We recently compiled a list of the 10 Most Promising Mid-Cap Stocks According to Hedge Funds. In this article, we are going to take a look at where Tempur Sealy International, Inc. (NYSE:TPX) stands against the other promising mid-cap stocks.
The S&P 500 May Hit 6,000 in 2024
September closed on a high note, opening a wealth of opportunities for investors. On October 1, Jay Woods, Freedom Capital Markets Chief Global Strategist, appeared in an interview on Yahoo Finance to discuss his predictions for the market.
Woods shares his anticipation for the elections and that the market will take its due course once the elections are over. He believes the technology sector is poised to strengthen as the market rotates from sector to sector. Nvidia, Apple, and Microsoft are currently 15%, 5%, and 8% off their highs and a strong tailwind may be in store for us.
September was stronger than expected and 19 out of 21 times the market hit a high during the month in the past, the market has gone way higher in the following months, or the fourth quarter. Woods reiterated that the setup for a strong comeback is there, especially with elections, and that rotational trade will continue.
Speaking of employment data, Woods suggests that the market has particularly been overreacting to data points and that anything jittery will adversely impact investor confidence. He predicts the unemployment rate to sit at 4.2% and hints that a percentage higher than this will lead to more discussions on bigger rate cuts. He advises that investors need to start blocking out some of these headlines and focus on how stocks have performed in the third quarter of 2024.
The Job Market is Extremely Crucial
On September 30, Matt Stucky, Northwestern Mutual Wealth Management’s chief portfolio manager for equities, appeared in an interview on Yahoo Finance to discuss his market thesis.
According to Stucky, the job market is extremely crucial and investors must focus on that. Since the beginning of 2024, employment data has been consistently declining to the point it may hint at a weakening economy.
On the flip side, the third quarter stood out. The third quarter of 2024 saw the market broaden to sectors other than tech. Five out of seven sectors on the S&P 500 experienced tremendous earnings growth, compared to only two in the second quarter of the same year.
As the market broadens, he expects the market to post earnings growth between 9% to 10% this year and 14% to 15% for the next year. Stucky’s expectations are rather optimistic and believes the economy will head to a soft landing. He also expects the average investor to be more inclined to stocks that have consistent high margin growth in 2025 and ahead. For this year, however, Stucky believes that the defensive sector, especially utilities, remained the strongest.
While the financial markets may remain uncertain, investors may look for cheaper and less-risky investments. That said, let’s look at some of the most promising mid-cap stocks according to hedge funds.
Our Methodology
To find the most promising mid-cap stocks according to hedge funds, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders 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).
A satisfied customer sleeping on a comfortable bed, bedding products laid out on the bed.
Tempur Sealy International, Inc. (NYSE:TPX)
Number of Hedge Fund Holders: 56
Market Capitalization as of October 10, 2024: $8.95 Billion
Tempur Sealy International, Inc. (NYSE:TPX) is a mattress manufacturing company headquartered in Kentucky, United States. The bedding provider designs, develops, and manufactures mattresses, adjustable bases, pillows, and other relaxation products. Some of its prominent brands include Tempur, Tempur-Pedic, Cocoon by Sealy, and Stearns & Foster.
The company is committed to delivering solutions to people from across the globe, positioning itself as one of the world leaders in comfort and relaxation. In the second quarter of 2024, the company logged $1.23 billion in sales, down by 2.8% from Q2 2023. While the North American business segment declined, the international business segment saw consistent performance. Despite a slight decline in sales, the company had a gross margin of 44.9%, up from 42.7% in Q2 2023.
In the second quarter, Tempur Sealy International, Inc. (NYSE:TPX) shared its plans to acquire Mattress Firm Group. The acquisition is expected to close in the coming months after important hearings in November. The proposed acquisition with Mattress Firm led to an agreement with Mattress Warehouse for the sale of 73 Mattress Firm retail locations and the company’s Sleep Outfitters subsidiary, which has 103 specialty mattress retail locations and seven distribution centers. Once the deal is closed, Tempur Sealy International, Inc. (NYSE:TPX) will have over 2,800 functional retail locations across the globe and sales from the North American region will come primarily from Mattress Firm. Following the transaction, the company is expected to realize annual run-rate synergies of $100 million by the end of year four.
Overall, the transaction seems to be the missing piece for Tempur Sealy International, Inc. (NYSE:TPX). A decline in sales from the North American region may be offset if the transaction comes through, establishing TPX as a global leader in mattresses and bedding solutions.
The London Company stated the following regarding Tempur Sealy International, Inc. (NYSE:TPX) in its Q2 2024 investor letter:
“Tempur Sealy International, Inc. (NYSE:TPX) – TPX is the leader in the mattress industry. Mattress volume has stabilized in recent months. Stable volume along with pricing gains have led to higher revenue for TPX. In 2023, the company announced plans to acquire Mattress Firm, which has the potential to be materially accretive and strengthen the company’s overall competitive position. Valuation remains attractive, and TPX’s robust free cash flow generation, strong brand equity, and solid management execution support our investment thesis. We have owned the stock for many years in our Small Cap portfolio.”
Overall TPX ranks 5th among the most promising mid-cap stocks according to hedge funds. While we acknowledge the potential of TPX 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 time frame. If you are looking for an AI stock that is more promising than TPX 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.
