Hedge funds are now optimistic about the stock of this large company

We recently published a list of The 7 best big company stocks to buy now. In this article, we take a look at the position of Alphabet Inc. (NASDAQ: GOOGL) compared to the stocks of other large companies.

Mega-cap stocks—more specifically, large technology companies—continued to contribute a disproportionate share to the overall return of the U.S. stock market. Market experts estimate that from the beginning of 2023 to the end of May 2024, just a handful of the largest and most established technology companies accounted for about 60% of the S&P 500's 40%-plus gain.

FactSet reported that for Q2 2024 (with 93% of S&P 500 companies reporting actual results), about 79% of S&P 500 companies reported positive EPS surprises. On the other hand, about 60% of S&P 500 companies reported positive revenue surprises. In Q2 2024, semiconductor stocks were the key drivers for the S&P 500 index. AI themes supported other sectors, such as utilities, which sought support from higher power demand for AI data centers.

Earnings Season Q3 2024 – A Preview

Wall Street experts believe that estimates for Q3 2024 have come down, and the magnitude of the estimate cuts appears to be significantly larger than compared to the comparable periods of the first two quarters of 2024. Market participants expect total S&P 500 earnings to rise 3.9% from the year-ago period, on revenue growth of 4.7%. These estimates have been declining since the start of the period, as the current growth of 3.9% was down from 6.9% in early July.

The decline in estimates is due to risks associated with the economic downturn, slower disinflation, expectations of higher interest rates over the longer term, and increased geopolitical risks. Apart from these risks, uncertainty surrounding the US presidential election remains the main factor responsible for the decline in estimates.

Wall Street analysts expect uncertainty surrounding the U.S. presidential election to increase as we approach the November vote, potentially creating additional headwinds in an environment that is already showing signs of slowing momentum.

Reuters reported that populism, polarization and an expected neck-and-neck race can lead to a rise in the Economic Policy Uncertainty (EPU) index, which is based on headlines and was created by economics professors Steven J. Davis, Scott R. Baker and Nick Bloom. The rise in the EPU takes place when an uncertain outlook on government policy causes consumers to delay spending and forces businesses to halt investments and hiring.

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Brandywine Global Investment Management (a Franklin Templeton company), an investment management firm, believes this could happen in the current environment. The firm noted that the University of Michigan's current economic situation index is below the expectations index. Notably, this is a rare occurrence, suggesting that consumers are concerned.

Given the concerns, investors should stick with large company stocks

Analysts at Brandywine Global believe that this year's election cycle – justified or not – continues to impact the U.S. consumer, which in turn impacts the corporate sector.

In the 2020 follow-up working paper, Davis (co-founder of the EPU Index) and colleagues revealed that the EPU Index tends to rise by ~18% in November during a presidential election. When elections are close, with margins less than 5% and polarized, the EPU Index can rise by ~28% in election month.

Political uncertainty may be a stronger factor in asset prices as investors focus on the U.S. presidential election. A JPMorgan survey found that investors continue to view political risk in the U.S. and abroad as the most important destabilizing indicator for stocks.

AI fever combined with strong earnings has supported broader equity prices in H1 2024, and gains have been concentrated in technology and growth stocks. Analysts say some investors are still looking for areas of the market that have underperformed, and they expect the recent rally in the technology sector could spread to other sectors as well. Most investors welcomed signs of slowing inflation and weakening growth. As a result, the U.S. Federal Reserve has hinted at cutting interest rates. With uncertainties looming, market experts believe investors should stick with the big stocks that have a healthy track record of strong earnings.

Our methodology

To select the 7 best large company stocks to buy now, we used Yahoo Finance and Finviz stock screeners to filter out stocks with the largest market caps from various industries. Next, we narrowed down our list by selecting the large and established companies that were most popular with elite hedge funds. Finally, the stocks were ranked in ascending order of their hedge fund sentiment.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

A user's hands type a search query into a Google search box, highlighting the company's search capabilities.

Alphabet Inc. (NASDAQ:GOOGL)

Number of hedge fund owners: 216

Alphabet Inc. (NASDAQ: GOOGL) is a holding company and Internet media giant Google is its wholly owned subsidiary.

The company enjoys durable competitive advantages associated with intangible assets and its network effect. Alphabet Inc.'s (NASDAQ:GOOGL) technological expertise related to algorithms and AI, as well as its access to and accumulation of valuable data for advertisers, should provide tailwinds. In addition, its search engine is highly valued and appreciated by industry players. YouTube should benefit from high reach and frequency of use. Its pure video content format continues to be attractive to brand advertisers, which should benefit Alphabet Inc. (NASDAQ:GOOGL) over the next decade.

Wall Street analysts believe the market is underestimating Alphabet Inc.'s (NASDAQ:GOOGL) commitment to AI as the company's Gemini model continues to be integrated into search results, YouTube advertising, and cloud offerings. As we all know, cloud players are expected to be the AI ​​winners in the long run, and Alphabet Inc. (NASDAQ:GOOGL) is well positioned to benefit.

Alphabet Inc. (NASDAQ:GOOGL) has reported its Q2 2024 results. The performance is supported by continued strength in search and momentum in the cloud space. The company's long-standing infrastructure leadership combined with internal research teams should help the tech giant capitalize on future opportunities.

Analysts at TD Cowen initiated coverage on Alphabet Inc. (NASDAQ:GOOGL) shares and increased their price target from $200.00 to $220.00. They issued a “buy” rating on the stock on March 10.^th July.

Patient capital managementa value investing firm, has released its investor letter for the second quarter of 2024. Here is what the fund said:

Total GOOGL 3rd place on our list of the best large company stocks to buy. While we recognize GOOGL's potential as an investment, we believe some highly undervalued AI stocks promise higher returns, and in a shorter time frame. If you're looking for a highly undervalued AI stock that shows more promise than GOOGL but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.