With the third quarter of 2024 ending, the discourse on the stock market for global equities has shifted back to interest rates. This comes after artificial intelligence drove markets through the course of the year, but with interest rate cuts having commenced in Europe and China’s economy refusing to roar back, global equity investors are carefully parsing through their investments to see which stocks might be worth it.
This was the gist of a note released by Goldman Sachs in July. In it, the bank advised investors to sift through stocks to eliminate those that have exposure to China. This is because Chinese economic growth has remained sluggish, and after Q2 GDP growth figures for the Asian economic giant sat at 4.7%, Goldman and Citi slashed their GDP growth estimates for 2024 to 4.7%. The two banks’ earlier estimates were 4.9% and 4.8%, and in its European investor note, GS’ analysts raised alarm for several potential headwinds for European firms that could emanate from China. The top three of these were a weak demand in China for discretionary products, the country’s plans to tax luxury goods, and potential retaliatory tariffs against European countries after the EU decided to increase tariffs for Chinese made electric vehicles. “While a great deal of earnings downgrades have already occurred year-to-date for our luxury basket, we worry that more could take place,” the Goldman analysts warned, adding that “the valuation premium of the basket has deflated, but remains on the high side of its history.”
A slowdown in Chinese consumer spending, which was also evident in the country’s latest data release that saw retail sales growth sit at 2%, is particularly worrisome for German stocks. This is because they have already felt the pinch of the slowdown during Q2 and H1 2024. For instance, German watch company Swatch saw its China sales drop by 30% in H1 while the luxury goods manufacturer LVMH experienced a 14% Asian sales drop in Q2 which came after Mercedes-Benz’s China sales dropped by 3% in Q1.
For Germany, this is particularly troubling as its economy has suffered after the disruption of cheap Russian gas in the aftermath of the Ukraine invasion. The German economy contracted by 0.3% in 2023 and continued its downward pace in Q2 by posting a 0.1% sequential contraction. German firms’ disappointing Chinese performance came when the country’s overall exports to China dropped by 14% annually in May to sit at €7.5 billion.
Shifting gears, let’s take a bird’s eye view of global stocks. On this front, JPMorgan has some insights. In its mid year outlook, the bank’s chief global economist Bruce Kasman shared that “Global growth has moderated to a still-solid 2.4% (annual rate) and is less dependent on a U.S. demand engine, as recoveries in Western Europe and emerging markets (excluding China) find firmer footing. The manufacturing sector is also showing signs of recovery, helped in part by a pickup in business spending.” However, in the report which was published in July, the bank remained pessimistic about inflation as it shared that core inflation should sit at 3% at the close of 2024. This led it to wager that higher for longer was the way to go and led to a cumulative 35 basis points of easing in developed markets except Japan by 2024 end.
Yet, the European Central Bank (ECB) led the global charge for rate cuts. It cut interest rates by 25 basis points in June and followed it with another 25 basis point cut in September. Additionally, the Bank of England (BOE) also cut rates by lowering rates by 25 basis points to 5% in August for the first interest rate cuts since the coronavirus pandemic was wreaking havoc in 2020. Moving forward, analysts are divided on the BOE’s future rate cuts, and many believe that the ECB might be less forthcoming with the cuts as well.
While several of the world’s biggest economies have suffered this year, global stocks as a whole have performed well. One of the most well known global stock indexes compiled by the MSCI opened at 3,144 points this year. Its latest value is 3,728 to mark a neat 18.5% year to date growth. However, European stocks have lagged in this performance, with the index of the region’s top 600 stocks having delivered a 10.2% return year to date through price appreciation. This is unsurprising since these 600 firms’ Q1 2024 EPS dropped by roughly 2.5%. However, estimates suggest that these stocks can post at least a 10% EPS growth during Q3 2024.
Our Methodology
To make our list of the best global stocks to buy, we ranked the US listed stocks of JPMorgan’s International Equity ETF by the number of hedge funds that had bought the shares in Q2 2024 and picked the top stocks. This particular ETF was preferred because it chose to focus on a diversified set of global stocks as opposed to several others that focused primarily on US tech giants.
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).
An investor in a suit representing the company, seated in front of a long table of global leaders discussing the company’s investments.
BP p.l.c. (NYSE:BP)
Number of Hedge Fund Holders In Q2 2024: 38
BP p.l.c. (NYSE:BP) is a British oil giant that is one of the few mega players in the industry that has pivoted to generating energy wind power. The firm’s focus on clean energy and associated technologies, such as hydrogen and carbon capture provides it with the ability to pivot to the industry with time. However, as it focuses on the future, BP p.l.c. (NYSE:BP) has to keep an eye on the present if it’s to keep investors happy. On this front, the firm aims to increase its upstream production in 2024 in order to keep up with peers. Like Shell, BP p.l.c. (NYSE:BP) is also focusing on the natural gas and liquefied natural gas markets (LNG) since these are cleaner fuels compared to other petroleum products. Its performance therefore hinges on successfully penetrating these markets, and BP p.l.c. (NYSE:BP) is also investing heavily in hydrogen production, unlike several other mega oil peers. Additionally, to keep investors happy, the firm has also announced $14 billion in share buybacks until the end of 2025.
BP p.l.c. (NYSE:BP) is also operating in the high growth US Permian region. Here’s what it shared during the Q2 2024 earnings call:
“So we’ll continue to drill out the Permian and gradually fill that system up entirely. We’ll probably hit peak production for liquids in the Permian around 2027, based on the last analysis I did. And the other very interesting thing that we talked about while I was there is, they’re rethinking the Eagle Ford. So we have 500 wells there that have been producing for about a decade. They were fracked a decade ago. Obviously, fracking technology has moved on materially since then. So they’ve gone in and done 50 re-fracks. And the returns on these things are unbelievable. With the new technology on the fracks, you’re getting all kinds of liquid production coming out of them. So we trialed 30. We now have 500 opportunities. The Gordon is working with them on to decide at what pace we fund those.
And the last thing I’d say on the Eagle Ford is, they also started to down space, which is very counter to what you think of in some of these plays that maybe you don’t down space, you’re getting it through laterals. But what they found is, the couple of downspacing wells they’ve drilled have delivered 3,700 barrels of oil a day, which is way above POPs, even what we’re seeing in some of the Permian acreage. So the Eagle Ford is opening back up to us, and it’s this mantra that we always have to think about with resources is, once you think you’re done on recovery factor, have another go at technology and see what happens. And that’s what we’re proving in the Eagle Ford. They used to talk about recovery factors of 7% to 10%. That might resonate with you for the Permian.”
Overall BP ranks 6th on our list of the best global stocks to buy now. While we acknowledge the potential of BP 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 BP 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. All investment decisions should be made after consulting a qualified professional.