We recently compiled a list of the 10 Oversold Growth Stocks to Invest In. In this article, we are going to take a look at where ZoomInfo Technologies Inc. (NASDAQ:ZI) stands against the other oversold growth stocks.
As investors focus on consumer spending in a bid to assess the broader health of the US economy, current data points demonstrate that the fears of recession are now overdone. UBS believes that the excess savings that were built up during the COVID-19 pandemic are now used up, and elevated levels of interest rates seem to be impacting activity, mainly in the housing market. However, as the US Fed moves further with its policy easing cycle, lower rates are expected to ease some downward pressure on the broader economy.
S&P Global mentioned that a risk-averse mood has been clouding the US stock market investor outlook for 4th straight month. That being said, the overall risk sentiment saw some improvement from September’s 16-month low, as per the latest results from the firm’s Investment Manager Index survey.
Forecasts for Q4 2024
As per JP Morgan, the stocks touched their 44th all-time high recently. Technology (+2.5%) continued to dominate the broader market, with Al roadshows demonstrating improved demand throughout the country. While past performance cannot be relied upon, the seasonality says that Q4 2024 acts as a tailwind for the broader US markets. Overall, consumers increase their spending more on retail at the time of the holiday season and the “Santa Claus” rally. However, the bank believes that 3 global events might affect the Q4 2024 asset returns. These include geopolitical tensions, Chinese policy stimulus, and the U.S. election.
Amidst the geopolitical tensions, gold, which generally produces positive returns in Q4 2024, can act as a safe-haven asset. Since the start of the quarter, oil prices have increased too. Therefore, both oil and gold can hedge portfolios. Next, the large bank believes that if further China’s policy support outpaces the market projections of 2 – 4 trillion renminbi (RMB) supplementary bond issuance, there might be another rally in the offing for onshore and offshore equities and commodities. Talking about the elections, the typical seasonality is likely to persist. There can be increased volatility.
Outlook for Growth Stocks
Market experts opine that when there is a reversal in the global interest rate cycle, the growth stocks are expected to outperform. This is because reduced rates help in fueling liquidity in the growth companies.
As per Comerica Wealth Management, the market environments with declining rates and rising profits support the broader equity prices. Moreover, the expectations of the rate cuts led to a change in the investing appetite as these investors are now focused on public companies that are interest-rate sensitive (including the growth stocks). Therefore, B. Riley Wealth Management believes that dividend stocks, telecoms, and consumer staples are some of the sectors that are likely to benefit.
Our Methodology
To list 10 Oversold Growth Stocks to Invest In, we used a Finviz screener to extract stocks that have fallen significantly on a YTD basis and have a forward P/E of less than 15x. After getting a list of 25-30 stocks, we narrowed it down to the following 10 stocks having high hedge fund holdings, as of Q2 2024. Finally, the stocks were ranked in the ascending order of their hedge fund sentiments.
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).
A meeting of professionals in a boardroom discussing engagement platform strategies for their organizations.
ZoomInfo Technologies Inc. (NASDAQ:ZI)
Forward P/E (As of 14 October): 10.7x
% Decline on a YD Basis: ~42%
Number of Hedge Fund Holders: 43
ZoomInfo Technologies Inc. (NASDAQ:ZI) offers a go-to-market intelligence and engagement platform for sales and marketing teams.
ZoomInfo Technologies Inc. (NASDAQ:ZI)’s broad go-to-market platform and its market position continue to offer strong opportunities for growth. The company’s core offerings consist of sales intelligence, B2B contact and company data, and technographics. ZoomInfo Technologies Inc. (NASDAQ:ZI) recently rolled out a new feature, called Copilot. As per the company’s management, this is expected to act as a catalyst for future growth.
This AI-powered tool focuses on enhancing the capabilities of sales and marketing professionals, providing a competitive edge. As and when businesses focus on leveraging AI to improve their sales and marketing efforts, Copilot can place ZoomInfo Technologies Inc. (NASDAQ:ZI) at the forefront of the trend. The feature aims to improve the productivity and effectiveness of sales teams. Ultimately, this can drive increased adoption and usage of the company’s platform.
ZoomInfo Technologies Inc. (NASDAQ:ZI) continues tofocus on reducing credit risk in the SMB segment. Also, it is shifting sales efforts towards mid-market and enterprise customers. As per Wall Street, the shares of the company have an average price target of $17.39.
Baron Funds, an investment management firm, released fourth quarter 2023 investor letter. Here is what the fund said:
“We were too slow to sell when the probability of a likely thesis change dictated action over inaction. Each investment is like a puzzle. Different pieces are missing in different puzzles. Our process is deliberately slow and is built on collecting and analyzing as much information as possible and building conviction over time. In a highly stressful environment with a wide range of outcomes, a recognized lack of balance with emotions running high, postponing “bad decisions” is often the correct course of action except, when there is evidence of a potential or likely thesis change on the negative side in a bear market. We were often too slow and too timid in running for the exit. For example, when a company’s revenues prove to be less sticky during times of stress despite high average retention rates. ZoomInfo Technologies Inc. (NASDAQ:ZI), the business-to-business (B2B) sales data and software provider readily comes to mind, where we made a mistake selling the stock too slowly, as we did not fully appreciate the extent to which the company oversold unused licenses to its customers, which exacerbated the slowing demand environment, creating a whiplash effect as the license inventory was used up later on, causing revenue growth to decelerate materially.”
Overall ZI ranks 2nd on our list of the oversold growth stocks to invest in. While we acknowledge the potential of ZI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than ZI 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.