In this article we are going to reveal the names of 10 stocks that are on hedge funds’ radar.
The US market sustained strong performance in the first quarter of 2024 as the S&P Index increased by 10.6%, continuing its momentum from the previous quarter. There is a prevailing optimism in the market regarding a soft landing of the economy. The optimism over generative AI that contributed to the 2023 market rally is sustaining in 2024. The valuation of mega-cap companies significantly influences the S&P 500 Index. You can check out the best mega-cap stocks to buy according to hedge funds here.
Most hedge funds tend to focus more on companies with high growth potential and relatively low valuation. Hedge fund managers believe in long-term returns as Charlie Munger of Berkshire Hathaway once cited, “The big money is not in the buying and selling but in the waiting.” At Insider Monkey, we focus on tracking the returns of the most popular hedge fund stocks. Please have a look at our list of the 30 Most Popular Stocks Among Hedge Funds for more details. The fund managers conduct in-depth research to identify stocks with huge growth potential that can generate returns and positive Alpha even during challenging times.
In this article, we will explore the list of ten stocks that hedge funds have been discussing in their latest investor letters. In addition, please visit our page hedge fund investor letters Q1 2024 for letters from hedge funds and other leading investors.
Below is the list of stocks presented based on their 2024 performance from worst to best. H&E Equipment Services, Inc. (NASDAQ:HEES), IDEX Corporation (NYSE:IEX), PAR Technology (NYSE:PAR), Lifecore Biomedical, Inc. (NASDAQ:LFCR) and Lincoln National Corporation (NYSE:LNC) are under the lowest returns list but are considered to have high potential returns in the medium and long term.
Charlie Munger
10. H&E Equipment Services, Inc. (NASDAQ:HEES)
2024 Performance: -7.07%
Number of hedge fund holdings:18
Founded in 1961, H&E Equipment Services, Inc. (NASDAQ:HEES) is an integrated equipment services company that operates in Equipment Rentals, Sales of Rental Equipment, Sales of New Equipment, Parts Sales, and Repair and Maintenance Services. In 2023, H&E Equipment Services, Inc. (NASDAQ:HEES) reported an 18.06% increase in revenue compared to the previous year, and the growth estimate for next year is 19.30%.
In H&E Equipment Services, Inc. (NASDAQ:HEES) Q1 2024 Earnings Call Transcript, Brad Barber, Chief Executive Officer expressed optimism about the positive outlook for the industry. The increase in infrastructure projects and the rise of the housing market led to an increased demand for H&E Equipment Services, Inc. (NASDAQ:HEES)’s services. According to Yahoo Finance, H&E Equipment Services, Inc. (NASDAQ:HEES) is trading at a low valuation. H&E Equipment Services, Inc. (NASDAQ:HEES) is an underappreciated stock by the market with attractive growth opportunities.
Choice Equities Capital Management stated the following regarding H&E Equipment Services, Inc. (NASDAQ:HEES) in its first quarter 2024 investor letter:
“H&E Equipment Services, Inc. (NASDAQ:HEES) – H&E Equipment Services, Inc. is one of the top equipment rental companies in the U.S., providing construction and industrial related equipment, parts, and services in 30 states to the commercial, industrial, infrastructure and residential construction markets. As the #4 player in a business geared towards local economics with a strong presence focused in the industrially active region of the Sun Belt in the US, the company has ample scale to demonstrate pricing power in markets that primarily operate based on local market share dynamics.
The industry remains fragmented but is top-heavy, with the top four consolidating the industry and together now approaching 40% of market share. This industry structure provides scale benefits to HEES but also suggests small bolt-on acquisitions can move the needle on company financials. Here the company has a proven track record of entering new territories through tuck-in acquisition and expanding in tangential geographies organically, enjoying a post-pandemic branch CAGR of 10%…” (Click here to read the full text)
9. IDEX Corporation (NYSE:IEX)
2024 Performance: 2.3%
Number of hedge fund holdings in Q4: 25
Established in 1987, IDEX Corporation (NYSE:IEX) is a leading global provider of applied solutions. The company operates through Fluid & Metering Technologies (FMT), Health & Science Technologies (HST), and Fire & Safety/Diversified Products (FSDP) segments. IDEX Corporation (IEX) delivered a Year-on-year revenue growth of 2.89% in 2023, that is expected to increase 9.5% next year. According to analysts, IDEX Corporation (NYSE:IEX) has a long runway for growth. In the IDEX Corporation (NYSE:IEX) Q1 2024 Earnings Call Transcript, the company CEO and President, Eric Ashleman, shared the Q1 2024 performance and his insights on the company. As per the report, IDEX Corporation (NYSE:IEX) delivered solid returns in the first quarter and executed well in line with expectations. Analysts and insiders are optimistic about the growth trajectory of IDEX Corporation (IEX). Although the company delivered solid returns in Q1 2024, the revenue growth decreased compared to the same in quarter 2023. However, in the long term, IDEX Corporation’s (IEX) growth potential is promising.
Ensemble Capital Management stated the following regarding IDEX Corporation (NYSE:IEX) in its first quarter 2024 investor letter:
IDEX Corporation (NYSE:IEX): One of Ensemble’s newer positions is IDEX Corporation. IDEX is not a well-known company, and we believe it has the chance to be recognized as one of the next great serial acquirers like past Ensemble holdings TransDigm Group (TDG) and Heico (HEI).
One of the reasons IDEX is not well-known is because it sells decidedly mundane products, under many different brand names – mostly to distributors and other product manufacturers. It is highly diversified and owns over 50 subsidiary companies; these businesses typically sell niche parts and technology that help larger systems run smoothly in industrial and healthcare end-markets.
One of IDEX’s products is its Systec OEM MINI Degassing module. This module removes gases from fluids and can improve the accuracy of liquid chromatography equipment used to analyze the chemical composition of drugs in the pharma industry, for example. It is sold within IDEX’s Health and Science Technologies (HST) segment, 40% of revenue. Another is its Sandpiper Heavy Duty Flap Valve Pump sold by its Warren Rupp business, counted within its Fluid and Metering Technologies (FMT) segment, 38% of revenue. The pump can be used in a larger Dissolved Air Floatation system that factories use to treat industrial wastewater. Its StreamMaster Fire Monitor is installed on fire trucks and used as a water cannon to extinguish fires. It is sold by the Akron Brass business within IDEX’s Fire and Safety / Diversified Products (FSDP) segment that is 22% of revenue. Flashy Ferraris these are not…(Click here to read the full text)
8. PAR Technology Corporation (NYSE:PAR)
2024 Performance: 2.6%
Number of hedge fund holdings in Q4: 19
Founded in 1968 and headquartered in New Hartford, New York, PAR Technology Corporation (NYSE:PAR) offers omnichannel cloud-based hardware and software solutions to the restaurant and retail industries. Integration with Burger King is a significant milestone for PAR Technology Corporation (NYSE:PAR). The growing trend of technology in the food industry provides a competitive advantage for PAR Technology Corporation (NYSE:PAR) in the coming years.
Hedge fund managers are optimistic about the future of PAR Technology Corporation (NYSE:PAR). For example, in its Q4 2023 letter and Q1 2024 letter, hedge fund manager Choice Equities Management discussed PAR Technology Corporation (NYSE:PAR). The Q4 2023 letter indicates that PAR Technology Corporation (NYSE:PAR) is set to grow its annual recurring revenue (ARR) to over $150 million later this year, up from $20 million four years ago. The company has announced deals in the pipeline that will contribute to its growth, putting it on a path toward a $200 million run rate next year. However, in the most recent quarterly letter, it updated that with the acquisition of Stuzo and TASK simultaneously in March, PAR Technology Corporation (NYSE:PAR) expects to approach a run-rate ARRs to $300 million later this year and is expecting growth with new accounts and services.
PAR Technology Corporation (NYSE:PAR) reported a 16.87% increase in revenue in 2023 compared to 2022 and next year the expected growth rate is 59.20%. Recently Laughing Water Capital, an investment management company, added PAR Technology Corporation (NYSE:PAR) to its portfolio. The company is optimistic about the growth catalysts of PAR Technology Corporation (NYSE:PAR).
Greenhaven Road Capital stated the following regarding PAR Technology Corporation (NYSE:PAR) in its first quarter 2024 investor letter:
“PAR Technology Corporation (NYSE:PAR) – Let’s start with the acknowledgement that anything with the word “technology” in the name is not 100% inevitable. With that said, PAR has several “ways to win” and I think the next five years will see a compelling transformation resulting in this caterpillar coming out of the cocoon and being valued like a butterfly. PAR’s core business is POS (point of sale) for chain restaurants, which has the benefit of being a very low churn business. Losing less than 5% of locations per year, PAR’s high retention rate means that new customers and new products can drive growth. They are not just spinning their wheels to refill a leaky bucket. Stable base + new customers + new products = Good Business
In the interest of space, I will not go through all of PAR’s tailwinds. I suggest you check out a write-up by Voss Capital (a fund we are invested in through the Partners Fund, our fund of funds), called “PAR’s Path to $80 Redux: Godot Finally Arrives” (link). As discussed in our Q3 2023 letter (link), PAR has been growing their recurring revenue dramatically over the last five years through acquisitions and organic growth. The best way to measure their progress is on a per-share basis. Below is the chart from Q3…” (Click here to read the full text)
7. Lifecore Biomedical, Inc. (NASDAQ:LFCR)
2024 performance: 3.23%
Number of hedge fund holdings in Q4: 19
Established in 1965, Lifecore Biomedical, Inc. (NASDAQ:LFCR) is an integrated contract development and manufacturing organization (CDMO) headquartered in Chaska, Minnesota. The CDMO industry is attractive to investors due to relatively recession-resistant business and rational competition. As such, Lifecore Biomedical, Inc. (NASDAQ:LFCR) is a relatively safe investment rebounding from the 2023 problems and approaching earnings power.
As Cove Street Capital stated in its first quarter 2024 investor letter, there is significant potential growth for Lifecore Biomedical, Inc. (NASDAQ:LFCR) with competent execution, but it may not be attractive in the short-term. The growth estimated for Lifecore Biomedical, Inc. (NASDAQ:LFCR) for the current year is 60.80% and for the next year, it is 43.40%. In the Q1 2024 letter, Laughing Water Capital updated that the strategic review of Lifecore Biomedical, Inc. (NASDAQ:LFCR) ended without a sale, contrary to their belief stated in the Q4 2023 letter. This led to a sell-off by event-driven investors. However, changes in management and capacity expansion are expected to accelerate revenue generation for Lifecore Biomedical, Inc. (NASDAQ:LFCR) in the coming years.
Laughing Water Capital stated the following regarding Lifecore Biomedical, Inc. (NASDAQ:LFCR) in its first quarter 2024 investor letter:
“As you know, a large portion of our portfolio is invested in Contract Drug Manufacturing Organizations (CDMOs) tied to biologic, or large molecule, pharmaceuticals; specifically, we own shares in Lifecore Biomedical, Inc. (NASDAQ:LFCR), a CDMO focused on fill-finish work for injectable drugs, and Avid Bioservices (CDMO), which is focused on disposable drug substance manufacturing. I am attracted to these investments because at scale, late stage and commercial business is relatively recession resistant (customers do not stop funding drugs that are close to approval, and patients do not stop taking their prescriptions during economic downturns), customers are extremely sticky (moving to a new manufacturer requires an FDA review), the industry is set to benefit from tremendous tailwinds (more than half of the drugs currently in development are large molecule, large molecules are underpenetrated globally), and historically competition has been rational (capacity is rarely built on spec – rather, CDMOs add capacity when their customers ask them to).
Further, while at present both LFCR and CDMO are not generating much cash and thus “screen” poorly, both have available capacity at a time when capacity is scarce, and should benefit from tremendous operating leverage over the next few years as this new capacity is filled up. Importantly, industry dynamics as well as increasing amounts of detail on their respective pipelines suggest that for both companies filling their capacity is very much a “when” rather than an “if.” The thesis for both names is thus that we are just a few years away from large amounts of relatively sticky free cash flow, that should deserve a high multiple…” (Click here to read the full text)
6. Lincoln National Corporation (NYSE:LNC)
2024 Performance: 4.2%
Number of hedge fund holdings in Q4: 31
Founded in 1905, Lincoln National Corporation (NYSE:LNC), operates multiple insurance and retirement businesses, through Life Insurance, Annuities, Group Protection, and Retirement Plan Services segments. In Lincoln National Corporation (NYSE:LNC) Q1 2024 Earnings Call Transcript, Ellen Cooper, Chairman, President, and CEO; and Chris Neczypor, Chief Financial Officer shared Q1 2024 performance and future outlook for the company. Lincoln National Corporation (NYSE:LNC) focuses on repositioning the business to overcome the headwinds faced during the COVID-19 outbreak. Management is executing strategies for long-term value creation. According to Yahoo Finance, the Forward P/E of Lincoln National Corporation (NYSE:LNC) is 4.49% indicating that it’s an undervalued stock with huge growth potential. Current year growth for Lincoln National Corporation (NYSE:LNC) is estimated to be 21.10%. As per the article (17 Best Insurance Dividend Stocks To Invest In Right Now) published at Insider Monkey, Lincoln National Corporation (LNC) has a 5.8% dividend yield as of April 9. Lincoln National Corporation (NYSE:LNC) is a prospective investment option due to its undervaluation, high dividend yield and significant growth potential.
Miller Value Deep Value Strategy stated the following regarding Lincoln National Corporation (NYSE:LNC) in its first quarter 2024 investor letter:
“During the quarter, we initiated a position in Lincoln National Corporation (NYSE:LNC). Lincoln Financial is a 120-year-old financial services company that provides financial protection and security to its customers through annuities, life insurance, group protection and retirement plan services. Over the past two years, the company has seen significant headwinds in its Life Insurance segment and profit challenges across the business largely due to the Covid outbreak. New senior management has indicated a greater focus on strengthening the balance sheet, focusing on more capital-efficient new business, and improving long-term free cash flow generation. Over the past year, the company has conducted a series of transactions that have improved their balance sheet and enhanced the Firm’s capital ratios. Management is undertaking cost reduction actions and the headwinds in their life segment appear poised to turn to tailwinds over the next couple of years and potentially allow the segment to return to normalized profitability. In addition, the company’s new Head of Workplace Solutions whopreviously at MetLife is focused on improving the company’s Group and Retirement business, accelerating organic growth through new product offerings, and narrowing the segment margins with peers. If the company’s plans are executed well, Lincoln’s operating income could grow double digits over the next couple of years, improving company ROE (return on equity) and free cash flow conversion.
Lincoln is down 60%+ from its 2-year high, at an attractive 50% discount to book value and 30%+ normalized earnings yield. Achieving long-term free cash flow conversion targets would support annual free cash flow in excess of $1B. With a forward price-to-earnings (P/E) multiple close to four times, every one multiple point improvement generates approximately 25% in share price returns (significantly higher than the S&P 500 today which would be closer to 5% for each multiple point improvement and for the top five market caps, closer to 3%). Over the next 3-5 years, LNC returning to normalized earnings and valuation expanding back towards the peer group 20-year P/E average of 9.6x and 1.2x book value, would support upside potential near three times its current price levels.”
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Disclosure: None. This article is originally published at Insider Monkey