We recently compiled a list of the 10 Stocks That Will Bounce Back According To Hedge Funds. In this article, we are going to take a look at where Five Below, Inc. (NASDAQ:FIVE) stands against the other stocks.
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.
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).
A family happily shopping for everyday items in a specialty retail store.
Five Below, Inc. (NASDAQ:FIVE)
Year-To-Date Loss: 51.77%
Number of Hedge Fund Investors In Q3 2024: 36
Five Below, Inc. (NASDAQ:FIVE) is a mid-sized American retailer headquartered in Philadelphia, Pennsylvania. The firm sells a wide variety of products ranging from apparel to beauty products, board games, and consumer technology accessories. Five Below, Inc. (NASDAQ:FIVE) benefits from some diversification in its revenue base. For the 39 weeks ending on November 2nd, 45% of the firm’s revenue came through leisure products while the remainder was accounted for by fashion, seasonal, and other products. Like any retailer, Five Below, Inc. (NASDAQ:FIVE) depends on high volumes for robust margins and same-store sales for market penetration. Additionally, the firm is reliant on consumer spending strengths, which have played a large role in its 52% year-to-date share price drop.
Polen Capital mentioned Five Below, Inc. (NASDAQ:FIVE) in its Q3 2024 investor letter. Here is what the fund said:
“We exited our position in Five Below, Inc. (NASDAQ:FIVE), the dollar store concept for tweens and teens. The business has struggled fundamentally with weaker consumer spending and lower margins, partially due to a problem with shrink (shoplifting). While many companies struggle with elevated shrink, Five Below’s problems were compounded by. a large investment in self-checkout, which made matters worse. The issue was in the process of being fixed, but the company was further hampered by growing pressure on consumers. We believe these issues may prove temporary but were surprised when the CEO was terminated. For now, we prefer to wait on the sidelines to ensure we fully understand the extent of the issues and how the CEO transition plays out.”
Overall FIVE ranks 5th on our list of the stocks that will bounce back according to hedge funds. While we acknowledge the potential of FIVE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FIVE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.