In this article, we will take a look at the 10 best stocks to buy on the dip for long term.
With the end of 2023 now in sight, the market is getting flooded with analyses on the important events this year and predictions for 2024. Stock market predictions are always interesting and when we analyze them in hindsight they help us understand the volatility and unpredictability of the world we are living in. When 2023 started a lot of analysts and experts were expecting a disastrous year ahead and saying that a recession would soon hit the US economy. But that did not happen, thanks to the AI-fueled rally in tech stocks and a surprisingly strong US consumer sentiment. Market experts are yet again releasing their 2024 market outlook reports. Most of them are praising the US economy for dodging a recession.
Goldman Sachs’ analyst David Kostin and his team recently said in a report that they expect the S&P 500 to end 2024 at 4,700, which would represent a 4.2% gain from recent levels. The analysts said that investors would realize at the end of 2024 that the best investment strategy in the year was to stay invested (isn’t that the best investment strategy every year?).
Kostin and his team also expect the Magnificent Seven group of mega-cap tech stocks to yet again outperform the market but they believe the risk/reward of these stocks is not attractive given the high expectations. Most of these stocks had a huge bull run in 2023 because of the AI-led rally in the stock market. Many believe the AI-related expectations are already priced in.
While recession was avoided, many analysts believe the upcoming year would not see financial markets soar to record highs. Jim Masturzo, chief investment officer at Research Affiliates, recently said that the US might be up for a long period of austerity. The analyst said that American households were able to amass a lot of cash over the past several years because after the Great Financial Crisis, the Federal Reserve eased its monetary policy to boost economic activity and growth. The Fed then eased its credit policy further to offset the effects of Trump-era tariff wars. Then the COVID-19 pandemic came in which government-back stimulus packages also gave Americans a lot of cushion in the form of cash.
Masturzo thinks another factor that made Americans richer was the US government’s spending. Federal spending jumped from $4.45 trillion in fiscal 2019 to $6.82 trillion in 2021. This was a growth of 53% or nearly $2.4 trillion in two years.
“A Game of Musical Chairs”
Jim Masturzo thinks that the first cracks in the system became visible earlier this year during the regional banking crisis. However, that crisis was controlled and later ignored amid AI-led rally in stock prices, strong economic reports (he mentioned the strong November CPI report) and other temporary factors. The analyst said that this “game of musical chairs” cannot go on forever and the massive money that was injected into the system will eventually dry up and we will have to come out of the hangover. The analyst said that the real effects of the rise in interest rates will become visible in the months and years to come and eventually we will face a recession and a long period of austerity.
The analyst also pointed to broader problems of the global stage including aging population and an overall rise in inflation. He believes inflation is expected to stick around and the next decade will be starkly different from the previous one. The report said:
“After cooling from nearly double-digit year-over-year levels in mid-2022, U.S. consumer and producer prices are increasing again. Commodity prices have been a key driver of the recent uptick in inflation and are expected to remain elevated in the medium to long term due to rising demand for both fossil fuel and renewable energy. Capital spending on oil & natural gas exploration has fallen for the last several years as producers have been forced to cope with the risks of the green “evolution” and the impact on strategic planning. Yet the global economy has not yet reached peak oil demand, meaning production must be maintained at current levels or even increased. The International Energy Agency (IEA) estimates global oil demand will increase to 105.7 million barrels per day (mb/d) by 2028, from 99.8 mb/d in 20224. Many renewable energy sources, such as nuclear and battery storage, are also commodity-dependent, creating long-term demand for the mining of materials ranging from copper to uranium and rare earth metals. Uranium prices, for example, after a decade of largesse have rebounded sharply as demand expectations have risen. As a result, commodity inputs will be a stubborn headwind to managing inflation.”
Methodology
Back in September, Citi published a list of 20 stocks in the Russell 1000 Growth Index (NYSEARCA:IWF) (VONG) that the firm believed were attractive buys on the dip for long term. These stocks were facing declines at that time. For this article we went through Citi’s list and picked 10 stocks that posted declines this year and have the highest number of hedge fund investors.
Best Stocks to Buy on the Dip for Long Term
10. TKO Group Holdings, Inc. (NYSE:TKO)
Number of Hedge Fund Holders: N/A
Sports and entertainment company TKO Group Holdings, Inc. (NYSE:TKO) is one of the stocks Citi believes you should buy on the dip for the long term. TKO Group Holdings, Inc. (NYSE:TKO) was created as a result of the merger between Vince McMahon’s WWE with Endeavor Group’s (NYSE:EDR) mixed martial arts operation UFC.
Recently, TKO Group Holdings, Inc. (NYSE:TKO) stock fell after McMahon offered to sell 8.4 million shares of the company’s common stock.
Baron Opportunity Fund made the following comment about TKO Group Holdings, Inc. (NYSE:TKO) in its Q3 2023 investor letter:
“We trimmed our investment in TKO Group Holdings, Inc. (NYSE:TKO) down to a position size we were more comfortable with because of uncertainties regarding the competitive environment in the mixed martial arts space and TV carriage deals in the wrestling vertical.”
9. Teradata Corporation (NYSE:TDC)
Number of Hedge Fund Holders: 26
Teradata Corporation (NYSE:TDC) shares were wavering back in September when Citi called it a stock to buy on the dip. However, Teradata Corporation (NYSE:TDC) has now recovered. Citi analysts believed Teradata Corporation (NYSE:TDC) was a long-term stock pick. The stock has gained about 40% year to date through November 12.
As of the end of the second quarter of 2023, 26 hedge funds tracked by Insider Monkey had stakes in Teradata Corporation (NYSE:TDC). The biggest stakeholder of Teradata Corporation (NYSE:TDC) was Cynthia Paul’s Lynrock Lake which owns a $266 million stake in the company.
Heartland Mid Cap Value Fund made the following comment about Teradata Corporation (NYSE:TDC) in its Q1 2023 investor letter:
“Technology. We added to our existing position in Teradata Corporation (NYSE:TDC), the largest provider of enterprise data analytics for complex workloads. Companies use TDC to predict a variety of events, such as when customers might switch to rivals, when parts are about to fail, or if transactions look suspicious for fraud.
While other enterprise IT companies have been reporting decelerating results, TDC continues to progress on growing recurring revenue from the cloud. The company’s hybrid/multi-cloud offering should position it well to help customers transition to the cloud. The stock remains undervalued, with a free cash flow yield above 9%.”
8. Bruker Corporation (NASDAQ:BRKR)
Number of Hedge Fund Holders: 29
Scientific instruments company Bruker Corporation (NASDAQ:BRKR) has lost about 16% year to date through November 12.
Out of the 910 hedge funds tracked by Insider Monkey, 29 hedge funds had stakes in Bruker Corporation (NASDAQ:BRKR). The biggest stakeholder of Bruker Corporation (NASDAQ:BRKR) was Ken Griffin’s Citadel Investment Group which had a $199 million stake in the company.
7. Rockwell Automation, Inc. (NYSE:ROK)
Number of Hedge Fund Holders: 32
Rockwell Automation, Inc. (NYSE:ROK) ranks 7th in our list of the stocks which Citi believes should be bought on the dip. Rockwell Automation, Inc. (NYSE:ROK) lost about 1.4% in value year to date through November 12. Last month, Rockwell Automation, Inc. (NYSE:ROK) upped its dividend by 5.9%. Rockwell Automation, Inc. (NYSE:ROK) recently posted fiscal Q4 results. Adjusted EPS in the period came in at $3.64, beating estimates by $0.17. Revenue in the quarter came in at $2.56 billion, which was about 20.2% more than the revenue posted in the same quarter last year.
Rockwell Automation, Inc. (NYSE:ROK) briefly talked about its AI products in its latest earnings call:
“In addition to continued cybersecurity and infrastructure modernization wins in this vertical, we had several wins in Q4 incorporating generative AI functionality, where our digital services business is helping our CPG customers use real-time AI assistance as they develop new products, formulations and recipes.
Life Sciences sales grew mid single digits in the quarter. This vertical is a great example of how we are delivering expanded customer value through a combination of software, hardware and digital services capabilities. This quarter, our PlantPAx system was selected by [indiscernible], a global biotechnology company developing innovative and affordable cancer medicines for their process control and environmental monitoring solutions at a greenfield site in New Jersey. Tire was up high teens in the quarter with multiple wins across the globe, including the large software deal at Prometeon Tyre I … [Read the full earnings call transcript here]”
As of the end of the second quarter of 2023, Ian Simm’s Impax Asset Management owns a $174 million stake in Rockwell Automation, Inc. (NYSE:ROK)..
Artisan Mid Cap Fund made the following comment about Rockwell Automation, Inc. (NYSE:ROK) in its first quarter 2023 investor letter:
“Rockwell Automation, Inc. (NYSE:ROK) is a leading provider of industrial automation technology. The company has a strong brand, installed base and distribution network and is expanding its product offering to include more cloud-based software to complement its leading hardware business. In the coming years, we expect the company to benefit from an acceleration in US manufacturing investment to support customers’ nearshoring initiatives and in response to federal government incentive programs to manufacture energy transition products domestically. In addition, we expect Rockwell to experience revenue and margin tailwinds in 2023 from easing supply chain constraints, which limited its ability to meet customer demand in 2022.”
6. Insulet Corporation (NASDAQ:PODD)
Number of Hedge Fund Holders: 39
Insulin delivery systems company Insulet Corporation (NASDAQ:PODD) ranks 6th in our list of the best stocks to buy on the dip for the long term according to Citi. Insulet Corporation (NASDAQ:PODD) has lost about 45% year to date through November 12.
As of the end of the second quarter of 2023, 39 hedge funds tracked by Insider Monkey had stakes in Insulet Corporation (NASDAQ:PODD). The biggest stakeholder of Insulet Corporation (NASDAQ:PODD) was Daniel Sundheim’s D1 Capital Partners which owns a $209 million stake in the company.
Ithaka US Growth Strategy made the following comment about Insulet Corporation (NASDAQ:PODD) in its Q3 2023 investor letter:
“Insulet Corporation (NASDAQ:PODD) is a medical device company focused on the design, development, and commercialization of insulin pump systems for people with type-1 diabetes. Diabetes is a chronic, life-threatening disease for which there is no known cure. Insulet’s insulin pump system is superior to traditional practices because it provides its users with a more accurate and pain free way to administer insulin versus injecting it via syringe multiple times per day. Insulet’s stock was under pressure following the FDA’s approval of glucagon-like peptide-1 receptor agonists (GLP-1’s), Wegovy and Saxenda. These injectable drugs were approved for chronic weight management in adults who are obese or overweight with at least one weight-related condition. While the approval of these GLP-1’s is likely to have limited impact on pump system sales in the near-term, investors sold PODD fearing that these new drugs will shrink Insulet’s total addressable market over time.”
5. Paycom Software, Inc. (NYSE:PAYC)
Number of Hedge Fund Holders: 40
Paycom Software, Inc. (NYSE:PAYC) ranks 5th in our list of the best buy the dip stocks to buy according to Citi. Paycom Software, Inc. (NYSE:PAYC) has lost about 43% year to date through November 12. Investment firm UBS recently started covering the stock with a Buy rating and a $235 price target.
As of the end of the second quarter of 2023, 40 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Paycom Software, Inc. (NYSE:PAYC). The biggest stakeholder of Paycom Software, Inc. (NYSE:PAYC) was Greg Poole’s Echo Street Capital Management which owns a $347 million stake in the company.
Polen U.S. SMID Company Growth Strategy made the following comment about Paycom Software, Inc. (NYSE:PAYC) in its Q3 2023 investor letter:
“The most significant detractors from the Portfolio’s relative performance in the quarter included Farfetch, Doximity, and Paycom Software, Inc. (NYSE:PAYC).
Paycom, a leading provider of cloud-based human capital management software for small and mid-sized businesses, was another detractor in the period. Despite reporting positive results, the investors seemed concerned about the company’s performance in the year’s second half. As a result, the stock fell by almost 20% on the day of the report. However, the company is committed to investing in its BETI platform to onboard more customers, which may have a short-term negative impact on revenues. But, in the long run, it can benefit the company’s margins. Our positive long-term outlook remains unchanged. We still believe the company has an attractive growth potential in a large addressable market.”
4. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 52
Lockheed Martin Corporation (NYSE:LMT) shares have lost about 6% year to date through November 12. But Citi believes Lockheed Martin Corporation (NYSE:LMT) should be bought on the dip for long-term gains.
Insider Monkey’s database shows that 52 hedge funds had stakes in Lockheed Martin Corporation (NYSE:LMT) as of the end of the second quarter of 2023. The biggest hedge fund stakeholder of Lockheed Martin Corporation (NYSE:LMT) was John Overdeck and David Siegel’s Two Sigma Advisors which owns a $364 million stake in the company.
RiverPark Advisors made the following comment about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2023 investor letter:
“Lockheed Martin Corporation (NYSE:LMT): LMT is the world’s largest aerospace and defense contractor. With about 70% of its $66 billion in revenue from the U.S. government, the company is well positioned to benefit from U.S. defense budget growth, historically 5%-6% per year, as well as increased global military spending. With a $158 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year (up from 141 in 2022) in the coming years, we believe the company could grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions, debt repayment, a 2.9% dividend yield, and continued share buybacks from more than $6 billion per year of free cash flow should lead to even greater shareholder returns. We re-initiated a small position in August.”
3. Las Vegas Sands Corp. (NYSE:LVS)
Number of Hedge Fund Holders: 52
Las Vegas Sands Corp. (NYSE:LVS) shares have lost about 3% year to date through November 12. Las Vegas Sands Corp. (NYSE:LVS) in October posted Q3 results. Adjusted EPS in the quarter came in at $0.55, meeting estimates. Revenue in the quarter jumped 177.2% year over year to $2.8 billion, beating estimates by $80 million.
As of the end of the second quarter of 2023, 52 hedge funds tracked by Insider Monkey reported owning stakes in Las Vegas Sands Corp. (NYSE:LVS). The most significant stakeholder of Las Vegas Sands Corp. (NYSE:LVS) during this period was Steve Cohen’s Point72 Asset Management which owns a $141 million stake in the company.
Baron Real Estate Fund made the following comment about Las Vegas Sands Corp. (NYSE:LVS) in its first quarter 2023 investor letter:
“In the first quarter of 2023, we re-acquired shares in Macau-centric casino gaming companies Wynn Resorts, Limited and Las Vegas Sands Corp. (NYSE:LVS) with the following considerations in mind:
Since the early days of the COVID-19 pandemic in 2020 through mid-2022, the shares of Wynn and Las Vegas Sands significantly underperformed the share price performance of other U.S.-centric casino gaming and lodging companies due in large part to extremely limited travel mobility to Macau during China’s Zero-COVID policy. Just as business activity and the shares of U.S.-centric casino gaming companies rebounded sharply once people felt comfortable to travel to Las Vegas and other U.S. regional gaming markets, we have felt that Macau business activity and the shares of Macau-centric casino gaming companies would follow in the footsteps of Las Vegas-centric and other U.S. gaming and lodging companies and inflect positively once people were permitted to travel to Macau more freely.
China recently abandoned it’s Zero-COVID policy and removed travel restrictions in January 2023. We now believe both Wynn and Las Vegas Sands are well positioned to capitalize on China’s reopening.
For Las Vegas Sands, we believe additional drivers for future value creation beyond a re-emergence in Macau business activity include: (i) our expectation for a continued positive inflection in visitation and cash flow at Marina Bay Sands, Singapore; (ii) Las Vegas Sands’ plans to invest $4.5 billion in Macau and Singapore in the next 10 years; (iii) the company’s plans to pursue a New York casino and its prioritization of Texas as a new market; and (iv) the possibility that Las Vegas Sands reinstates its dividend in the next few years…” (Click here to read the full text)
2. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 78
Datadog, Inc. (NASDAQ:DDOG) shares pulled back in September when Citi called it one of the best buy the dip stock for the long term. But Datadog, Inc. (NASDAQ:DDOG) has since recovered. Datadog, Inc. (NASDAQ:DDOG) shares have gained about 43% year to date through November 12.
Earlier this month Datadog, Inc. (NASDAQ:DDOG) posted Q3 results. Adjusted EPS in the quarter came in at $0.45, beating estimates by $0.11. Revenue in the quarter increased by 25.4% year over year to $547.54 million, beating estimates by $23.3 million.
RiverPark Large Growth Fund made the following comment about Datadog, Inc. (NASDAQ:DDOG) in its Q1 2023 investor letter:
“Datadog, Inc. (NASDAQ:DDOG): DDOG was a top detractor in the quarter. The company reported strong 4Q results including 44% revenue growth and 30% earnings growth but gave cautious revenue guidance for 2023. Macroeconomic headwinds have caused clients to slow the transition of workloads to the cloud and instead to optimize current capacity. Despite this temporary slowdown, DDOG still expects revenue to grow nearly 25% in 2023.
As businesses have transitioned to cloud software infrastructure, much of which is in isolated data silos, it has become increasingly difficult for data engineers to monitor and analyze system performance. Datadog provides a SaaS software platform to monitor and analyze the system performance of software applications and IT infrastructure by giving users a single page view to observe their company’s technology stack. The company has quickly grown its revenue from $100 million in 2017 to $1.7 billion in 2022 and, we believe, should continue to grow revenue at more than 20% annually as it penetrates its $40 billion and fast-growing market. Less than 10% of software applications are currently monitored. The company’s dollar-based net retention rate has been 130%+ as existing customers continue to use an increasing number of products and the company continues to add new features. As of 4Q22, 81% of customers used 2+ products, while only 18% of customers used 6+ products (up from less than 1% two years ago). As an extremely capex light software business, DDOG already has significant free-cash-flow ($350m in 2022) and free-cash-flow margins (21% in 2022).”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 135
Apple Inc. (NASDAQ:AAPL) shares were declining in September and that’s when Citi said the stock should be bought on the dip for long-term gains. Since then Apple Inc. (NASDAQ:AAPL) has recovered. Over the past one year Apple Inc. (NASDAQ:AAPL) shares have gained about 25% in value.
Apple Inc. (NASDAQ:AAPL) is up to something big in the AI space and could reveal its AI project in 2024, believes Morgan Stanley’s analyst Erik Woodring, who recently said the following in a note:
“We believe Apple will emerge as one of the key winners – or ‘Edge AI Enablers’ – in this race given the unique data from Apple’s 2 billion+ devices and 1.2 billion+ users, Apple’s focus on data privacy, and Apple’s leading hardware, software, silicon and services vertical integration.”
As of the end of the second quarter of 2023, 135 hedge funds tracked by Insider Monkey reported owning stakes in Apple Inc. (NASDAQ:AAPL). The biggest stakeholder of Apple Inc. (NASDAQ:AAPL) was Warren Buffett’s Berkshire Hathaway which had a $178 billion stake in the company.
RiverPark Advisors made the following comment about Apple Inc. (NASDAQ:AAPL) in its Q3 2023 investor letter:
“Apple Inc. (NASDAQ:AAPL): Apple shares were a top detractor in the quarter following reports of the Chinese government banning iPhone use by government employees. Additionally, while the iPhone 15 rollout went generally as expected, the market was underwhelmed by the upgrades in the new phone. Despite these overhangs, early reports from the supply chain seem to indicate demand for the new phone is in line with or better than investor expectations. In August, the company reported a broadly in-line fiscal 3Q23 with $82 billion of revenue and $24 billion of free cash flow. High margin Services Revenue continues to grow faster than the overall business leading to gross and operating margin expansion.
With an installed base of 2 billion active devices and significant growth of the company’s recurring revenue Services segment (now 18% of revenue), we believe that Apple remains one of the most innovative, best positioned and most profitable companies in the mobile technology industry.”
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Disclosure: None. 10 Best Stocks to Buy on the Dip for Long Term is originally published on Insider Monkey.
