We recently compiled a list of Goldman Sachs Mutual Fund Managers’ Favorite Stocks: Top 20 Stocks. In this article, we’ll take a look at where CrowdStrike Holdings (NASDAQ:CRWD) ranks among the list of stocks that mutual funds are buying, according to Goldman Sachs.
As we enter the fourth quarter of 2024, the market is back to the debate about the Federal Reserve’s interest rate cuts. In late September, Wall Street received some much-needed optimism after the Federal Reserve began a cycle of 50 basis point (bp) rate cuts. Since the day of the rate cut and the end of September, the main S&P index and Nasdaq Composite Index have risen 2.6% and 3.5%, respectively.
However, in early October, the jitters and recession fears that have plagued investors since the start of the rate hike cycle resurfaced. In response to labor market data from the Department of Labor’s JOLTS survey showing non-farm employment in the U.S. market increasing by 254,000 people and total employment increasing by 8.04 million, the S&P and Nasdaq rose 1.1% to 1. ．It fell by 5%. Both of these announcements exceeded economists’ expectations and led to a selloff in the market as investors priced in a 50 basis point interest rate cut at the next Federal Reserve meeting.
The recent decline despite a strong labor market shows that investors expect nothing less than a perfectly balanced data set. That’s because seven Magnificent stocks, which typically rely on strong discretionary and corporate spending, lost $800 billion in market value in August as unemployment soared. In July, it was 4.3%, the highest since September 2021.
But even though markets pared their gains in October, the fact remains that declines due to a strong labor market are still better than declines due to a weak market. The former scenario promises a solid economic outlook. On the heels of new labor data that sparked fears in October, investment bank Goldman Sachs further laid out its 2024 target for the benchmark S&P index. The bank currently expects the S&P to end 2024 at 6,000 points, significantly higher than its initial 2024 target of 4,722 points, and its latest forecast so far This is the fourth revision of the target. The first revision saw further upside as the bank raised its 2024 S&P closing forecast to 5,100 points in late 2023, and two subsequent revisions saw the index finish at 5,200 and 5,600 points. .
With the latest revision, we expect the index to close at 6,000 points, which would be a 4.3% increase compared to its recent close of 5,751 points. This builds on the bank’s optimism for the third-quarter earnings cycle, as the index revision was followed by an upward revision to earnings. Looking to earnings, Goldman believes S&P’s earnings per share in 2025 will remain at $268. This is a 4.7% upward revision from the bank’s previous forecast of $256, and assumes next year’s profit will be 11.2% higher than the 2024 profit forecast of $241. This is not the only growth forecast in the bank’s latest market outlook, as the report also introduces a 2026 S&P profit target. In 2026, S&P will post earnings per share of $288, or a 7.4% mark, according to Goldman. The annual growth rate was strong, with a significant 19.5% growth compared to this year’s revenue.
For a market that first suffered from recession fears in August and is now recalibrating its expectations for a rate-cutting cycle, it’s important to see what’s driving the bank’s optimism. Analysts led by chief U.S. equity strategist David Kostman are increasingly optimistic on the back of strong economic performance. Kostin said in the note that the company’s “forward EPS expectations reflect a stable macro outlook.” He added, “The main factor behind the upward revision to our 2025 EPS forecast is the significant profit expansion.” This is because “the macro environment remains conducive to modest profit growth, with prices being charged in excess of input cost growth.” As you might expect, this backdrop is driven by bullish expectations for the US economy. Costin said the 2025 EPS forecast is based on Goldman’s assumption that “sales will increase 5%, roughly in line with nominal GDP growth (previously 4%).”
But despite their optimism, analysts are also wary of short-term turmoil in the stock market. October is the last month before the hotly contested US presidential election, and investors are also worried about continued hostilities in the Middle East. As a result, Kostin said, with an election looming and the mutual fund fiscal year ending Oct. 31, “everybody’s in the pool,” leading to a drop in stock prices as major companies shuffle positions. He warns that there may be some changes. As an example of the volatility the market is currently facing, the analyst notes that the Chicago Stock Exchange’s CBOE Volatility Index has risen 30% in the past five business days, showing that “volatility is no longer on the sidelines.” He points out. It’s the players on the field. ”
Speaking of investment trusts, this year has been pretty strong. As part of our coverage of Goldman Sachs’ Top Fund Manager Stock Picks: 25 Best Overweight Stocks, we took a quick look at mutual fund performance. This revealed that 64% of actively managed mutual funds outperformed their benchmark in the first quarter, the best performance in 17 years, according to BofA. This was also a significant improvement over last year’s performance, when 38% of these funds outperformed their benchmark.
The Fed’s rate cut also means hedge funds have changed their positions. Financial services companies and banks, in particular, will benefit from lower interest rates as their deposit costs will fall and they will be able to earn more profit by maintaining existing interest rates. As a result, in the week before the Fed rate cut, hedge funds bought banking and financial services stocks at the fastest pace since 2023, according to Goldman. This is in line with what UBS Wealth Management’s Brad Bernstein shared in his comments after the rate cut. He explained that lower interest rates become financially attractive because of “improving balance sheet yield curves and what that means for the ability to make high-interest loans and cash savings at low rates.” .
our methodology
For our list of top Goldman Sachs stocks popular with mutual fund managers, we used Goldman Sachs Bank’s list of 20 Russell 1000 stocks where mutual fund managers expanded their positions in Q2 2024 . Stocks are ranked by number of funds. This is a comparison of companies that increased their portfolio allocations and companies that decreased their portfolio allocations.
We also mentioned the number of hedge fund investors in these stocks. Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points. (Click here for details).
Investor confidently checking stock market fluctuations on laptop computer.
CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of mutual funds: 16
Number of hedge fund investors in Q2 2024: 69
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a cybersecurity company that’s been in the news for all the wrong reasons in 2024. A flawed software update issued by the company in July left about 8.5 million computers inoperable worldwide. The impact was far-reaching, with airlines and other businesses unable to serve their customers. As a result, the thesis for CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has shifted to how the fallout will affect the company’s growth and whether customer churn will occur. The failure sent CrowdStrike Holdings (NASDAQ:CRWD) stock down 42% in July, but the company appears to be on the mend, with shares up 33% since bottoming in early August. is. Additionally, investors are paying attention to how the company’s management thinks about current customer sentiment. A TD Cowen analyst note released in October provided insight in this regard. After maintaining a buy target and $38 rating on the stock, the analyst said, “Given the mission criticality of the Falcon EDR platform product (over 29,000 customers, deployed in 70 customers), MSFT expects CRWD to be “It is unlikely that they would block access to telemetry data.” % of Fortune 100). However, they cautioned that CrowdStrike Holdings (NASDAQ:CRWD) will need at least two quarters to gain insight into the ill-fated Falcon Systems customer contract renewal, adding, “We understand what it takes to quantify it.” Management needs two more quarters of patience to fully understand its pipeline. ”
Baron Funds mentioned CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q2 2024 investor letter. The fund says:
“CrowdStrike Holdings, Inc. is a cloud-designed SaaS cybersecurity vendor that provides endpoint security, threat intelligence, and cyber attack response services.The stock continued to perform well in the first quarter and is in line with its broader security peers. The company rose 19.5% in the second quarter due to better execution and was once again the top contributor as customers consolidated their cybersecurity spend with CrowdStrike, resulting in free cash flow margins of 35%. reported strong quarterly results with 33% year-over-year revenue growth, driven by accelerated market share gains in core endpoint detection and response products, and emerging products such as cloud, identity, and SIEM. We expect our net new annual recurring revenue and total revenue to remain strong as we reach scale and rapidly adopt new products in data protection and AI. , the growing threat landscape (advances in AI are making hackers more dangerous), our unique lightweight single-agent architecture, and our platform approach continue to give us confidence in CrowdStrike. , is emerging as a winning security platform in terms of free cash flow conversion.”
According to Goldman Sachs, CRWD ranks 20th overall on the list of mutual fund managers’ favorite stocks. While we acknowledge CRWD’s potential as an investment, we believe some AI stocks are more likely to deliver higher returns and do so in a shorter time frame. If you’re looking for AI stocks that are more promising than CRWD but are trading at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article originally appeared on Insider Monkey. All investment decisions should be made after consulting a qualified professional.
