In this article, we discuss the 5 best cyclical stocks to buy now. If you want to read our detailed analysis of these companies, go directly to the 10 Best Cyclical Stocks To Buy Now.
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5. Costco Wholesale Corporation (NASDAQ: COST)
Number of Hedge Fund Holders: 56
Costco Wholesale Corporation (NASDAQ: COST) is a Washington-based retail company founded in 1963. It is placed fifth on our list of 10 best cyclical stocks to buy now. Costco stock has returned more than 22% to investors over the course of the past twelve months. The company owns and runs membership-only stores and has business interests in Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan, in addition to the United States.
Costco Wholesale Corporation (NASDAQ: COST) posted earnings for the third fiscal quarter on May 27, reporting earnings per share of $2.84, beating market estimates by $0.56. The revenue over the period was more than $45 billion, up 21% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Costco Wholesale Corporation (NASDAQ: COST) with 3.6 million shares worth more than $1.2 billion.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation (NASDAQ: COST) was one of them. Here is what the fund said:
“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.
Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”
4. Restaurant Brands International Inc. (NYSE: QSR)
Number of Hedge Fund Holders: 26
Restaurant Brands International Inc. (NYSE: QSR) is a Canada-based fast food holding company founded in 1954. It is ranked fourth on our list of 10 best cyclical stocks to buy now. The company stock has returned more than 27% to investors over the course of the past year. Some of the big fast food brands the firm owns include Tim Hortons, Burger King, and Popeyes, among others. The company runs more than 27,000 eateries in more than 100 countries around the world.
Restaurant Brands International Inc. (NYSE: QSR) is also a good option for dividend investors. In late April, the company declared a quarterly dividend of $0.53 per share, in line with previous. The forward yield was 3.13%.
At the end of the first quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in Restaurant Brands International Inc. (NYSE: QSR), down from 39 in the preceding quarter worth $2.4 billion.
In its Q4 2020 investor letter, Pershing Square Holdings Ltd, an asset management firm, highlighted a few stocks and Restaurant Brands International Inc. (NYSE: QSR) was one of them. Here is what the fund said:
“QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from three leading brands: Burger King, Tim Hortons and Popeyes. The company nimbly navigated difficult market conditions in 2020 by assisting franchisees, while maintaining its long-term growth potential.
As the COVID-19 pandemic began, management undertook a series of steps to secure and strengthen the business. The company quickly bolstered safety procedures and shifted marketing spend to highlight the off -premise options available to customers, while supporting its franchisees with fee/cap ex deferrals and liquidity programs. Throughout the year, the company accelerated its digital investments by expanding its delivery footprint, modernizing its drive-thru experience, increasing mobile ordering adoption, and improving its loyalty programs.
While the company’s sales were negatively impacted by the pandemic, comparable sales have already recovered or are well on their way to recovery. Burger King U.S. returned to growth in January; Tim Hortons improved to a high-single-digit decline in Canada during the fourth quarter, and Popeyes U.S. grew 16% in 2020. To accelerate the recovery at Tim Hortons in Canada, the company has committed additional funds to bolster its advertising, and support continued enhancements to its Tim’s Rewards program.
We continue to believe each of Restaurant Brands’ concepts will emerge stronger from this crisis as their business models are competitively advantaged in a socially distant and more budget-conscious consumption environment, and as the company continues to invest in drive-thru, delivery, and digital. We believe QSR’s long-term unit growth opportunity is still intact, and we expect unit growth to return to its mid-single-digit growth rate this year. As investors begin to see the results of these efforts, and underlying sales trends at each of its brands continue to improve, QSR’s share price should more accurately reflect our view of its business fundamentals.”
3. Live Nation Entertainment, Inc. (NYSE: LYV)
Number of Hedge Fund Holders: 37
Live Nation Entertainment, Inc. (NYSE: LYV) is a California-based entertainment company founded in 2005. It is placed third on our list of 10 best cyclical stocks to buy now. Live Nation stock has offered investors returns exceeding 33% in the past year. The company primarily focuses on the promotion, operation, and management of ticket sales for live entertainment in many countries around the world. It also owns and runs more than 200 entertainment venues globally.
On May 10, investment advisory Jefferies upgraded Live Nation Entertainment, Inc. (NYSE: LYV) stock to Buy with a price target of $96, implying an upside potential of 14%. The share price of the firm jumped more than 5% after the ratings update.
Out of the hedge funds being tracked by Insider Monkey, Virginia-based firm Akre Capital Management is a leading shareholder in Live Nation Entertainment, Inc. (NYSE: LYV) with 5.4 million shares worth more than $62 million.
In its Q4 2020 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Live Nation Entertainment, Inc. (NYSE: LYV) was one of them. Here is what the fund said:
“In 2006, we initiated our position in Live Nation, the global entertainment company that handles promotion, venue management and ticket sales for live events. Live Nation was spun out of the former Clear Channel Communications in late 2005. In our view, spinoffs often represent attractive opportunities because investors frequently undervalue the new company. We believed this was the case with Live Nation, especially given its initially small market capitalization. As well, when spinoffs are freed from their parents, they typically benefit from intensified management focus and more flexible capital allocation policies. In Live Nation’s case, the spinoff helped make possible the merger with Ticketmaster in 2010, which materially improved the business franchise. Although these factors alone might have made Live Nation a good holding for the Fund, an unexpected technology helped to boost the company’s fortunes: streaming. As the advantages of streaming convinced consumers to reduce or even eliminate their purchases of media, such as CDs and DVDs, artists began to tour more, thereby providing a tailwind to Live Nation’s operations. This accelerated growth in the company’s intrinsic value per share, which in turn generated numerous increases in our sell target for the holding, enabling us to continue to own the shares in the Fund for 14 years. We typically target a three- to five-year holding period for our equity investments, but we love opportunities like Live Nation, which achieve unanticipated intrinsic value growth.”
2. The Boeing Company (NYSE: BA)
Number of Hedge Fund Holders: 59
The Boeing Company (NYSE: BA) is an Illinois-based company that makes and sells airplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles. It was founded in 1916 and is ranked second on our list of 10 best cyclical stocks to buy now. Boeing stock has returned more than 69% to investors over the course of the past twelve months. The company also offers supply chain and logistics management, engineering, maintenance and modifications, and spare parts for aircraft.
The Boeing Company (NYSE: BA) posted earnings results for the first quarter of 2021 on April 28, reporting earnings per share of -$1.53, missing market predictions by $0.46. The revenue over the period was more than $15 billion, beating market estimates by $140 million.
At the end of the first quarter of 2021, 59 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in The Boeing Company (NYSE: BA), up from 55 in the preceding quarter worth $1 billion.
In its Q1 2020 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and The Boeing Company (NYSE: BA) was one of them. Here is what the fund said:
“We’ve known Boeing for a long time. It’s always been a high quality company that’s traded for a premium valuation owing to its position as a global duopoly. We’d looked at it recently after weakness due to its highly publicized Max 737 issues, but it never got cheap enough for us to pull the trigger. After the pandemic, the stock went into freefall as its customer bases’ business dried up and people worried about its liquidity. The stock fell from $338 on February 19th when the S&P hit its high to a low of $89. We bought the stock after the new CEO Dave Calhoun said publicly that it would not take government capital if it required equity dilution because it had many other options. Our average price is just above $120 where it was trading for less than 7x what it earned in 2018. It will likely take a while to normalize to those earnings levels, but this business will survive and ultimately we will own a leader in a global duopoly. Even on depressed forecasts, the company currently has about a 10-15% free cash flow yield. If and when the economy normalizes, we think Boeing could be worth more than double its current price.”
1. Caterpillar Inc. (NYSE: CAT)
Number of Hedge Fund Holders: 53
Caterpillar Inc. (NYSE: CAT) is an Illinois-based construction machinery and equipment company founded in 1925. It is placed first on our list of 10 best cyclical stocks to buy now. Caterpillar stock has returned more than 100% to investors over the past year. The company is one of the largest construction equipment manufacturers in the world and sells engines and financial products as well. It was formerly known as Caterpillar Tractor.
Caterpillar Inc. (NYSE: CAT) posted earnings for the first three months of 2021 in late April, reporting earnings per share of $2.87, beating market estimates by $0.93. The revenue over the period was close to $12 billion, up 11% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, Washington-based firm Bill & Melinda Gates Foundation Trust is a leading shareholder in Caterpillar Inc. (NYSE: CAT) with 10 million shares worth more than $2.3 billion.
You can also take a peek at Billionaire Izzy Englander’s Top 10 Stock Picks and Billionaire David Abrams’ Top Stock Picks.
