We recently compiled a list of the 14 Best Consulting Stocks to Buy Now. In this article, we are going to take a look at where Forrester Research, Inc. (NASDAQ:FORR) stands against the other consulting stocks.
After the market rebounded in 2021 post-pandemic, the US consulting industry now faces a complex and uncertain landscape. Rising inflation, increased costs, talent shortages, and supply chain disruptions amid a volatile geopolitical climate are challenging the sector. Despite these hurdles, 66% of clients plan to increase their use of consultants over the next year. However, clients are becoming more cautious, opting for smaller, tactical projects to address immediate issues rather than engaging in lengthy, expensive transformation initiatives. This approach allows them to assess the impact of their investments before committing further. According to the 2023 report by Source Global Research, consulting firms must now deliver results within tighter timeframes amid heightened competition for smaller, sequential project components. Clients are increasingly seeking innovative and data-driven solutions, reflecting a desire for new and novel approaches throughout the project lifecycle. This shift highlights the need for consulting firms to adapt and excel in an environment where macroeconomic challenges have dampened post-pandemic optimism.
In 2021, the US experienced significant growth as clients invested in growth initiatives, buoyed by optimism and capital following the pandemic. However, by the end of 2022, the mood shifted due to rising inflation, energy prices, and political tensions, which hindered business operations and growth opportunities. Clients remain cautious, anticipating a potential global recession. Nevertheless, some clients remain hopeful, with around a third believing that current macroeconomic factors could positively impact their organizations. With technology being a top priority for clients, it’s no surprise that technology firms are leading the market. Clients are investing heavily in technology, which translates into significant consulting spend. Over the past year, two of the top three consulting areas were technology-related: 77% of clients invested in technology strategy and 71% in technology implementation. Productivity improvement, which often involves technology, ranked second at 73%. Although the market is crowded, technology firms are benefiting the most. Clients prefer these firms for their specialized technology solutions, which they believe offer more reliable outcomes compared to other providers, even if it means higher costs.
Uncertainty in the global economy is causing significant disruption in the US consulting industry, with firms dealing with project cancellations and clients pushing for lower fees, reported Financial Times. The report by Source Global Research highlights a major reassessment of consultants by US clients due to economic concerns. Over 75% of professional services buyers have cancelled or scrapped projects, and two-thirds have paused most existing work. The report forecasts 11% revenue growth in 2023, consistent with 2022, but notes increasing pressure on consultants’ fees, with clients now expecting lower rates compared to before the pandemic. Clients are more focused on getting value for money, with only about 50% believing firms provide value above their fees. Areas such as cybersecurity, HR consulting, and M&A for private equity firms are experiencing slowdowns. While IT consulting remains strong, it is targeted at projects that deliver quick financial benefits. The decline in hiring, initially observed in the Big Four accounting and consulting firms, has extended to smaller players as well. According to a survey by investment bank William Blair, job postings by US specialty consultants were down 57% in June 2023 compared to the previous year and have fallen below pre-pandemic levels. At the Big Four, job postings have decreased by 80% year-on-year.
There is one long-term trend that we haven’t talked yet affecting consulting firms positively. The rise of generative AI, a powerful new technology that can create realistic text and images, has sparked a gold rush for consulting firms. Companies like Reckitt Benckiser, unsure of how to leverage this technology, are turning to consultants for guidance. This has led to a surge in revenue for these firms, with some like McKinsey seeing 40% of their business coming from AI-related work. Consulting firms are among the early winners of the AI revolution which is why we believe this may be a good time to invest in consulting stocks. However, our conviction lies in the belief that some 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 consulting companies but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Our Methodology
We leveraged Insider Monkey’s comprehensive database of 920 prominent hedge funds to identify the top 14 consulting stocks with the highest level of hedge fund investment as of Q1 2024. These stocks are listed in order of increasing hedge fund ownership, providing insight into the most popular consulting stocks among elite investors.
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Forrester Research, Inc. (NASDAQ:FORR)
Number of Hedge Fund Holders: 16
Forrester Research, Inc. (NASDAQ:FORR) is an independent research and advisory company headquartered in Cambridge, Massachusetts. It operates in three segments: Research, Consulting, and Events. The company provides business and technology leaders with research services, consulting projects, and hosts events to foster growth through customer obsession. In a recent development, on July 22, Forrester Research, Inc. (NASDAQ:FORR) added Bob Bennett to its board, expanding it to nine members. Bennett, an experienced tech entrepreneur, joins following Cory Munchbach’s recent appointment and ahead of Gretchen Teichgraeber’s retirement in May. Despite economic challenges, Forrester Research, Inc. (NASDAQ:FORR) is confident in its strategy, forecasting revenue between $430 million and $450 million for 2024 and continuing investment in generative AI with the launch of its tool, Izola.
The number of hedge funds in Insider Monkey’s database owning stakes in Forrester Research, Inc. (NASDAQ:FORR) grew to 16 in Q1 2024, from 12 in the preceding quarter. The consolidated value of these stakes is nearly $0.09 billion. Among these hedge funds, Chuck Royce’s Royce & Associates was the company’s leading stakeholder in Q1.
Meridian Small Cap Growth Fund stated the following regarding Forrester Research, Inc. (NASDAQ:FORR) in its first quarter 2024 investor letter:
“Forrester Research, Inc. (NASDAQ:FORR) is an independent market research and consulting firm widely known for its publications and insights on topics such as cloud migration, AI, cybersecurity, and customer experience. We like the business for its potential to generate high margins through a sticky, subscription-based revenue model. The company acquired SiriusDecisions in 2019, expanding its expertise beyond its customer base. Over the last few years, however, the company implemented several changes that negatively impacted results. First, they migrated the product away from their legacy strengths and pushed customers to switch to a combined offering. These changes had the unintended consequence of forcing customers to reconsider their overall research spend and, in some cases, consolidate and reduce spending, causing a negative impact on revenue. Second, the company underwent a salesforce transition to target decision-makers higher up in the organization with its expanded offering. The stock declined during the quarter as new sales and revenue weakened through the transition. We believe that the market has been short[1]sighted and overly punitive. The company currently trades at an attractive valuation and, with an upgraded salesforce aligned with broadened capabilities, is well-positioned to improve results into 2025. We maintained our position in the company during the quarter.”
Overall FORR ranks 12th on our list of the best consulting stocks to buy. You can visit 14 Best Consulting Stocks to Buy Now to see the other consulting stocks that are on hedge funds’ radar. While we acknowledge the potential of FORR as an investment, our conviction lies in the belief that some 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 FORR 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.