As per Lloyd Capital, the new year starts on the back of economic resilience. Global conditions remain benign, courtesy of a healthy US economy, moderating inflation, and a gradual easing of global monetary policy. However, investors are required to remain cognizant of the several risks looming. Notably, governments worldwide have fueled economic activity in a way that has deteriorated fiscal positions. Also, inflation is yet to fully return to the respective targeted levels and the geopolitical situation remains uncertain.
As per the investment management firm, investors are required to remain focused on analyzing the quality of the businesses they purchase and ensuring that these are done at prices offering an adequate margin of safety relative to intrinsic value.
S&P 500 to Reach 6,666 in 2025, Says Bank of America
As per BofA's equity strategy team, led by Savita Subramanian, the S&P 500 index should reach 6,666 by 2025 end. Part of this growth is expected to stem from healthy economic growth. The investment firm's economics team expects that the US economy should grow at an annualized rate of 2.4% in 2025, higher than Bloomberg consensus forecasts of 2% growth. As a result, the firm has favored companies that are GDP-sensitive and is now going overweight on Financials, Consumer Discretionary, and Real Estate, among others.
Bank of America went on to add that, in 2025, there will be a broadening out of the stock market rally from the "Mag 7" tech stocks to other 493 stocks of the S&P 500 Index. J.P. Morgan also has somewhat similar expectations. Let’s look at that in detail.
How Can Investing in Conglomerates Provide Support in 2025?
J.P. Morgan believes that equity earnings should broaden moving forward. Equity returns were dominated by "Mag 7" since the beginning of 2023. Over that period, the broader market (S&P 500 index) managed to return 62%, more than half of which was made by Magnificent 7 (delivering 242% over the same period). The strong returns have a solid backing as the Mag 7 were able to grow their earnings at 40%, and the remaining 493 stocks in the index were able to post 2%.
However, J.P. Morgan expects that performance is expected to broaden in 2025 as the remaining "493 stocks" should be able to more than 5 times their earnings growth to 13% in 2025. Therefore, Wall Street analysts believe that investing in companies having a diversified presence should deliver healthy returns in contrast to pure-play (sector-specific) investments. The wealth management firm believes that reduced interest rates, renormalization of inventories and production, and easier comparables are expected to act as potential tailwinds for the cohort over the next year.
Analysts are bullish on businesses with multiple revenue streams and one group that gives investors a diversification advantage is conglomerates. With this in mind, let us now have a look at the 10 Best Conglomerate Stocks to Buy According to Hedge Funds.
Our Methodology
To list the 10 Best Conglomerate Stocks to Buy According to Hedge Funds, we used a screener and online rankings. After getting an initial list of 20-25 stocks, we selected the ones having high hedge fund holdings. Finally, the stocks were ranked in ascending order of their hedge fund sentiments, as of Q3 2024.
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).
An overview of a manufacturing plant, representing the production of consumer products from the company.
Compass Diversified (NYSE:CODI) is a private equity firm specializing in add-on acquisitions, buyouts, industry consolidation, recapitalization, and late-stage, and middle-market investments.
Analysts at TD Cowen are optimistic about Compass Diversified (NYSE:CODI)’s long-term growth potential and the research firm believes that the company provides shareholders an opportunity to own a portfolio of actively managed businesses having compelling attributes. The firm believes that Compass Diversified (NYSE:CODI)’s advantages consist of diversification, flexibility to transact at optimal times, favorable cost of debt, and permanent equity capital.
Compass Diversified (NYSE:CODI) expects consolidated pro forma subsidiary adjusted EBITDA of between $510 million - $525 million. The increase in its full-year guidance will likely come from a rise in its branded consumer vertical, which should deliver adjusted EBITDA of between $390 million and $400 million. The company’s branded consumer businesses, which focus on acquiring and managing mid-market companies having strong consumer brands, are expected to support the next leg of growth.
Compass Diversified (NYSE:CODI)’s branded consumer businesses should be aided by a healthy portfolio of consumer-oriented brands, e-commerce expansion, and the economic resilience of premium brands. The company’s brands focus on evolving consumer preferences and sustainability. For instance, PrimaLoft continues to expand its use of recycled materials, aligning with the eco-conscious trends.
As per Wall Street, the shares of Compass Diversified (NYSE:CODI) have an average price target of $30.67.
Overall CODI ranks 7th on our list of the best conglomerate stocks to buy according to hedge funds. While we acknowledge the potential of CODI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CODI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
