We recently compiled a list of 10 Best Young Stocks To Buy Now. In this article, we will look at where GE Healthcare Technologies Inc. (NASDAQ:GEHC) ranks among the best young stocks to buy now.
Market Uncertainty to Remain Until Elections
A broader market trend observed ever since the Fed announced its September cut rate has been the volatility in the performance of small-caps. However, despite the continuous positive momentum, small-caps have not kept pace with more speculative assets, which experienced significant growth. This trend raises questions about potential implications for monetary policy and its impact on productive economic activities.
Smaller companies often benefit during periods of profit recovery, particularly when accompanied by supportive monetary policies. The prevailing trend among investors, however, still favors larger companies, even as mega-cap stocks exhibit slower growth and higher valuations compared to their smaller counterparts. Analysts maintain their stance on a balanced approach when it comes to investing in mega-caps, or even small-caps, setting the stage for a closer look at top-performing investments in the current year.
However, Stephanie Link, Chief Investment Strategist and Portfolio Manager at Hightower, recently expressed confidence in a soft landing for the economy despite market volatility, joining CNBC on September 21. This highlights a contrasting perspective amidst market volatility and uncertainty. While there are concerns regarding the performance of small-cap stocks and their ability to keep pace with larger, more speculative assets, Link’s optimism suggests that the economy may stabilize without entering a recession, again encouraging a balanced approach to investing.
Link highlighted the importance of confidence. She believes that the Fed is skillfully guiding the economy towards a soft landing, even amidst the expected market fluctuations before the elections.
Just 3 weeks ago, the S&P 500 had dropped by 4%. Still, it rebounded by 4% the following week. It rose another 1% last week, reaching new highs, and expressed optimism about buying opportunities during any market weakness, citing better-than-expected economic growth driven by recent data, including improved retail sales and manufacturing figures, as well as a decline in weekly jobless claims to a 4-month low. This positive economic backdrop supports an estimated growth rate of 2.9%, which is expected to benefit corporate earnings.
The tech sector has recently outperformed others. Link noted a broadening market trend over the past couple of months, indicating that while tech has taken the lead, other sectors such as financials, industrials, materials, and discretionary stocks are also showing strength. She advised investors to remain selective in their choices amidst ongoing volatility.
When discussing specific investment picks, Link highlighted ExxonMobil as a key choice. Despite projections indicating a 64% year-over-year decline in earnings for refining and marketing companies in Q3 and an 11% drop in production, Link believes this company is extremely cheap at a price-to-earnings ratio of approximately 13 times its estimate. She expects it to triple its production in exploration and production (E&P) and aims for organic growth of 10% between now and 2027. Upcoming catalysts include an analyst meeting scheduled for December 11th and several projects that are expected to generate $4 billion in earnings.
While touching on geopolitical factors affecting oil prices, particularly regarding the Middle East, Link suggested that much of this has already been factored into oil market prices and expressed confidence that the American oil and gas corporation would remain profitable even at lower oil prices, generating substantial profits at $30 per barrel and significantly higher returns at $70 per barrel through dividends and share buybacks.
When asked about the Department of Energy’s plans to refill the petroleum reserve at prices below $70 per barrel, Link dismissed this as irrelevant noise. Instead, she emphasized focusing on where companies are generating profits overall rather than getting distracted by short-term fluctuations.
The interplay between economic indicators, sector performance, and geopolitical factors continues to shape investment strategies as stakeholders prepare for future developments, especially as we see that stock performance can still not be accurately measured. On September 26, Tom Lee, Fundstrat Global Advisors managing partner and head of research, joined CNBC’s ‘Closing Bell’ to address the current state of the stock market following the Fed’s recent interest rate cuts.
Since the Fed implemented a significant rate reduction, the market has seen limited movement, with notable activity only occurring last Thursday. Tom Lee explained that the Fed’s actions have initiated an easing cycle, which historically tends to yield positive outcomes for the market 3-6 months down the line. However, he cautioned that stock performance in the immediate future remains uncertain due to ongoing repositioning ahead of the upcoming election in 40 days.
The conversation further explored whether the impending election would disrupt a favorable scenario for stocks to benefit from a post-Fed rally. Lee suggested that while this situation might delay market gains, it is not entirely negative. He noted that many wealth managers and family offices are hesitant to commit capital until after Election Day, preferring to wait until that event is behind them. He expressed optimism about a potential surge in stock prices following the election, stating that November and December typically see strong rallies in election years, especially when markets have already gained more than 10% in the first half of the year.
When discussing investor sentiment regarding the economy and the Fed’s capabilities, Lee indicated that so far, things look promising. He highlighted an upcoming Core Personal Consumption Expenditures (PCE) report expected on Friday, which could confirm that inflation is no longer a pressing concern. However, he noted a significant number of investors believe we may already be in a recession. For investor sentiment to shift back toward a soft landing perspective, evidence must exceed expectations.
Regarding a comment on recent target adjustments for the S&P 500, mentioning Brian Belski’s increase of his target to the highest on Wall Street, Lee acknowledged the potential upside in the next 3-6 months, expressing skepticism about setting aggressive targets like 6,000 for the S&P 500 at this time due to current valuations not being particularly low and having already experienced significant gains. He conveyed confidence in longer-term prospects but indicated caution regarding immediate investments.
As for small-cap stocks represented by the Russell 2000 index, Lee acknowledged some profit-taking after a strong week but maintained that such fluctuations are typical during bottoming phases. He drew parallels to previous market recoveries, such as energy stocks in 2021, suggesting that while current movements may feel erratic, they signal a multi-year growth opportunity for small caps.
The discussion also addressed concerns regarding overcrowded sectors within the market. Some analysts have noted that various sectors like industrials and utilities have reached or are trading near highs, prompting some investors to seek better value in bonds instead. However, Lee argued that equities offer inflation protection and capital appreciation potential that bonds typically do not provide. He emphasized that there are still numerous attractive opportunities within equities.
As the stock market is expected to remain volatile, primarily due to the upcoming elections on top of economic uncertainty, there is potential for growth in the coming months and investors should exercise caution and carefully consider their investment strategies. Such a fluctuating market also opens up opportunities to take bigger risks and diversify your portfolios.
Methodology
We used stock screeners to look for companies that went public recently in the past 2 years, with a preference for latest IPOs. We then selected the 10 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).
GE Healthcare Technologies Inc. (NASDAQ:GEHC)
Market Cap as of September 26: $42.61 billion
Number of Hedge Fund Holders: 49
GE Healthcare Technologies Inc. (NASDAQ:GEHC) is a medical technology company that provides a range of medical imaging, diagnostic, and therapeutic technologies and services. It offers solutions for a variety of clinical areas, including radiology, cardiology, ultrasound, women’s health, and oncology, committed to improving patient outcomes and advancing healthcare through innovation and technology.
Much of last year saw growth attributed to its AI-driven innovations in imaging and diagnostics, with tools like Edison True PACS improving radiologist efficiency. As healthcare facilities demand more accurate and efficient diagnostic tools, the company’s AI products have driven both operational efficiencies and revenue gains.
In the second quarter of 2024, the rising demand for its medical imaging and monitoring technologies, especially in hospitals and outpatient settings, helped generate a revenue of $4.84 billion, up 0.46% year-over-year. It delivered 1% organic revenue and 3% orders growth with all segments contributing. Excluding China, global revenue growth was 4%, and orders growth was 6%.
In the US, the company secured ~$800 million in contracts in Q2 for multimodality equipment, software, and services. Additionally, in July, it made notable advancements in developing proprietary AI tools aimed at improving clinical and operational efficiency. This included acquiring the AI division of Intelligent Ultrasound, which focuses on women’s health ultrasound AI, and forming a strategic partnership with AWS to develop foundational models and GenAI tools.
GE Healthcare Technologies Inc. (NASDAQ:GEHC) is a leading medical imaging company well-positioned to expand its market share as healthcare providers upgrade their equipment, while it also continues investing in digital health solutions powered by AI and cloud technology. Strategic partnerships and investments in healthcare infrastructure are driving growth, along with the increasing prevalence of chronic diseases. The focus on sustainability aligns with current market trends and strengthens its reputation. Overall, its expansions make it a promising investment opportunity.
Cooper Investors Global Equities Fund stated the following regarding GE HealthCare Technologies Inc. (NASDAQ:GEHC) in its Q2 2024 investor letter:
“However, we are keen to highlight other Stalwarts and Growth businesses we own that should benefit in a more profound way than hardware makers currently enjoying an initial build-out phase. To paraphrase Salesforce CEO Mark Benioff, if hardware is the picks and shovels of GenAI then data is the real gold.
Another example is GE HealthCare Technologies Inc. (NASDAQ:GEHC), a global leader in diagnostic imaging equipment across multiple modalities. AI algorithms are making image quality better, assisting image analysis via computer vision, and enabling devices to be more accessible for new users. The next stage will be data-driven; via its many points of penetration into the patient journey, GEHC is accumulating large amounts of data across pathology, genomics, and imaging. Harnessing AI tools across that data to drive better patient outcomes should enable improved sales, margins and returns from a more competitive product offering.”
Overall GEHC ranks 5th on our list of the best young stocks to buy now. While we acknowledge the growth potential of GEHC, 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 GEHC 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.