of Hedge Fund Investors In Q3 2024: 33
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is one of the biggest pharmaceutical retailers in America. It also has global operations and a presence in the care industry. 2024 has been a tumultuous year for Walgreens Boots Alliance, Inc. (NASDAQ:WBA), and reports suggest that the firm might be taken private. The firm’s troubles have stemmed from the fact that it has had to operate in a constrained consumer economy and has struggled with prescription reimbursements. As a result, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is on track to close 1,200 stores over the next three years as part of its bid to cut down its operating footprint. Therefore, the keys to its hypothesis lie in the firm’s ability to either turn around its struggling pharmacy business or execute a successful deal to be taken private for a cash injection to help stabilize the ship.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA)’s management shared its outlook during the Q3 2024 earnings call. Here is what they said:
“Looking ahead, one of our key priorities is to strengthen the balance sheet condition of the company. We are focused on improving our cash flow generation and net debt position through a combination of operational actions and asset monetization activities. These priorities have significant influence on our expectations for this upcoming fiscal year, which I will detail now. As Tim underscored, our priorities for fiscal 2025 is to stabilize our core operations while we made progress on the longer-term strategic and operational turnaround. This view is reflected in our adjusted EPS guidance of $1.40 to $1.80. This guidance is based on three central assumptions. First, in US pharmacy, we anticipate continued pressure on reimbursement rates. We have negotiated approximately 80% of the contract volume for calendar year 2025.
Due to the multiyear nature of these contracts, there is still more progress to be made but believe we are taking incremental steps towards our goal of reducing the impact of reimbursement pressure on pharmacy margin. The second major assumption is that our customer is likely to remain under pressure and continue to demonstrate the same price-sensitive shopping behavior that we experienced in fiscal ’24. In response to this dynamic, we’re executing on a number of retail initiatives over multiple periods. In the near term, we’re taking cost actions to improve our operating leverage, including the accelerated optimization of our fiscal footprint. We expect these closures to be accretive to our cash flows in fiscal 2025. Lastly, we expect growth in our Healthcare segment and in the International segment.”