We recently compiled a list of the 7 Best Buy-the-Dip Stocks to Invest In. In this article, we are going to take a look at Airbnb, Inc. (NASDAQ:ABNB) against the other buy-the-dip stocks.
It’s every investor’s goal to buy a stock well poised to beat the average return of market indexes. However, with valuations getting out of hand after one of the longest bull runs, very few stocks offer significant upside potential. Nevertheless, some stocks have been battered by deteriorating economic conditions fueled by higher for longer rates.
While it might seem too late to buy stocks with major indices led by the Nasdaq 100 and S&P 500 flirting with record highs, there are still stocks that have been left out from the rallies. Buying the dip is a proven strategy for risk-tolerant investors who are always looking to take action during market downturns.
READ ALSO: 7 Best Beaten Down Stocks to Invest In and Billionaire Carl Icahn’s Top 10 Stocks.
The strategy allows one to buy low when fear has taken over after a deep pullback. It is particularly an effective investment strategy for long-term investors looking to hold stakes in quality stocks for the long haul.
As depicted by the Institute for Supply Management, manufacturing production in the biggest economy slowing down in August is the latest sign that all is not well. Disappointing data with ISM dropping to 47.2 from 48 is the latest sign of slowing growth within the US economy.
According to Larry Tentarelli, chief technical strategist at the Blue Chip Trend Report, the market is expected to be choppy and volatile as it has become data-dependent. Consequently, now would be the best time to be highly cautious, focusing on high-value targets trading at discounted valuations.
On the other hand, Fundstrat’s head of strategy, Mark Newton, believes the market is flashing a handful of signs that there is more upside on the way even as the major indices remain at record highs. According to the analyst, any tech-driven stock pullback presents an ideal buy opportunity on the dip. According to the equity analyst, looking to buy dips makes sense technically, especially for small-cap stocks that look appealing after their recent slide.
The deep pullback in some stocks amid growing concerns about the health of the US economy presents one of the best opportunities to buy the dip of quality stocks trading at discounted valuations. Growth stocks are some of the best, given their track record in outperforming the market.
Certain high-value stocks that have traditionally been steady have recently suffered due to a mix of increasing inflation and high interest rates. In a similar vein, in 2024, there was a shift among investors from big tech firms to smaller, more volatile stocks. Spotting these declines could offer a chance to invest in major companies trading at discounted valuations.
Our Methodology
To make our list of the best buy-the-dip stocks to invest in, we first made a list of stocks in various industries that are trading near their 52-week lows or have pulled back significantly from their 52-week highs. We checked the hedge fund sentiment around 15 stocks with the largest market caps and then selected the 7 stocks that were the most popular among hedge funds. We then ranked the stocks in ascending order based on the number of hedge funds that hold stakes. Our list contains some of the highest quality companies in different industries including mining, energy, consumer staples, retail, aerospace, tech, and more.
At Insider Monkey, we are obsessed with 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).
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Airbnb, Inc. (NASDAQ:ABNB)
52 Week Range: $110.38 – $170.10
Current Share Price: $114.98
Number of Hedge Fund Holders: 63
Market Capitalization as of September 4: $72.71 Billion
Airbnb, Inc. (NASDAQ:ABNB) is a consumer cyclical company that operates a platform that enables hosts to offer stays and experiences to guests worldwide. It connects hosts and guests online or through mobile devices to book spaces and experiences by offering private rooms, primary homes, and vacation homes. Based in San Francisco, California, Airbnb has transformed the travel sector with its distinctive service that enables people to list and reserve places to stay globally.
Airbnb, Inc. (NASDAQ:ABNB) is maneuvering through a challenging environment as it prepares for anticipated increases in bookings for nights and experiences later in the year. These forecasts are made against the context of tougher comparisons year over year. The focus on experiences by the company is particularly noteworthy, with the impact on profit margins being closely observed.
Airbnb, Inc. (NASDAQ:ABNB) delivered another solid second quarter as revenues rose 11% year over year to$2.75 billion. Net profit came in at $555 million, indicating a net profit margin of 20 percent. The Adjusted EBITDA figure climbed by 9%, leading to an EBITDA Margin of 33 percent. During the quarter, the company produced $1 billion in Free Cash Flow (FCF), taking its total free cash flow to $4.3 billion, a record high.
The strong cash flow allows the company to return value to shareholders by the $749 million spent on buybacks in the quarter. Additionally, the remarkable gross profit margin of 82.86% is a point of interest for investors, highlighting Airbnb’s success in keeping a large share of its earnings as gross profit.
Airbnb, Inc. (NASDAQ:ABNB)’s careful management of finances, evidenced by its higher cash reserves compared to its liabilities on its financial statement and its liquid assets surpassing its immediate financial commitments, points to robust financial health.
In the second quarter of 2024, 63 hedge funds invested in Airbnb, Inc. (NASDAQ:ABNB), with positions worth $2.62 billion. As of June 30, 2024, the company’s biggest shareholder is Renaissance Technologies, and the firm has a position worth $$515.76 million.
Here is what Polen Capital, an investment management company, said about Airbnb, Inc. (NASDAQ:ABNB) in its first-quarter 2024 investor letter:
“During the quarter, we initiated new positions in Sage Group and Airbnb, Inc. (NASDAQ:ABNB) and added to our existing position in Globant.
Airbnb is a great business model, according to our research, due to its two-sided global network effects. For several reasons, Airbnb has a better mousetrap with its supply growth engine, with its hosts having a far lower cost of capital and more flexibility than hotels. We think private rentals should continue to grow their share of overall accommodation stays, potentially up to 30% of lodging or higher over the long term, letting the private rental gross booking value grow at a low double-digit rate. We also think Airbnb should continue to gain share within the private rental market as its global network effects strengthen, allowing for mid-teens revenue growth. With flat to rising margins over time, significant free cash flow generation, and a management team that has demonstrated its owner orientation, this should result in high-teens EPS growth over time. While the path there will not be linear, and it is a more discretionary spending-tied business, we think the long-term secular growth opportunity is very compelling.”
Overall ABNB ranks 1st in our list of the buy-the-dip stocks to invest in. While we acknowledge the potential of ABNB 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 timeframe. If you are looking for an AI stock that is more promising than ABNB, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.