We recently compiled a list of the 10 most promising growth stocks by hedge funds. In this article, we’ll take a look at how Tesla Inc. (NASDAQ:TSLA) stands compared to some of the other most promising growth stocks from hedge funds.
Bull market and investor psychology
Investors were worried about the start of a bull market, and the S&P 500 confirmed that earlier this year. The bull market continued to push markets to new all-time highs, supporting overall sales and profit growth.
Going further, the upward momentum appears to have peaked, with market indexes hitting record highs. It was widely expected that stock prices would soar once the Fed lowered interest rates to support the struggling economy, but that hasn’t been the case.
Also read: David Einhorn Stock Portfolio: Top 10 Stocks to Buy and 7 Best Nanotech Penny Stocks to Buy.
As the global economy faces a number of challenges, it is becoming increasingly clear that investors are becoming more sensitive to growth concerns. Topping the list is rising geopolitical tensions in the Middle East, threatening to disrupt supply chain networks. Rising energy prices due to the escalation of all-out war could lead to higher inflation, making markets nervous.
Analysts at UBS have already warned investors against leaning too heavily into defensive stocks as global economic growth slows due to deteriorating fundamentals. Although UBS does not foresee a deep recession, the bank is cautious and advises clients to focus on key sectors such as utilities and pharmaceuticals, which consistently outperform during recessions.
Geopolitical tensions and concerns about a global economic slowdown are causing investors to increasingly turn to defensive strategies, but Morgan Stanley Investment Management’s Andrew Slimmon says he disagrees with them. Recommended.
“Right now it’s just a time to be careful. Don’t go after a defense that’s working because I think once you get into the fourth quarter, it’s not going to work,” the portfolio manager told CNBC’s “The Exchange.”
“While we expect volatility to continue in October, we do not believe the overall market trend is bearish,” Robert Slimer, technical strategist at RBC Wealth Management, said in a letter to clients. “We encourage investors to maintain perspective on long-term trends.” .
This sentiment reflects the need to focus on high-growth companies. Investors who diversify their portfolios into high-growth companies can ultimately reap large profits, no matter how much the stock price rises or falls in the short term.
story continues
Analysts predict that the S&P 500 stocks will grow at an average annual EPS rate of 8.5% over the next five years. On the other hand, the best growth stocks are poised to outperform this benchmark by a factor of 2-3, or even more.
First, companies exposed to the spectacle of artificial intelligence and those leveraging the technology continue to experience record revenue and revenue growth, and as a result dominate most hedge fund portfolios. Additionally, hedge funds say the most promising growth stocks are those whose core businesses will be positively impacted by increased consumer purchasing power. As the Fed guides the economy to a soft landing, consumer buying confidence is expected to improve, benefiting cyclical stocks. Additionally, a rate cut would likely benefit growth and tech stocks as well.
Although market fluctuations are inevitable, the secret to the success of growth stocks lies in the strength of their core business. Regardless of whether stock prices rise or fall in the short term, investing consistently in competitive, solid businesses can ultimately reap great rewards.
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our methodology
To create our list of the most promising hedge fund growth stocks, we scoured ETFs and online rankings to find 30 popular growth stocks. We then selected the 10 stocks most widely held by hedge funds as of Q2 2024. Finally, we ranked the stocks by the number of hedge funds that own them.
Here at Insider Monkey we’re obsessed with hedge fund stocks. 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 percentage points (Learn more ).
Tesla Inc. (NASDAQ:TSLA)
Number of hedge fund holders: 85 people
Tesla Inc. (NASDAQ:TSLA) stands out as one of the most promising growth stocks according to hedge funds, as it is not only an automaker but also an investment business in artificial intelligence and robotics. Although the company derives most of its revenue from electric vehicle sales, it also boasts a lucrative energy storage business that is expected to create long-term value.
Tesla Inc. (NASDAQ:TSLA) has long been known for its strong growth, driven by strong demand for its premium self-driving electric vehicles. Additionally, the company’s high-end pricing and production cost advantages have consistently driven significant revenue growth.
However, in recent years, this positive environment has changed. Rising interest rates are making it more expensive for buyers to purchase Tesla cars, as monthly payments increase. As a result, the company’s revenue base took a hit.
The company is already looking to diversify its revenue base as it struggles to sell more electric vehicles than before. The company has already strengthened its energy storage business, which is expected to become a major source of revenue.
Since its introduction in 2014, Tesla Inc. (NASDAQ:TSLA) has offered Autopilot and its advanced fully self-driving (FSD) capabilities, which require human supervision for autonomous driving since 2020.
Independent estimates put the adoption rate at 2%, but Elon Musk said it was “pretty high.” FSD’s goal is to eventually collect more self-driving cars. Tesla customers will own these vehicles, giving the company a way to generate reliable subscription revenue. Wall Street analysts have given the stock an average Buy rating and an average price target of $207.83, suggesting an upside potential of 15.32% from current levels.
A total of 85 hedge funds were long Tesla Inc. (NASDAQ:TSLA) during the second quarter, with a total value of $4.9 billion.
ClearBridge Small Cap Value Strategy says this about Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) manufactures electric vehicles, related software and components, and solar power and energy storage products. The stock price benefited from the company’s significant investment in profitable AI initiatives.Shareholders reaffirmed CEO compensation plans and reduced major personnel and legal uncertainties. Despite significant operational complexities that resulted in significant shutdowns of manufacturing facilities and reduced sales volumes, Tesla delivered better-than-expected profit margins in the quarter, with lower costs as early as late 2024. The company plans to launch new models, which should result in faster revenue growth, lower manufacturing costs, and higher factory utilization.The company continues to advance its autonomous driving capabilities and expand its already significant data centers. and developed the humanoid robot Optimus. These investments strengthen our confidence that there will continue to be attractive growth opportunities.”
Overall, TSLA ranks #9 on hedge funds’ list of the 10 Most Promising Growth Stocks. While we appreciate TSLA’s potential as an investment, we believe AI stocks are more likely to deliver higher returns in a shorter time frame. If you’re looking for more promising AI stocks than TSLA, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article was originally published on Insider Monkey.
