The latest earnings season has further dampened the market sentiment as investors can now see the possibility of a recession becoming a reality. Earnings from major companies showed the real damage of inflation, the Federal Reserve’s rate hikes and overall macro-economic volatility as businesses suffered because of a slowdown in consumer spending. Profits of S&P 500 companies were expected to fall about 6.4% in the first quarter, compared with a 10% rise in last year’s first quarter.
Analysts expect the Federal Reserve to raise interest rates one last time for 2023 during its upcoming meeting in May. However, some are still hoping that the Fed will begin cutting rates this year. However, this optimism might not last long as the Federal Reserve is far from meeting its inflation-related goals.
A latest Wall Street Journal report quoted Amanda Agati, chief investment officer at PNC Asset Management, who believes
“We’ve been saying for a while now that the market is like a kid in a candy store, craving a sugar high from more policy accommodation,” Ms. Agati said.
The IPO Market: Is a Rebound Expected?
The IPO market suffered one of the worst periods in 2022, raising just $8.6 billion in the year, the slowest year in at least two decades. The IPO market moves with the broader market sentiment. During the start of 2023, a strange optimism took over the market as many believed the worst was behind us and inflation was starting to get under control. Based on this positivity, the IPO market started to see signs of life, with Structure Therapeutics, Nextracker, Kenvue and Stripe finalizing their plans to go public. While the optimism seen during the start of the year slowly fizzled out, pre-IPO companies have not ruled out the possibility of going public and analysts are hopeful about seeing a lot of activity in the IPO space this year. In March, a WSJ report said stock sale initiatives to raise cash by several companies were boosting confidence among investors that the IPO market will soon rebound.
The WSJ report quoted data from Dealogic, which said that over 50 publicly traded companies in the U.S. raised a total of roughly $7.4 billion in February alone, compared to 23 companies raising $1.8 billion in February 2022. The companies that raised money through stock sales earlier this year include American Water Works and Restaurant Brands.
Earlier this month, it was reported that Johnson & Johnson was getting ready for a roadshow to pitch shares of its consumer-healthcare business Kenvue Inc. for an IPO. Reports said that the company’s goal is to raise $3.5 billion or more in the offering at a valuation close to $40 billion.
An important trend in the IPO market seen in the backdrop of the slowing activity and troubles is carve-outs. A carve-out in simple words is a spin-off IPO, in which a major company decides to separate its subsidiary and trade it publicly. Our list of best new stocks will include several carve-outs and there are many such IPOs in the pipeline, including that of Kenvue.
Some other spin-offs include GE HealthCare Technologies Inc., Mobileye, Corebridge Financial and Bausch + Lomb.
Talking to the Wall Street Journal, David Oberst, a partner focusing on M&A transactions at Deloitte & Touche, explained the rationale of carve-outs in these words:
“In times when there’s a potential downturn, companies will look at their portfolio to decide what their core assets are."
Best New Stocks To Invest In According To Hedge Funds
Photo by Ruben Sukatendel on Unsplash
Our Methodology
For this article we scanned Insider Monkey’s database of 943 hedge funds and picked 13 stocks that went public over the past two years with the highest number of hedge fund investors. The idea was to find relatively new stocks that are popular among smart money investors. The list is ranked in ascending order of the number of hedge fund investors.
Best New Stocks To Invest In According To Hedge Funds
13. RXO Inc (NYSE:RXO)
Number of Hedge Fund Holders: 27
RXO is a full truckload freight transportation brokering services company. Earlier this month, Benchmark started covering the stock with a hold rating. The company completed its spinoff from XPO (NYSE:XPO) in November last year.
As of the end of the fourth quarter of 2022, 27 hedge funds tracked by Insider Monkey had stakes in the company.
Mobileye Global Inc. (NYSE:MBLY) ranks 12th in our list of the best new stocks to invest in according to hedge funds. Baird’s Luke Junk recently said Mobileye Global Inc. (NYSE:MBLY)’s approach to autonomous vehicle mapping is a "key competitive advantage" for Mobileye. Junk has an Outperform rating on the stock.
As of the end of the fourth quarter of 2022, 29 hedge funds tracked by Insider Monkey have stakes in Mobileye Global Inc. (NYSE:MBLY).
EV company Rivian Automotive, Inc. (NASDAQ:RIVN) went public in November 2021. Insider Monkey’s database of hedge funds shows that 21 funds had stakes in Rivian Automotive, Inc. (NASDAQ:RIVN). George Soros’s Soros Fund Management has a $264 million stake in Rivian Automotive, Inc. (NASDAQ:RIVN).
In April, Morgan Stanley decreased its price target for the stock to $24 from $26. The firm’s analyst Adam Jonas noted the pricing challenges faced by Rivian Automotive, Inc. (NASDAQ:RIVN) in the industry that is seeing price wars currently. Jonas’s price target for Rivian Automotive, Inc. (NASDAQ:RIVN) still presents a strong upside potential from the current levels ($12.6).
Baron Asset Fund made the following comment about Rivian Automotive, Inc. (NASDAQ:RIVN) in its Q4 2022 investor letter:
“Consumer Discretionary investments along with the lack of exposure to the strong performing Energy sector offset a portion of the above-mentioned gains. Within Consumer Discretionary, the underperformance of electric vehicle (EV) manufacturer Rivian Automotive, Inc. (NASDAQ:RIVN) coupled with lower exposure to this better performing sector hampered relative results. Rivian’s shares fell as investors fretted over the company’s unit economics and how macroeconomic uncertainty is impacting the EV industry.
Financial services company Corebridge Financial, Inc. (NYSE:CRBG) ranks 10th in our list of the 13 best new stocks to invest in according to hedge funds. Earlier this month, Goldman Sachs analyst Alex Scott upgraded Corebridge Financial, Inc. (NYSE:CRBG) to Buy from Neutral. In February, Corebridge Financial, Inc. (NYSE:CRBG) posted Q4 results. Adjusted EPS in the quarter came in at $0.88, beating estimates by $0.20.
Out of the 943 hedge funds in Insider Monkey’s database, 29 funds had stakes in Corebridge Financial, Inc. (NYSE:CRBG).
Shares of Brazil-based digital banking company Nu Holdings Ltd. (NYSE:NU) are having a strong year, having gained about 40% in value through April 24. In February Nu Holdings Ltd. (NYSE:NU) posted strong Q4 results. Adjusted net income in the quarter came in at $133 million. Revenue in the quarter totaled $1.45 billion, beating estimates by $60 million.
As of the end of the last quarter of 2022, 31 hedge funds tracked by Insider Monkey held stakes in Nu Holdings Ltd. (NYSE:NU). The most notable hedge fund stakeholder of Nu Holdings Ltd. (NYSE:NU) was Warren Buffett’s Berkshire Hathaway which owns a $436 million stake in the company.
Robinhood Markets, Inc. (NASDAQ:HOOD) went public in 2021, the peak of retail investor activity and market optimism. This optimism took a beating in 2022 as retail investors retreated after the Federal Reserve started increasing interest rates. However, Robinhood Markets, Inc. (NASDAQ:HOOD)’s platform remains one of the most popular stock and crypto trading platforms in the world. Robinhood Markets, Inc. (NASDAQ:HOOD) is positioned to see growth when retail investor activity heats up again.
As of the end of the fourth quarter of 2022, 32 hedge funds tracked by Insider Monkey were long Robinhood Markets, Inc. (NASDAQ:HOOD). The most notable of these hedge funds was Catherine D. Wood’s ARK Investment Management which owns a $238 million stake in Robinhood Markets, Inc. (NASDAQ:HOOD).
The shares of software company Confluent, Inc. (NASDAQ:CFLT), which went public in 2021, have gained about 15% in 2023 through April 24. Confluent, Inc. (NASDAQ:CFLT) is getting bullish comments from Wall Street analysts. Recently, Morgan Stanley analyst Sanjit Singh upgraded the stock to Overweight from Equal Weight and increased his price target to $30 from $29.
The analyst noted a latest survey which points to a positive industry outlook for companies proving Cloud optimizing services.
Mizuho’s Gregg Moskowitz also started covering Confluent, Inc. (NASDAQ:CFLT) with a Buy rating and a $28.
As of the end of the last quarter of 2022, 35 hedge funds tracked by Insider Monkey had stakes in Confluent, Inc. (NASDAQ:CFLT). The biggest stakeholder of Confluent, Inc. (NASDAQ:CFLT) is Ken Griffin’s Citadel Investment Group which owns an $83 million stake in the company.
6. Frontier Communications Parent, Inc. (NASDAQ:FYBR)
Number of Hedge Fund Holders: 35
Frontier Communications Parent, Inc. (NASDAQ:FYBR) stock jumped near the end of March after Hedgeye called the stock its long idea. The firm believes Frontier Communications Parent, Inc. (NASDAQ:FYBR) could reach $40 in the next 12 to 24 months. Hedgeye analyst Andrew Freedman said in a note that concerns that slower pace of fiber builds and heightened competition (FWA + Cable) will weigh on profitability and FCF targets are keeping Frontier Communications Parent, Inc. (NASDAQ:FYBR) under pressure. Freedman said these concerns will prove to be “short-sighted.”
A total of 35 hedge funds among the 943 hedge funds tracked by Insider Monkey reported owning stakes in Frontier Communications Parent, Inc. (NASDAQ:FYBR).
