In this article, we discuss the 10 best epicenter stocks to buy now.
Inflation has battered growth stocks at the stock market for the best part of the past few months. Consumer prices surged by over 7% in the past year, shattering decades-old records, as house prices soared and supply chain disruptions due to the pandemic added to the feeling of gloom around the future of the US economy. Market analysts and Wall Street strategists sounded multiple alarm bells around soaring valuations and market crashes. However, the US Federal Reserve dismissed most of these concerns as “transitory” and refused to raise interest rates.
Higher Rates and Tighter Monetary Policy Ahead in 2022
On January 12, Federal Reserve Chair Jerome Powell outlined his thoughts on the overall economic environment at a Congressional hearing. Powell affirmed that the US economy was more than capable of handling the impact of the surge in virus cases and a tighter monetary policy in the wake of inflation fears. The Fed chief said that the central bank would ensure that inflation did not become “entrenched”. Signaling that an interest rate hike was on the way, Powell further noted that higher rates were “necessary” to keep pace with economic expansion.
Even though the holiday season was hit by worries around Omicron and inflation, with travel and sales lighter than usual, analysts expect the economy to bounce back strongly in 2022. In this environment, investors should consider some of the top epicenter stocks to buy now.
What Are Epicenter Stocks?
“Epicenter stocks” was a term coined by Thomas Lee, the Head of Research at Fundstrat Global Advisors and former Chief Equity Strategist at JPMorgan, to refer to companies whose means of earnings were directly affected by the spread of COVID-19. Some examples include The Walt Disney Company (NYSE:DIS), Exxon Mobil Corporation (NYSE:XOM), and Starbucks Corporation (NASDAQ:SBUX), among others discussed in detail below.
Our Methodology
The companies that have been hit the hardest by the rise of a new variant of COVID-19 and have a reasonable chance of rebounding in the weeks ahead were selected for the list through a careful assessment of business fundamentals and analyst ratings to provide readers with some context for their investment choices.
Hedge fund sentiment was included as a classifier as well. The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Best Epicenter Stocks To Buy Now
10. Wynn Resorts, Limited (NASDAQ:WYNN)
Number of Hedge Fund Holders: 32
Wynn Resorts, Limited (NASDAQ:WYNN) owns and runs casinos and resorts. The stock has been hit in recent weeks as a new variant of the virus threatens lockdowns. A gaming license renewal for Wynn Resorts, Limited (NASDAQ:WYNN) in Macau, a major betting hub, is pending too as the Chinese government tightens regulation on the gambling industry. However, Wynn Resorts, Limited (NASDAQ:WYNN) has reported strong sports betting volumes in the US as the NFL and NHL resume full throttle.
CBRE analyst John DeCree has a Buy rating on Wynn Resorts, Limited (NASDAQ:WYNN) stock with a price target of $120, noting that the recent selloff in gaming stocks represented “great opportunities” to get involved at the “most attractive” levels. Hedge funds seem to concur with this analysis. At the end of the third quarter of 2021, 32 hedge funds in the database of Insider Monkey held stakes worth $282 million in Wynn Resorts, Limited (NASDAQ:WYNN).
Just like The Walt Disney Company (NYSE:DIS), Exxon Mobil Corporation (NYSE:XOM), and Starbucks Corporation (NASDAQ:SBUX), Wynn Resorts, Limited (NASDAQ:WYNN) is one of the stocks on the radar of elite investors.
In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Wynn Resorts, Limited (NASDAQ:WYNN) was one of them. Here is what the fund said:
“In the most recent quarter, we exited the Fund’s holdings in Wynn due to: (i) ongoing COVID-19-related travel restrictions in China, Macau, and Singapore; and (ii) the Macau government’s announcement to tighten its casino regulatory oversight.”
9. Royal Caribbean Group (NYSE:RCL)
Number of Hedge Fund Holders: 35
Stifel analyst Steven Wieczynski recently named Royal Caribbean Group (NYSE:RCL) as the top leisure travel pick for 2022, maintaining a Buy rating on the stock and boosting the price target to $130 from $111. The investment advisory underlined that Royal Caribbean Group (NYSE:RCL) would “emerge as a leaner, more profitable company” this year and it was preferred over other names in the sector because it had the “lowest dilution risk”. Royal Caribbean Group (NYSE:RCL) operates as a cruise company.
There has been increased hedge fund interest around Royal Caribbean Group (NYSE:RCL) stock in recent months as well. Among the funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Royal Caribbean Group (NYSE:RCL) with 3.3 million shares worth more than $300 million.
8. Carnival Corporation & plc (NYSE:CCL)
Number of Hedge Fund Holders: 36
Carnival Corporation & plc (NYSE:CCL) is a leisure travel firm. On December 20, Arnold Donald, the CEO of Carnival Corporation & plc (NYSE:CCL), told news platform CNBC that “cruising may be among the safest forms of social gathering and travel” as a new variant of COVID-19 resulted in cancellations of vacation plans. Carnival Corporation & plc (NYSE:CCL) has posted small jumps in bookings in the fourth quarter of 2021 on “strong pricing trends” despite the rise of the new variant.
Carnival Corporation & plc (NYSE:CCL) also aims to ramp up capacity in 2022 and 2023 to keep up with increased demand for cruises. There is positive hedge fund sentiment around Carnival Corporation & plc (NYSE:CCL). At the end of the third quarter of 2021, 36 hedge funds in the database of Insider Monkey held stakes worth $520 million in Carnival Corporation & plc (NYSE:CCL), up from 31 in the previous quarter worth $456 million.
Like The Walt Disney Company (NYSE:DIS), Exxon Mobil Corporation (NYSE:XOM), and Starbucks Corporation (NASDAQ:SBUX), Carnival Corporation & plc (NYSE:CCL) is set to experience massive growth once the world resolves the problem of COVID variants.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Carnival Corporation & plc (NYSE:CCL) was one of them. Here is what the fund said:
“Several of our better performers in the first quarter were purchased while their business models were under stress from COVID restrictions or the macro environment the pandemic created. What gave us confidence in purchasing Carnival was the actions the company took to extend out their balance sheets until travel resumed. Both should benefit as a broader vaccination rollout prompts cruise lines to resume operations and consumers to start traveling again and are positioned to deliver better margins and gain pricing power as the economy normalizes due to the cost controls implemented during the downturn.”
7. Southwest Airlines Co. (NYSE:LUV)
Number of Hedge Fund Holders: 39
Morgan Stanley analyst Ravi Shanker recently backed airline stocks like Southwest Airlines Co. (NYSE:LUV) to have a strong 2022, noting that “higher costs would drive greater capacity with strong incremental margins” for the airline sector in the coming months. The analyst has an Overweight rating on Southwest Airlines Co. (NYSE:LUV) stock. Southwest Airlines Co. (NYSE:LUV) operates as a passenger airline carrier and is based in Texas. It has a fleet of over 700 Boeing 737 aircraft, one of the largest in the US.
Southwest Airlines Co. (NYSE:LUV) has adapted to the pandemic better than other firms and seems more prepared for the Omicron fallout since it has rearranged operations to focus on short-range international travel and domestic flights. Hedge funds approve of this new strategy. At the end of the third quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth $729 million in Southwest Airlines Co. (NYSE:LUV).
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Southwest Airlines Co. (NYSE:LUV) was one of them. Here is what the fund said:
“One of our goals as we constantly monitor the portfolio is to see if we can better deploy capital by lowering the probability of being wrong. This motivation drove our swap of Delta Airlines into Southwest Airlines during the quarter. We expect a huge rebound in airline traffic as COVID-19 concerns abate, but we are much more comfortable that it will be led by leisure travel. Conversely, we are more uncertain of the ultimate level and timing of business travel demand. Southwest, with its simple fare strategy and high leisure travel exposure, is better positioned to capture the ongoing traffic rebound without having to answer the business travel demand question on which Delta is more dependent. As a result, we expect Southwest to play serious offense as it gains share in the rebounding travel market and can fully leverage the massive pent-up demand for travel that we expect. In addition, the U.S. lead in vaccination over Europe favors Southwest over Delta, given the domestic focus of Southwest. COVID-19 has changed many things, but humans by their very nature like to move, and many of them will do it on Southwest.”
6. Delta Air Lines, Inc. (NYSE:DAL)
Number of Hedge Fund Holders: 50
Delta Air Lines, Inc. (NYSE:DAL) CEO Ed Bastian recently told news platform CNBC that the operations of the firm had “stabilized” after a challenging holiday season that saw massive cancellations due to the rise of the Omicron variant of COVID-19. Bastian said that the “worst of Omicron is behind us” and affirmed that Delta Air Lines, Inc. (NYSE:DAL) was expecting a “really robust” start to 2022 as people seemed ready to book their spring plans. Delta Air Lines, Inc. (NYSE:DAL) recently beat market estimates on earnings for the fourth quarter of 2021.
Bank of America analyst Andrew Didora recently upgraded Delta Air Lines, Inc. (NYSE:DAL) stock to Buy from Neutral and raised the price target to $48 from $46. Major hedge funds are also bullish on Delta Air Lines, Inc. (NYSE:DAL) stock. Among those being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Delta Air Lines, Inc. (NYSE:DAL) with 6.4 million shares worth more than $276 million.
In addition to The Walt Disney Company (NYSE:DIS), Exxon Mobil Corporation (NYSE:XOM), and Starbucks Corporation (NASDAQ:SBUX), Delta Air Lines, Inc. (NYSE:DAL) is one of the stocks that hedge funds are buying.
In its Q2 2020 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Delta Air Lines, Inc. (NYSE:DAL) was one of them. Here is what the fund said:
“Delta Air Lines Inc. (DAL) declined -1.38% over the period after the initial hit to the stock in 1Q following the outbreak of the COVID-19 pandemic. The company reported 1Q results with EPS of -$0.51, in-line with consensus. The company guided for June revenue to be down 90% YoY and announced another $1B cut to capital expenditures (CAPEX) for a total cut of $3B so far this year. The company ended the quarter with $6B in liquidity and they expect to end the June quarter with $10B in liquidity. Delta held its annual shareholders’ meeting where it noted that it expects to finish the 2nd quarter with over $15B in liquidity with a daily cash burn of $30M getting to breakeven by the end of the year.”
5. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 51
Chevron Corporation (NYSE:CVX) operates as an integrated oil and gas firm. Chevron Corporation (NYSE:CVX) has weathered the Omicron storm better than other epicenter stocks because of the higher prices of oil and favorable supply-demand balances. The United States Department of Energy recently released a short-term energy outlook and detailed that in the first quarter of 2022, new production highs in the US would lead to a surplus market. The global oil consumption is expected to increase in 2022 as well.
Hedge funds have been piling into Chevron Corporation (NYSE:CVX) stock in acknowledgment of a bullish analysis of the energy sector. At the end of the third quarter of 2021, 51 hedge funds in the database of Insider Monkey held stakes worth $4.4 billion in Chevron Corporation (NYSE:CVX), up from 50 in the preceding quarter worth $4.2 billion.
In its Q1 2021 investor letter, ClearBridge Investments highlighted a few stocks and Chevron Corporation (NYSE:CVX) was one of them. Here is what the fund said:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. We added to low-cost, high-quality energy names, (including) Chevron. We are positive on the company’s strong balance sheets, competitive positions and exposure to an economic recovery.”
4. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 58
Tigress Financial analyst Ivan Feinseth recently raised the price target on Starbucks Corporation (NASDAQ:SBUX) stock to $136 from $130 and kept a Buy rating, underlining that consumer mobility and spending would continue to accelerate in 2022. The analyst also highlighted new labor investment initiatives of Starbucks Corporation (NASDAQ:SBUX) that were expected to drive “long-term shareholder value”. Starbucks Corporation (NASDAQ:SBUX) operates as a specialty coffee retailer.
Starbucks Corporation (NASDAQ:SBUX) has featured among the favorite hedge fund stocks for years. Among the funds being tracked by Insider Monkey, London-based investment firm Fundsmith LLP is a leading shareholder in Starbucks Corporation (NASDAQ:SBUX) with 10.7 million shares worth more than $1.1 billion.
In its Q2 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Starbucks Corporation (NASDAQ:SBUX) was one of them. Here is what the fund said:
“For Starbucks, we believe the underlying businesses for the company remain strong. Starbucks has grappled with the impact of the pandemic, but results have continued to show an ongoing post-pandemic recovery.”
3. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 58
Piper Sandler analyst Nicole Miller Regan recently upgraded McDonald’s Corporation (NYSE:MCD) stock to Overweight from Neutral and raised the price target to $282 from $232, highlighting that McDonald’s Corporation (NYSE:MCD) was “uniquely positioned” to leverage industry-leading fast food experiences, size, and scale to contend with cost pressures and operational challenges facing the restaurant industry in the US. The analyst also lauded the commitment of McDonald’s Corporation (NYSE:MCD) towards share repurchases.
Hedge funds also back McDonald’s Corporation (NYSE:MCD) to deliver strong shareholder value in the coming months. At the end of the third quarter of 2021, 58 hedge funds in the database of Insider Monkey held stakes worth $3.3 billion in McDonald’s Corporation (NYSE:MCD), compared to 66 the preceding quarter worth $2.7 billion.
2. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 64
Exxon Mobil Corporation (NYSE:XOM) is an oil and gas firm based in Texas. The stock has returned close to 50% to shareholders in the past twelve months. Exxon Mobil Corporation (NYSE: XOM) recently started the sale process for some shale properties in Ohio valued at $200 million, per Reuters. Exxon Mobil Corporation (NYSE: XOM) is expected to use the funds from the sale of the assets to focus on the development of new properties in Brazil and the Permian Basin in Texas.
Exxon Mobil Corporation (NYSE: XOM) is also slowly incorporating ESG into the company policy and many environmental activists now see the firm in a positive light. Hedge funds have lauded the efforts of Exxon Mobil Corporation (NYSE: XOM) in this regard too. At the end of the third quarter of 2021, 64 hedge funds in the database of Insider Monkey held stakes worth $4.6 billion in Exxon Mobil Corporation (NYSE:XOM).
In its Q1 2021 investor letter, Harding Loevner highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
“We felt that our remaining energy holding, ExxonMobil, with its stronger balance sheet, was in a better position to ride out the cyclical slump in oil demand and even perhaps take advantage of it by investing counter-cyclically. While ExxonMobil does plan to increase capital expenditure, we’ve been disappointed in its regrettable failure to address ongoing emission trends, which reflects poorly on management’s foresight. As a result, we sold our ExxonMobil holdings.”
1. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 101
Morgan Stanley analyst Benjamin Swinburne has an Overweight rating on The Walt Disney Company (NYSE:DIS) stock with a price target of $185. In a recent investor note, the analyst underlined that The Walt Disney Company (NYSE:DIS) would increase investment in streaming in 2022 and the shares were suffering from a “crisis of confidence” despite predictions that the Disney Plus platform, the streaming service of the firm, would add nearly 25 million in core subscribers over the next few months.
The Walt Disney Company (NYSE:DIS) is one of the stocks that hedge funds nearly always seem to hold in high regard. At the end of the third quarter of 2021, 101 hedge funds in the database of Insider Monkey held stakes worth $9.4 billion in The Walt Disney Company (NYSE:DIS).
In its Q4 2020 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and The Walt Disney Company (NYSE:DIS) was one of them. Here is what the fund said:
“One of the original constituents of the Nifty Fifty holds a place in our portfolio today. When we bought Disney three years ago, we wrote that “we view Disney theme parks in the US, Europe, and China as resistant to online substitution.” We did not reckon on a pandemic, which closed all of them, and sent all of usto our couches. Disney, however, was ready for us, brilliantly illustrating the importance of management foresight and change management. Or, as Louis Pasteur said, “chance favors the prepared mind.
A century after its founding in 1923, Disney is in the middle of a bold shift from its legacy media networks & entertainment model—with cable TV, theme parks, and theater films dominating its earnings—to a direct-to-consumer streaming media model. The keys to Disney’s transition: matchless storytelling, coupled with financial strength. The company reliably creates content that people all over the world are eager to consume. It also hastened spending on original content to attract subscribers to its new streaming platform. These factors have allowed Disney to weather the pandemic having expanded its direct engagement with customers. Such connections yield a rich harvest of insights used to customize offerings on a mass scale, reinforcing that engagement in a virtuous circle and thereby raising the lifetime value of each customer. Subscribers to Disney+ reached 86.8 million one year after launch, compared to the 60 – 90 million management projected to reach in 2024. To be sure, Netflix, Apple, and Amazon remain formidable competitors in new-era streaming entertainment (mind what we said about everyone standing up at once), but there’s fight left in this old dog.”
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Disclosure. None. 10 Best Epicenter Stocks To Buy Now is originally published on Insider Monkey.
