In this piece, we will take a look at the 12 best stocks to buy in falling markets according to analysts. If you want to skip our overview of bear markets and the broader stock market, then you can skip ahead to 5 Best Stocks to Buy in Falling Markets According to Analysts.
With the first quarter of 2024 ending, it appears that investors have finally settled on a valuation of artificial intelligence and its impact on the broader semiconductor industry. The Wall Street of 2024 is dealing with moderately high single digit interest rates, which have now become the new status quo as the Federal Reserve maintains a cautious outlook for inflation. The stock market has also been helped by the fact that the U.S. economy posted triple single digit percentage economic growth in 2023, despite many Americans finding it difficult to maintain spending amidst higher rates and higher prices of essential items.
When it comes to trading stocks, firms that sell these essential items are called consumer staples or consumer defensive, and within a broader bear market, they often provide investors with stability. However, in today's stock market, enterprise computing has taken over personal computing as one of the highest growth sectors due to investor sentiments about the shift to advanced data analysis techniques such as artificial intelligence.
Consequently, the flagship S&P 500 index is up by 31% over the past 12 months, and the tech heavy NASDAQ Composite is up even higher by having posted 38% in returns. No one can call this a bear market, and to look for such stocks, one has to further dive into different sectors to see whether any secular trends are affecting the share prices of multiple firms.
For instance, even though the broader stock markets are up in green over the past year or so, one sector that can rightfully be said to be in a bear market is renewable energy. Before the coronavirus pandemic, it was one of the hottest sectors on the market as investors benefited from 'easy money' and consumers could splurge on products such as heavy duty residential solar power systems and electric vehicles.
However, over the past 12 months, the S&P Global Clean Energy Index is down by a painful 26%, with multiple crises in the global lithium industry and the interest rate environment. In fact, the sensitive nature of these bear market stocks when it comes to interest rates was apparent in February 2024 when investors were greeted with the first set of inflation data for 2024. These figures were for January, and they saw prices rise 3.1% annually and overshoot analyst estimates of 2.9%. January's inflation figures, just like December's saw stocks drop and this time around the drops ensured that stocks such as SunPower Corporation (NASDAQ:SPWR) and ChargePoint Holdings, Inc. (NYSE:CHPT) remained bear market stocks.
Apart from utilities, other stocks are also suffering from falling markets. One such example is the utility industry, with the S&P 500 Utilities and Dow Jones U.S. Utilities Index indexes down by 4.07% and 3.91% respectively over the past 12 months. Their drops are overshadowed by the telecommunications sector, which is yet to overcome weakness stemming from multiple factors such as high debt load and exposure to lead cables. Consequently, the S&P Telecom Select Industry Index has shed 6.78% over the past 12 months, making it yet another falling market.
One telecommunications firm whose shares have taken a beating recently is AT&T Inc. (NYSE:T). Its shares sank by 16% during the first two and a half weeks of July 2023 after reports that AT&T faced significant exposure from having used lead cables. This led JPMorgan Chase & Co. (NYSE:JPM) to cut the stock's rating to Neutral from Overweight and reduce the share price target by $5.
Since Insider Monkey focuses primarily on hedge fund data, we thought to take a look at what hedge fund sentiment was about AT&T Inc. (NYSE:T) back in 2023. Here's what Miller Value Partners shared about the falling market stock in its Q3 2023 investor letter:
Our third-largest holding at quarter end was AT&T (T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash ow, implying a forward free cash flow yield north of 15%. Just under half of free cash ow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash ow model will suggest that intrinsic value for shares begins with a “2,” suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio.
With these details in mind, let's take a look at some stocks in falling markets that analysts are optimistic about. A couple of notable picks are Liberty Broadband Corporation (NASDAQ:LBRDA), Sunrun Inc. (NASDAQ:RUN), and Sunnova Energy International Inc. (NYSE:NOVA).
A close-up of a laptop monitor with stock market prices scrolling up and down.
Our Methodology
To make our list of the best stocks in falling markets, we first made a list of stocks that have lost 20% or more over the past 12 months and are in the telecommunications, utilities, solar, or software infrastructure industries. Then, we picked the stocks that had the highest number of hedge fund investors in Q4 2023 courtesy of Insider Monkey's database of 933 hedge funds. These falling stocks were then ranked by their average analyst share price target upside and the top stocks were chosen.
For these best stocks in falling markets according to analysts, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
12 Best Stocks to Buy in Falling Markets According to Analysts
Payoneer Global Inc. (NASDAQ:PAYO) is an American software company headquartered in New York City. Despite the fact that its shares are down 23% year to date, analysts have rated the shares as Strong Buy on average. The firm appears to be benefiting from significant tailwinds in B2B and Merchant payments, a segment that posted substantial growth during Q4 2023.
During the same time period, 27 out of the 933 hedge funds part of Insider Monkey's database had bought Payoneer Global Inc. (NASDAQ:PAYO)'s shares. Israel Englander's Millennium Management was the biggest investor through its $26.8 million stake.
Along with Sunrun Inc. (NASDAQ:RUN), Liberty Broadband Corporation (NASDAQ:LBRDA), and Sunnova Energy International Inc. (NYSE:NOVA), Payoneer Global Inc. (NASDAQ:PAYO)is a stock in falling markets receiveing attention from analysts.
First Solar, Inc. (NASDAQ:FSLR) is a solar power company headquartered in Tempe, Arizona. Despite a broader slowdown in the clean energy industry, the firm has held its ground on the financial front as it has grown the EPS and beaten analyst estimates in three out of its four latest quarters.
During Q4 2023, 47 out of the 933 hedge funds covered by Insider Monkey's research had bought the firm's shares. First Solar, Inc. (NASDAQ:FSLR)'s largest hedge fund shareholder is Robert Pohly's Samlyn Capital through its $308 million stake.
Shoals Technologies Group, Inc. (NASDAQ:SHLS) is a solar hardware and software company headquartered in Portland, Tennessee. It's one the highest rated stocks on our list, as the average share rating is Strong Buy.
By the end of last year's fourth quarter, 31 out of the 933 hedge funds part of Insider Monkey's database were Shoals Technologies Group, Inc. (NASDAQ:SHLS) shareholders. Todd J. Kantor's Encompass Capital Advisors owned the biggest stake that was worth $105 million.
Array Technologies, Inc. (NASDAQ:ARRY) is a specialized solar power equipment firm that makes and sells trackers that help solar panels maintain their skyward orientation. The firm's shares jumped in March 2024 when its latest financial results saw Array Technologies, Inc. (NASDAQ:ARRY) deliver 56 cents in EPS for a hefty beat over analyst estimates of 49 cents.
As December 2023 ended, 32 out of the 933 hedge funds covered by Insider Monkey's survey had bought a stake in the firm. Array Technologies, Inc. (NASDAQ:ARRY)'s largest hedge fund investor is Herbert Frazier's Hill City Capital due to its $148 million investment.
Iridium Communications Inc. (NASDAQ:IRDM) is a satellite telecommunications firm based in McLean, Virginia. It's been under a lot of stress since last year, with multi digit percentage share price drops following earnings reports released in July 2023 and February 2024.
Despite this, 33 out of the 933 hedge funds tracked by Insider Monkey were Iridium Communications Inc. (NASDAQ:IRDM)'s shareholders as of December 2023. Kevin Kuebler and Ming Lam's Silver Heights Capital Management was the biggest shareholder as it owned 2.6 million shares that were worth $109 million.
TransAlta Corporation (NYSE:TAC) is the first utility stock on our list of the best stocks in falling markets. The firm has been having a tumultuous time on the stock market this year, after having taken a multi million dollar tax charge and a hefty $84 million loss in Q4 2023.
By the end of last year's fourth quarter, 19 out of the 933 hedge funds covered by Insider Monkey's research had bought the firm's shares. TransAlta Corporation (NYSE:TAC)'s largest hedge fund investor is David Rosen's Rubric Capital Management through its $42.7 million stake.
6. Vodafone Group Public Limited Company (NASDAQ:VOD)
Number of Q4 2023 Hedge Fund Shareholders: 24
Share Price Target Upside: 70.13%
Latest Average Share Price Target: $14
Vodafone Group Public Limited Company (NASDAQ:VOD) is a British telecommunications carrier headquartered in Newbury, the United Kingdom. Amidst troubled balance sheets in the telecommunications industry, the firm divested its Italian business for €8 billion in March 2024.
24 out of the 933 hedge funds part of Insider Monkey's Q4 2023 database were Vodafone Group Public Limited Company (NASDAQ:VOD)'s investors. Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital was the biggest shareholder due to its $126 million investment.
Liberty Broadband Corporation (NASDAQ:LBRDA), Vodafone Group Public Limited Company (NASDAQ:VOD), Sunrun Inc. (NASDAQ:RUN), and Sunnova Energy International Inc. (NYSE:NOVA) are some stocks in falling markets with hedge fund and analyst interest.
