We recently published a list of 10 Best Falling Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Valaris Limited (NYSE:VAL) stands against other best falling stocks to buy according to hedge funds.
Are The S&P 500 Gains Coming Towards An End?
Analysts at Goldman Sachs on October 21st released a note forecasting that the S&P 500 average annual return of 13% for the past 10 years might come down to just 3% for the next decade. The estimates by Goldman Sachs are far below Wall Street’s estimates as analysts on Wall Street expect the index performance to range from 4.4% to 7.4%, with an average of 6%.
Analysts at Goldman Sachs based their forecast on the concern that market concentration within the S&P 500 has been at a record high in its 100-year history. They mentioned that the top 10 largest stocks of the index currently account for more than 36% of the overall index. These top 10 constituents of the index have increased in size due to exceptional earnings growth over the past 2 years. The Magnificent Seven alone have at least doubled their earnings year-over-year during the first quarter of fiscal 2024.
However, analysts at the firm believe that historical evidence shows it is extremely challenging for companies to sustain high levels of sales growth and profit margins for more than a decade. They also noted that the sales growth of the Magnificent Seven has already started to fall from the accelerated pace of their growth during the past 2 years.
On the bright side, analysts pointed out that growth is expected to pick up for the remaining stocks on the index. They expect double-digit earnings growth for these remaining 493 stocks over the next 5 quarters.
Read Also: 10 Best Depressed Stocks To Buy Heading into 2025 and 8 Best Small-Cap Growth Stocks to Buy According to Analysts.
Sylvia Jablonski, Defiance ETFs CEO and CIO joined CNBC on October 22 for an interview to talk about the earnings season progress and also shared her point of view regarding the recent note from Goldman Sachs. She noted that we have seen around 14% of the S&P 500 that have reported their earnings and, out of those, 79% beat expectations. She thinks this is a solid start to the earnings season. Jablonski also mentioned that the bar for some of the companies has also come down, for instance in July analysts were talking about 6% to 7% year-over-year growth, and now we are looking at around 5% growth and companies have been achieving it for the most part.
While talking about Goldman Sachs’s recent note, she mentioned that the shrink in annual return by the index depends on a few factors. While the valuations are high, the earnings are strong and profits are also growing, thereby the high valuations have started to feel justified. However, it only remains justified until the valuations become lofty again. Jablonski pointed out that while the Magnificent Seven stocks have been the top performers of the last decade, we are going to see a broadening of the market where the performance would come from the remaining stocks in the index. She thinks that this transition of growth from the top constituents of the index to smaller stocks might affect the annual returns. However, AI is going to drive the index for the next 5 to 10 years. Jablonski mentioned utility facilities and energy sector companies having grown in triple digits due to artificial intelligence.
Lastly, Jablonski clarified that she is not bearing on tech or semiconductors but the leaders in the S&P 500 are expected to change with Magnificent Seven slowing down in terms of the stellar growth they have posted in the past.
Our Methodology
To curate the list of the 10 best falling stocks to buy according to hedge funds, we used the Finviz stock screener and Yahoo Finance. We defined falling stocks as those trading within 0% to 3% of their 52-week lows. Using the Finviz stock screener, we got an aggregated list of stocks that fit our criteria. Next, we ranked these stocks based on the number of hedge funds holding each stock during Q2 2024, as per Insider Monkey’s database. All indicators were recorded on October 21st, 2024. Please note that the list is ranked in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? 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 closeup of an offshore oil rig in the international oil and gas industry in the Gulf of Mexico.
Valaris Limited (NYSE:VAL)
52 Week Range: $49.62 – $84.20
Current Share Price: $50.80
Number of Hedge Fund Holders: 39
Valaris Limited (NYSE:VAL) is another offshore drilling company that ranks 5th on our list of best-falling stocks to buy according to hedge funds. The company provides various types of rigs that enable companies to extract oil and natural gas from the ocean floor. Its fleet comprises ultra-deepwater drillships, semisubmersibles, and jack-up rigs. The company has an international presence with significant operations in the Gulf of Mexico, North Sea, Asia Pacific, and the Middle East.
Valaris Limited (NYSE:VAL) has been focused on implementing its commercial strategy to improve its contract order backlog. The strategy has led to an improved order backlog which stood at $4.3 billion as of July 29, indicating a 42% increase from the prior year. The increase in backlog also represented the seventh consecutive quarter of backlog growth indicating the continued success for the company.
The second quarter of fiscal 2024, came in with a 99% revenue efficiency across its fleet, indicating no lost time incidents. Moreover, the net income of the company improved from $26 million during the first quarter to $151 million in the second quarter of fiscal 2024. Management attributed the increase in income to higher utilization and average daily revenue for both its floater and jack-up fleets.
In addition to the net income, revenue also improved from $525 million to $610 million subsequently. Looking ahead, the management of Valaris Limited (NYSE:VAL) is focused on maximizing its profitability by ensuring high utilization of its active rigs and securing advantageous contracts.
Praetorian Capital stated the following regarding Valaris Limited (NYSE:VAL) in its Q3 2024 investor letter:
“I have always believed that the only way to substantially outperform is to run a highly concentrated portfolio. When things are working, they tend to work beautifully. The flip side is that there will be times when this high level of portfolio concentration becomes a headwind to performance. To illustrate this point, during the first nine months of the year, in Dollar terms, the Fund has produced approximately $21.0 million of total P&L (before management fees). However, that figure is somewhat disingenuous as three large positions (our physical uranium entities, Valaris Limited (NYSE:VAL) along with Valaris warrants, and St. Joe) produced a loss of approximately $20.5 million. More importantly, these three positions represented approximately 49.7% of our approximately $350.2 million of capital at the end of September. Not only did these three positions cost us money, but they also tied up substantial capital. As you can imagine, it’s hard to swim fast when you’re dragging an anchor.
During September, I dedicated substantial time to the first two of these positions, by attending the World Nuclear Association meet-up in London, followed by the Pareto Energy conference in Oslo. As far as I’m concerned, the theses behind our uranium and Valaris positions are quite intact—however, the timing of the next move higher remains uncertain. Meanwhile, St. Joe continues to suffer with many other housing names, despite the fact that it should be an inflation beneficiary on account of its large land bank. …” (Click here to read the full text)
Overall, VAL ranks 5th on our list of best falling stocks to buy according to hedge funds. While we acknowledge the potential of VAL to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock 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.