We recently published a list of 10 Best Major Stocks to Invest In According to Analysts. In this article, we are going to take a look at where Adobe Inc. (NASDAQ:ADBE) stands against the other best major stocks to invest in according to analysts.
The Post-Fed Rate Cut Opportunities
The current economic landscape presents a mix of signals as market participants assess the necessity of additional interest rate cuts. Despite overall economic strength, the Fed has hinted at potential rate reductions due to weaknesses in specific sectors. Currency dynamics are also shifting, with the US dollar weakening against the euro, adding another layer of complexity to the market environment. Amidst this backdrop, major stock indices, including the Dow Jones, continue to hover near record highs.
As analysts and market participants navigate these developments, they must consider how these factors may influence investment strategies in the coming months. Recently, discussions have emerged regarding the implications of potential rate cuts and their effects on various sectors of the economy. Some experts argue that further cuts may be necessary to support smaller businesses and consumers who are still adjusting to previous interest rate hikes.
Stephanie Link, Chief Investment Strategist and Portfolio Manager at Hightower thinks that a soft landing for the economy despite market volatility is anticipated, which is 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 assets, she thinks the economy may stabilize without entering a recession. We talked about this in more detail in our article on the 10 Best Young Stocks To Buy Now, here’s an excerpt from it:
“….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.
….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.”
John Stoltzfus from Oppenheimer Asset Management joined CBNC’s ‘Squawk on the Street’ on September 25 to discuss the difference the Fed’s recent rate cut makes. It was highlighted that the S&P 500 is experiencing a remarkable moment, having just achieved its 41st record close of the year. Oppenheimer’s Chief Investment Strategist has set a target of 5,900 for the index, attributing this optimistic outlook to the recent rate cuts by the Fed.
Stoltzfus explained that the significance of these cuts lies in their actual implementation after a long period of rate hikes and pauses. He described the rate cut as a down payment from the Fed to both Wall Street and Main Street, signaling that further cuts could be on the horizon if necessary. Since this announcement, the market has shown mixed reactions, with defensive stocks performing well at times while technology stocks have also seen gains.
When discussing consumer discretionary stocks, Stoltzfus expressed that this sector is one of their favorites despite its underperformance earlier in the year. He noted that there has been a noticeable improvement in performance over recent months as investors recognize consumer resilience. However, he emphasized that within consumer discretionary, investors should focus on select companies rather than expecting a broad rally across the sector. Retailers leveraging e-commerce effectively are likely to perform better during the upcoming holiday season.
The conversation also touched on concerns regarding discounts in various sectors, particularly electronics. Stoltzfus acknowledged that value has become a key focus for consumers, which has led to increased competition among retailers. This competition allows consumers more options but may also pressure profit margins for some retailers. Nonetheless, he pointed out that many businesses within consumer discretionary, beyond just retail, are likely to maintain healthy margins.
Stoltzfus’ discussion highlighted the positive impact of the Fed’s rate cuts on market sentiment and consumer behavior while recognizing challenges in specific sectors. The outlook remains optimistic as investors navigate through these transitions and prepare for potential opportunities in consumer discretionary stocks and other sectors.
Methodology
We used stock screeners to look for mega cap stocks. We then selected the top 10 stocks with the highest upside potential (more than 15%), that were also the most popular among elite hedge funds, as of Q2 2024. The stocks are ranked in ascending order of their upside potential.
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).
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Adobe Inc. (NASDAQ:ADBE)
Average Upside Potential: 22.52%
Market Cap as of September 26: $229.26 billion
Number of Hedge Fund Holders: 107
Adobe Inc. (NASDAQ:ADBE) is a global software company that provides a wide range of creative, marketing, and document management solutions. Their products are used by professionals in industries such as graphic design, photography, video editing, web development, and marketing. Adobe is known for its innovative software, strong brand recognition, and commitment to empowering creatives and businesses to achieve their goals.
Over the past 4 years, revenue has grown at a compound annual growth rate of 15.26%. AI-powered enhancements in products like Adobe Firefly have increased customer engagement and retention across Creative Cloud, Document Cloud, and Experience Cloud. Document Cloud sales reached $807 million in FQ3 2024, up 18% year-over-year, highlighting the positive impact of AI on Adobe’s operations.
However, Adobe Inc. (NASDAQ:ADBE) is facing a bit of a complex situation in the AI landscape. While AI tools are becoming more accessible and affordable, posing a potential threat to the company, it is also investing heavily in AI-powered solutions to enhance its product offerings. Its ability to leverage AI effectively will determine its future success.
Overall revenue in FQ3 2024 was $5.41 billion, up 10.59% year-over-year. The Digital Media segment increased by 12%, and net new Digital Media ARR reached $504 million, primarily contributed by Creative and Document Cloud. The Digital Experience segment also grew 12%. The earnings per share in this period were $4.65.
Through its $25 billion share repurchase program, which is ongoing until 2028, Adobe Inc. (NASDAQ:ADBE) has reduced its outstanding shares by 10%. The company has a market share of over 80% in the graphic design industry due to its years of product development. It is well-positioned to benefit from the growing graphic design software market. With a strong focus on AI integration and a large total addressable market, the company is expected to continue growing at a healthy rate.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
Overall ADBE ranks 6th on our list of best major stocks to invest in according to analysts. While we acknowledge the potential of ADBE 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 ADBE 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.