We recently compiled a list of the 12 Best Large Cap Stocks To Buy Now. In this article, we will look at where Micron Technology Inc. (NASDAQ:MU) ranks among the best large cap stocks to buy now.
Is the Next Bull Cycle Picking Up?
Analysts’ anticipation about the Fed initiating three rate cuts of 25 basis points each, starting in September, has become a hot topic in the current market. While some economic indicators show resilience, recent market fluctuations have raised concerns about deeper rate cuts being overestimated. Yet, a recession appears unlikely, and the steady economic growth suggests a cautious but positive outlook for the markets.
But the question is: why is a recession even being talked about? We discussed this earlier in another one of our articles, 12 Best Small Cap Tech Stocks to Buy, here’s an excerpt from it:
“Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.”
Binky Chadha, Deutsche Bank’s chief global strategist, joined CNBC last week to discuss what’s next for stocks, given the US elections — particularly the typical pullback seen in the month leading up to closely contested races, where markets often decline by 4% to 5%.
Chadha thinks that this trend, driven by uncertainty, prompts investors to seek protection against volatility, leading to a dip in stock prices. This decline usually hits its lowest point on election day, followed by a substantial rally if the election outcome is clear and resolves uncertainty. Historical instances, such as the Bush/Gore election, show that unresolved outcomes can exacerbate volatility, as seen with further market declines during that period.
Understanding market trends about elections is crucial, as delays can significantly impact investor confidence and overall market behavior. The current market is led by a significant rally in the S&P 500, reaching record highs despite challenges like high interest rates and geopolitical tensions. While election years typically see market weakness, the incumbency of both major party nominees may reduce uncertainty this cycle. However, potential volatility remains as the election approaches and corporate earnings are closely examined against high expectations, according to Chadha.
Chadha further talked about the Bush/Gore election and when a Supreme Court resolution seemed imminent, the market rallied. However, this was followed by a continued market decline. While relying on a single instance for broader conclusions is not ideal, this case reflects general market behavior. It’s important to recognize the prevailing positive trend, despite experiencing two pullbacks.
Chadha said that while the S&P 500 has shown unusual recovery dynamics, peaking with 26% year-on-year sales growth, this growth has slowed unsustainably over the past 2 years. As sales growth decelerates, concerns about potential downturns rise, leading to increased inquiries about negative sales growth in the S&P 500.
While Chadha acknowledges that S&P 500 sales growth has returned to pre-pandemic levels, implying stability, there’s also a decline in the labor market, particularly in private payrolls over the past 7 months. Such a mixed sentiment should be given into and used as a buying opportunity. With that, we’re bringing you a list of the 12 best large-cap stocks to buy now.
Methodology
For this article, we have defined large cap stocks as those trading between $20 billion and $200 billion. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in 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).
Micron Technology Inc. (NASDAQ:MU)
Market Capitalization as of September 13: $100.41 billion
Number of Hedge Fund Holders: 120
Micron Technology Inc. (NASDAQ:MU) produces computer memory and computer data storage including dynamic random-access memory, flash memory, and USB flash drives. Its products are used in a range of devices, including smartphones, tablets, laptops, and servers. It is a major player in the memory market and is known for its technological advancements.
In the fiscal third quarter of 2024, the company generated revenue of $6.8 billion, versus the $3.7 billion figure from the same period a year ago, jumping by ~82% in a year. There’s robust AI demand, which is the primary factor for this revenue growth. Despite a strong FQ3 2024, the company may be struggling due to an inventory glut from last year, which is also why last year’s financials are significantly lower than this year’s. The company is heavily investing in high bandwidth memory production that is expected to generate billions in sales by fiscal 2025 compared with just hundreds of millions in 2024.
Micron Technology Inc. (NASDAQ:MU) is well-positioned to benefit from favorable industry trends in the smartphone, personal computer, and data center sectors. That’s why 120 hedge funds hold stakes in the company as of June 30. The largest position is at $928.5 million by Citadel Investment Group.
Investors recognize that Micron’s current struggles stem from its significant capital expenditures aimed at expanding manufacturing capacity. In FQ3, the company invested $2.06 billion in capital expenditures. However, the company sees that these investments are expected to drive growth in the future, especially as it is making these investments at a strategic time with support from the US government to enhance its domestic semiconductor manufacturing capabilities.
Fueled by strong AI demand, the company is well-equipped to benefit from the rebound in memory prices and favorable inventory balances, making it a compelling large-cap stock to buy now.
ClearBridge Value Equity Strategy stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
Overall MU ranks 2nd on our list of the best large cap stocks to buy. While we acknowledge the potential of MU as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MU 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 was originally published on Insider Monkey.