In this article, we will discuss the 10 Stocks with Biggest Upside Potential According to Hedge Funds.
The US equities saw a strong move after the September jobs report exceeded the economists’ estimates. As per the report, the US economy added 254,000 jobs last month, exceeding the economists’ estimates of 150,000 jobs. As a result of strong job gains, the unemployment rate was pushed lower to 4.1% from 4.2%. The strong jobs report puts rest to the rumors that the US Fed might aggressively lower the rates in a bid to keep the labor market afloat. The apex bank lowered its key benchmark rate last month for the first time in over 4 years by 50 basis points. This led to the current range of 4.75% – 5% from the 23-year high of 5.25% – 5.5%.
Several renowned economists believe that the US Fed will decrease the pace of rate cuts. They expect a 25-basis points reduction instead of another half point at its next meeting on 6 -7 November. The September jobs report hints at the underlying health of the labor market, which is healthier than initially expected. This means that the private job creation remains robust.
U.S. Equities September 2024- Commentary
As per S&P Global, the S&P 500 saw an increase of ~2.02% in September, resulting in a YTD return of ~20.81%. The September month was dominated by the news about inflation remaining under control, and the US Fed delivering a 0.50% rate decrease, with the expectations of two 0.25% decreases expected later in the year. Additionally, Q2 2024 earnings were able to set a record, with more earnings records expected for Q3 2024 and Q4 2024. Notably, even China also contributed at the end of the month, ensuring low-cost U.S. supplies. China needs to continue to do so to achieve its goal of supporting real estate and encouraging consumer spending.
Market experts believe that while the September month saw decent momentum in the US equities, October kicked off on a strong note. The release of the strong jobs report was enough to erase the losses on the nervousness over Middle East tensions and port strikes. The Chief Investment Officer at Independent Advisor Alliance believes that the current economic environment is an excellent time to own equities. This optimism stems from the fact that the economy has been expanding, the job market remains solid (if not strong) and the US Fed has not only stopped raising rates but is focused on cutting them.
After Strong Jobs Report, What Lies Ahead?
Market experts opine that the US Federal Reserve decided to go for a soft landing by increasing the interest rates to slow inflation without negatively impacting the labor market to the point of a recession. Charles Schwab believes that investors should not expect a uniform economic recovery. The strength in services hiring continues to offset the weakness in manufacturing. The company highlighted that healthcare and government are the areas that have had strong hiring trends over the past few months. Manufacturing has been witnessing a recession, as hinted by the continued contraction of the ISM manufacturing index. The company believes that rate-sensitive areas, like utilities, financials, and real estate investment trusts (REITs), are expected to deliver strong performance moving forward.
Morgan Stanley Wealth Management believes that the US Fed doesn’t have to cut rates aggressively in the upcoming meetings. The investment firm expects that investors should look for value across the whole market, and emphasize quality companies as the market continues to broaden. While the economy has not strengthened for the small-caps, the firm expects that mid-caps provide a good investment opportunity as a soft landing becomes more visible.
With this in mind, let us look at the 10 Stocks with Biggest Upside Potential According to Hedge Funds.
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Our methodology
To list 10 Stocks with Biggest Upside Potential According to Hedge Funds, we did extensive research and sifted through online rankings. After compiling a list of 25-30 stocks, we narrowed the list to the ones having the biggest upside potential, as of October 4. Finally, the selected stocks have been ranked in the ascending order of their hedge fund sentiment, as of Q2 2024.
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 Stocks with Biggest Upside Potential According to Hedge Funds
10) Prudential plc (NYSE:PUK)
Average Upside Potential: 57.95%
Number of Hedge Fund Holders: 11
Prudential plc (NYSE:PUK) offers life and health insurance, and asset management solutions to individuals in Asia and Africa.
Prudential plc (NYSE:PUK) announced a partnership with Bank Syariah Indonesia, which means the former is expected to become the Shariah life insurance provider to BSI starting in early 2025. As a result of this partnership, Prudential plc (NYSE:PUK) is expected to broaden its distribution platform, which has predominantly relied on agents in this country. Market experts opine that the benefits of the company’s disciplined focus on quality and sustainability, which include product and repricing actions, should continue to aid its margins for the foreseeable future.
Prudential plc (NYSE:PUK)’s recent actions consist of repositioning its business in China in expectation of both regulatory and macroeconomic changes. The company is the first to move on to repricing, and its decision has started to bear fruit in achieving a different product mix. Prudential plc (NYSE:PUK) has started to see some turnaround in its China business. Its management highlighted that consumer demand for protection and retirement products has been robust and it has a good product range that is well-aligned with the recent regulatory moves.
Prudential plc (NYSE:PUK) entered FY 2024 with a clear strategy and certain outcomes and is confident about achieving them by 2027. These include a compounded annual growth rate for a new business profit of 15% – 20% and a double-digit for cash generation, both measured from the 2022 base. For FY 2024, the company expects new business profits to grow at a rate consistent with the trajectory required to meet its 2022 – 2027 new business profit growth objective.
As per Insider Monkey’s Q2 2024 database, Prudential plc (NYSE:PUK) was in the portfolios of 11 hedge funds, up from 10 in the preceding quarter.
9) Genmab A/S (NASDAQ:GMAB)
Average Upside Potential: 61.78%
Number of Hedge Fund Holders: 13
Genmab A/S (NASDAQ:GMAB) is engaged in developing antibody therapeutics for the treatment of cancer and other diseases primarily in Denmark.
Genmab A/S (NASDAQ:GMAB) completed its $1.8 billion acquisition of ProFound Bio. This strategic move should enhance the former’s market position and potentially drive future growth. The company reported promising results from several trials. Its folate receptor ADC, Rina S., demonstrated encouraging efficacy in a Phase 1/2 trial for ovarian and endometrial cancer patients. Wall Street analysts continue to remain optimistic about its pipeline. Epcoritamab, a T-cell engager for non-Hodgkin’s lymphoma (NHL), has been considered as a potential backbone in diffuse large B-cell lymphoma (DLBCL) treatment.
Genmab A/S (NASDAQ:GMAB) has been developing GEN1042 and GEN1046 in partnership with BioNTech, aiming at large markets like pancreatic ductal adenocarcinoma (PDAC), colorectal cancer (CRC), and non-small cell lung cancer (NSCLC). Such collaborations mean that the company is focused on expanding its therapeutic reach and addressing unmet medical needs.
Genmab A/S (NASDAQ:GMAB)’s healthy pipeline should drive future growth, potentially offsetting the anticipated decline in Darzalex revenue post-2029. In the earnings call, the company emphasized the attractiveness of EPKINLY to physicians based on positive customer reactions.
HC Wainwright restated a “Buy” rating on the shares of Genmab A/S (NASDAQ:GMAB), setting a $50.00 price target on 20th September. As per Insider Monkey’s Q2 2024 data, 13 hedge funds reported owning stakes in the company.
8) Rambus Inc. (NASDAQ:RMBS)
Average Upside Potential: 59.56%
Number of Hedge Fund Holders: 21
Rambus Inc. (NASDAQ:RMBS) offers semiconductor products in the US, South Korea, Singapore, and internationally.
Wall Street analysts opine that Rambus Inc. (NASDAQ:RMBS)’s long-term growth is expected to stem from the optimism around data center and AI markets. Since the company continues to make strategic investments in new products and technologies for data centers and client devices, analysts believe that it remains well-placed in the data center and AI markets with its new DDR5 server PMICs and Client Clock driver chip.
Rambus Inc. (NASDAQ:RMBS) expects that Q3 2024 should see continued product revenue growth. It is leveraging its leadership in DDR5 technology to drive growth in the data center and AI sectors and has maintained its focus on RCD generations, artificial intelligence, power, performance, and security in data centers and client spaces. Rambus Inc. (NASDAQ:RMBS) is investing in technologies addressing the challenging requirements of the broader PC market.
The company’s strategic focus on product development and market expansion places it well to capitalize on the improving demands of the data center and client markets. On a GAAP basis, Rambus Inc. (NASDAQ:RMBS) expects licensing billings in the range of $60 million – $66 million and product revenue of between $62 million – $68 million.
Analysts at Rosenblatt Securities reissued a “Buy” rating on the shares of Rambus Inc. (NASDAQ:RMBS), setting a price target of $85.00 on 10th September. As per Insider Monkey’s Q2 2024 data, 21 hedge funds were long Rambus Inc. (NASDAQ:RMBS).
Chartwell Investment Partners, LLC, an affiliate of Carillon Tower Advisers, Inc., released the first quarter 2024 investor letter. Here is what the fund said:
“Rambus Inc. (NASDAQ:RMBS) shares lagged as the company disappointed investors with weak guidance for the first quarter of 2024, due to lower product revenues for the semiconductors it makes. Spending on traditional servers has been lower, replaced by AI spending, which is having a negative impact on Rambus.”