We recently compiled a list of the 8 Hot Growth Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Applovin Corp. (NASDAQ:APP) stands against the other hot growth stocks.
A month before the election that spelled Donald Trump’s victory, the U.S. Bureau of Labor Statistics released a report showing a robust labor market with rising wages, a decrease in unemployment, and the addition of 254,000 jobs in September. The unemployment rate fell to 4.1% in September, down from 4.2% in August and 4.3% in July. Earlier concerns arose when the unemployment rate increased, leading some economists to worry that the Federal Reserve’s decision not to cut interest rates impacted the labor market.
However, the Fed eased those concerns in September by cutting the federal funds rate by half a percentage point. The Fed had initially raised rates aggressively beginning in March 2022 to combat inflation, pausing mid-2023. While inflation has cooled significantly since peaking in June 2022, economists note the high rates continue to impact the economy, especially the housing market. That said, Fed Chair Jerome Powell addressed the housing market on September 30, noting that he expects housing inflation to keep easing and that overall economic conditions are conducive to further disinflation.
On another note, while September’s Consumer and Producer Price Indexes aligned with expectations, signaling that inflation is trending toward the Federal Reserve’s 2% target, economists at Goldman believe the Fed may have already reached that goal. The investment bank forecasts that the Commerce Department’s Personal Consumption Expenditures (PCE) price index for September will show a 12-month inflation rate of 2.04%. If accurate, this figure would be rounded down to 2%, aligning perfectly with the Fed’s long-standing objective. This would come just over two years after inflation surged to a 40-year high, prompting a series of aggressive interest rate hikes. Moreover, the S&P 500 has gained 4% since the Fed’s rate initial cut last month, as investors have poured over $20 billion into U.S. stock funds.
Both Fundstrat and Goldman raised their year-end stock market forecasts in week 41 of this year, with Goldman predicting an additional 2% rise after the S&P 500 exceeded its previous target. This would cap off an already strong year, with the index up more than 20%. A key driver behind the forecasts for continued stock price growth is the expectation that a broader range of industries will contribute to the market’s rise. However, in reality, indexes like the S&P 500 remain largely dependent on investor enthusiasm for tech, particularly in the realm of artificial intelligence. On that note, the bank also pointed to a recovering microchip supply chain, which is expected to lift profits for both chipmakers and tech giants as they develop new AI applications.
While historical performance isn’t always a reliable indicator, seasonal trends suggest that Q4 often boosts the broader U.S. markets, partly driven by increased consumer spending during the holiday season. Market analysts also note that growth stocks tend to perform well when global interest rates reverse course. However, Adam Parker, CEO of Trivariate Research, shared in an interview with CNBC that he feels more pessimistic about growth stocks compared to his outlook before August 5 lows, citing the unusual market conditions and a slight dip in corporate earnings growth projections.
Moreover, despite high expectations that interest rate cuts by the Federal Reserve would boost the stock market, this hasn’t materialized as anticipated. Investors seem to be increasingly sensitive to growth concerns amid a global landscape marked by the U.S. presidential election, Middle East instability, and an uncertain Fed rate outlook for next year. While the Fed has hinted at more rate cuts, moving too quickly could jeopardize inflation goals. Regarding this, analysts at Stifel made the following remarks:
“The conclusion … is that if the Fed cuts rates in 2025 absent a recession (two 25’s as this year comes to a close do not count) then that would be a mistake, with investors paying the price in latter 2025 / 2026, based on historical precedent.”
In terms of making money in the stock market, most investors are naturally drawn to growth stocks. While defensive investments are gaining traction due to global economic slowdown, Andrew Slimmon of Morgan Stanley Investment Management advises against this approach. These sentiments emphasize that high-growth stocks can outperform the market and deliver strong returns even if the stock fluctuates during the short term. Many of these stocks have shown impressive revenue growth and, with key catalysts in place, may continue to outperform.
Additionally, hedge funds see the most promising growth stocks as those positioned to benefit from rising consumer purchasing power. As the Fed aims for a soft economic landing, consumer cyclical stocks may gain, bolstered by improved consumer spending. Rate cuts should also support growth and tech stocks, setting the stage for potential gains across these sectors. In that same vein, the average annual return for the 500 largest-cap companies has consistently exceeded 10%, giving investors strong confidence to favor the stock market over more conservative options like bonds or fixed-income securities.
Our Methodology
In this article, we compiled a list of the top growth stocks with year-to-date gains exceeding 20%. These hot stocks to buy are ranked in ascending order based on hedge fund sentiment, offering a clear view of which growth stocks are most favored by institutional investors.
At Insider Monkey, we are obsessed with 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 close-up of a mobile device, showing an advertiser reaching out to a consumer via a software-based platform.
Applovin Corp. (NASDAQ:APP)
Year-To-Date Gain as of November 6: 321.69%
Number of Hedge Fund Holders: 54
AppLovin Corp (NASDAQ:APP) is a U.S.-based mobile technology company that connects app developers with advertisers, offering a suite of tools and services to help developers monetize their apps through advertising, while providing advertisers with effective strategies to reach their target audience.
Loop Capital initiated coverage on AppLovin Corp (NASDAQ:APP) with a Buy rating and a price target of $181 on October 22, emphasizing the company’s pivotal role in the mobile gaming industry and its successful use of big data and artificial intelligence as key drivers of its positive outlook. Loop Capital also highlighted AppLovin’s potential expansion into eCommerce advertising as a key growth driver, which could significantly increase the company’s total addressable market (TAM).
AppLovin Corp (NASDAQ:APP) reported impressive third-quarter earnings, exceeding analyst expectations. The mobile app technology company posted adjusted earnings per share of $1.25, outperforming the consensus estimate of $0.92 by $0.33, while its quarterly revenue reached $1.2 billion, marking a 39% year-over-year increase and surpassing the analyst forecast of $1.13 billion. Notably, revenue from the company’s Software Platform, a significant growth driver, soared by 66% year-over-year to $835 million.
ClearBridge Mid Cap Strategy stated the following regarding AppLovin Corporation (NASDAQ:APP) in its Q3 2024 investor letter:
“Stock selection in the IT sector was the greatest contributor to relative performance, driven by AppLovin Corporation (NASDAQ:APP), which operates a software-based platform for advertisers to enhance the marketing and monetization of their content, particularly in mobile apps. We believe the company is one of the best examples of an AI beneficiary in the mid cap market, as it has already incorporated AI capabilities into its platform, translating into more effective take rates on clients’ mobile games and transactions. We believe mobile games represent only the tip of the iceberg of AppLovin’s potential for its AI-enabled platform and that it has a strong growth trajectory over the next few years.”
Overall APP ranks 7th on our list of the hot growth stocks to buy according to hedge funds. While we acknowledge the potential of APP as an investment, our conviction lies in the belief that certain 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 APP 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.