In this article, we will be taking a look at the 10 most promising growth stocks according to hedge funds.
Bull Market and Investor Sentiment
Investors had been anxiously anticipating the start of a bull market, which the S&P 500 confirmed earlier this year. The bull run has seen the market continue to rise to new record highs, supporting revenue and earnings growth across the board.
Fast forward, the upward momentum appears to have peaked, with market indices at record highs. While it was highly expected that stocks would explode on the Federal Reserve offering support to a struggling economy with interest rate cuts, that has not been the case.
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It’s become increasingly clear that investors have become more sensitive to growth scares as the global economy faces many issues. Top on the list is the rising geopolitical tensions in the Middle East that threaten to disrupt supply chain networks. Energy prices rising owing to the escalation of a full-blown war could trigger higher inflation, something that is unsettling the markets.
Analysts at UBS are already warning investors that they should get overweight on defensive names as global growth slows at the back of deteriorating fundamentals. While UBS doesn’t anticipate a severe downturn, the bank is cautious, advising its clients to focus on important sectors like utilities and pharmaceuticals, which always outperform in a downturn.
While investors are increasingly rotating into defensive plays amid concerns about geopolitical tensions and the slowing global economy, Morgan Stanley Investment Management’s Andrew Slimmon recommends against this strategy.
“Now is the time to just be cautious. Don’t chase the defensives that are working because I think when we get to the fourth quarter, that won’t work,” the portfolio manager told CNBC’s “The Exchange.
“While our expectation is for October to remain choppy, we don’t view the overall market action to be bearish and encourage investors to maintain perspective on the longer-term trends,” Robert Sluymer, technical strategist at RBC Wealth Management, wrote to clients.
The sentiments echo the need to focus on high-growth companies. Investors who diversify their portfolio into high-growth companies eventually earn great returns regardless of how much a stock rises or falls in the short term.
Analysts project that S&P 500 stocks will grow at a median annual EPS rate of 8.5% over the next five years. On the other hand, the best growth stocks are well poised to outperform this benchmark by a factor of two to three or more.
For starters, companies exposed to artificial intelligence spectacles or those leveraging technology continue to deliver record earnings and revenue growth, thus dominating most hedge fund portfolios. Additionally, the most promising growth stocks, according to hedge funds, are those whose core business would be positively…