Howard Marks is an American billionaire and the co-chairman and founder of Oaktree Capital, a hedge fund located in Los Angeles, California, USA. Marks is one of the world’s richest individuals, thanks to his hedge fund, which manages approximately $200 billion. The renowned investor, who graduated from the University of Pennsylvania and obtained an MBA from the University of Chicago, has a personal wealth estimated to be worth about $2.2 billion.
In a January memo titled “On Bubble Watch,” the famed investor pondered on one of his most prophetic calls: a 25-year-old article warning against the irrational behavior in dot-com companies. In his memo, Marks cited cautionary signs in today’s markets, including above-average stock valuations, an overwhelming acceptance around AI, the dominance of the Magnificent 7, and the possibility that “automated” buying of large-cap stocks has kicked in “without regard for their intrinsic value.”
Furthermore, the Oaktree CEO identified a critical aspect of stock market bubbles: the tendency of investors to rush in and buy stocks at excessively high prices. This phenomenon was evident during the dot-com boom when internet companies were frequently launched with inflated valuations and rose even higher on their first trading day. Currently, this trend is not happening. He also pointed out that innovations can leave investors without historical benchmarks to inform their growth expectations, making it easier for stock prices to soar under the belief that “this time is different.”
Moreover, in an interview with the Economic Times, the billionaire investor gave his thoughts on equity markets, stating that returns from credit seem to be more dependable.
“From the S&P, you’re not going to get the historic return of 10% a year for the next decade. You will get something less and if that’s true, then the returns described from credit are quite competitive and dependable.”
He pointed out that, while the current Fed funds rate is 4.5%, the historical average over the last 70 years has been roughly 4.9%. Marks contends that the protracted low-interest environment from 2009 to 2021 rendered credit investments unappealing. However, when interest rates rise, fixed-income assets provide enticing returns. Marks also cited Goldman Sachs’ recent projection that the S&P 500 will return only 3% annually over the next decade, as well as data from JP Morgan, which shows that when the S&P 500 is purchased at a P/E ratio similar to what it is now, historical returns over the following decade have ranged between 2% and -2% annually.
Our Methodology
For our list of the 12 best stocks to buy according to Howard Marks, we looked through the billionaire’s Q4 2024 stock portfolio and ranked the following equities based on his hedge fund’s stake value in each holding. Additionally, we have mentioned the hedge fund sentiment around each stock, as of Q4 2024.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is Garrett Motion Inc. (GTX) the Best Stock to Buy According to Howard Marks’ Oaktree Capital Management?
A close up of an engine piston with a commercial turbocharger attached.
Oaktree Capital Management’s Q4 Stake: $398 million
Number of Hedge Fund Holders: 32
Garrett Motion Inc. (NASDAQ:GTX) is an auto components company that develops, produces, and distributes turbocharging, air and fluid compression, and high-speed electric motor technologies to original equipment manufacturers.
On February 12, BWS Financial analyst Hamed Khorsand maintained a Buy rating on Garrett Motion Inc. (NASDAQ:GTX) shares, with a price objective of $12 per share. The analyst remains optimistic on GTX, citing the company’s financial health and future prospects.
Garrett Motion Inc.’s (NASDAQ:GTX) fourth-quarter 2024 earnings showed a notable success, with earnings per share of $0.47 beating the expected $0.31. However, the company’s revenues of $844 million was less than the expected $905.5 million. On the other hand, the firm had an adjusted EBITDA of $153 million, indicating an 18.1% margin, up from the previous year. Looking forward, Garrett Motion forecasts net sales of $3.4 billion and net profitability of $232 million in 2025.
McIntyre Partnerships stated the following regarding Garrett Motion Inc. (NASDAQ:GTX) in its Q4 2024 investor letter:
“Garrett Motion Inc. (NASDAQ:GTX) is a leading manufacturer in the moat-rich turbocharger (TB) market, with a global end-market and industry-leading margins. As TBs are not used in battery electric vehicles (BEVs), the market has concerns about GTX’s terminal value, which is suppressing its valuation. GTX trades ~5x my 2025 levered FCF with leverage at 2x EBITDA. Beyond its core business in TBs, GTX has a separate BEV growth story that is currently pre-revenue with high upfront costs, depressing GTX’s reported run-rate FCF. As a result, I believe GTX is even cheaper on owners’ earnings than the headline numbers suggest. Beyond its BEV investments, GTX has been using its FCF to buy back significant amounts of stock. Since 2022, GTX has retired almost one-third of its shares outstanding. If either BEV penetration is less bad than feared or GTX has success in its BEV investments, I believe GTX shares are significantly undervalued.
Overall, GTX ranks 3rd on our list of best stocks to buy according to Howard Marks’ Oaktree Capital Management. While we acknowledge the potential of GTX 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 time frame. If you are looking for an AI stock that is more promising than GTX but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
