Stock markets often overreact to hype causing fluctuations in stock prices and overvaluation. In recent quarters, there is immense interest in tech giants contributed by the developments in generative AI. However, before investing, it is crucial to analyze a company’s ability to withstand competitive forces and assess its sustainability.
At Insider Monkey, we focus on hedge fund managers with long-term goals who invest in undervalued companies with high potential. As Warren Buffett said, “The stock market transfers money from the impatient to the patient.” Our experience has shown that 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 the stocks that are frequented by hedge funds and pitched by hedge funds in their investor letters.
In this article, we will be exploring ten stocks that hedge funds have been talking about in their investor letters recently. By the way, you can see a list of the recent hedge fund investor letters on our hedge fund investor letters Q1 2024 page.
Below we listed 10 stocks ranked by their 2024 performance from worst to best. PetIQ, Inc. (NASDAQ:PETQ), Cogent Communications Holdings, Inc. (NASDAQ:CCOI), Centene Corporation (NYSE:CNC), IQVIA Holdings Inc. (NYSE:IQV), and Distribution Solutions Group, Inc. (NASDAQ:DSGR) have the lowest returns right now and potentially can be bought at prices below what hedge funds paid for them.
10. PetIQ, Inc. (NASDAQ:PETQ)
2024 Return: -17.97%
Number of hedge fund holdings at the end of Q4: 19
The US-based pet wellness and pharmaceutical company PetIQ, Inc. (NASDAQ:PETQ) was established in 2010. The company operates through product and service segments. During COVID, we saw a trend of rising pet adoption. As pets get older, the need for care and medicines will increase. Pet owners are willing to spend the premium on pet care. For the current year, the company anticipates growth of 4%. The business showed a 19.6% growth rate and a solid performance for the previous year. Analysts expect a short-term dip, but it could be temporary. On April 17, 2024, the stock closed at $15.93 per share, with a market capitalization of $468.841 million. The opinion of investors regarding PetIQ, Inc. (NASDAQ:PETQ) is favorable.
White Brook Capital stated the following regarding PetIQ, Inc. (NASDAQ:PETQ) in its first quarter 2024 investor letter:
“PetIQ, Inc. (NASDAQ:PETQ) is a United States based generic pet medication, supplements, and wellness services company. The Company operates as a value-added intermediary between club, big box retail, and ecommerce companies; pet pharmaceutical companies; and the consumer.
PetIQ consists of two reportable business segments: product and services. The product segment, which constituted their original business, is a distribution operation that distributes over-the-counter and prescription pet pharmaceuticals to retailers. Subsequently, the organization has expanded to include a proprietary products business that manufactures PetIQ-branded generic and over-the-counter pharmaceuticals and supplements for distribution to pharmacies and retail stores. The services segment offers veterinary services at retail establishments. This segment is instrumental in stimulating consumer demand for high-profit, per-square-foot pet items and generates rental income for associated retailers. Notably, 50% of their customers have never visited a veterinarian prior to seeking services from a PetIQ facility…” (Click here to read the full text)
9. Cogent Communications Holdings, Inc. (NASDAQ:CCOI)
2024 Return:-17.2%
Number of hedge fund holdings at the end of Q4: 19
Cogent Communications Holdings, Inc. (NASDAQ:CCOI), with its headquarters located in Washington, DC, offers services for private networks, data center colocation space, and high-speed Internet access. It is anticipated that future earnings growth will be enhanced by Cogent Communications Holdings, Inc.’s (NASDAQ:CCOI) integration with the acquired T-Mobile Wireline business. Last year Cogent Communications Holdings, Inc. (NASDAQ:CCOI) reported a 56.92% rise in revenue, and the estimate for next year is 22.60%. Even while the company’s short-term prospects may not seem promising, it’s still a solid investment for an investor looking for a turnaround opportunity. On April 18, 2024, the stock closed at $63.13 per share and has a market capitalization of $3.096 billion.
Alphyn Capital Management stated the following regarding Cogent Communications Holdings, Inc. (NASDAQ:CCOI) in its first quarter 2024 investor letter:
While Cogent Communications Holdings, Inc.’s (NASDAQ:CCOI) latest earnings disappointed the market, I remain optimistic about future earnings growth as the company integrates the acquired T-Mobile Wireline business. As previously discussed, Cogent acquired this business for a nominal $1, with T-Mobile covering operating losses through a $760 million payment spread over 4.5 years.
Cogent believes it can turn this division’s $300 million in reported EBITDA losses into $90 million in profits by streamlining unprofitable contracts and strategically migrating T-Mobile’s data traffic onto Cogent’s network. While T-Mobile offloaded 93% of its traffic to expensive third-party networks, Cogent relies on 3rd party networks for only 25% of services. This shift should generate significant cost savings from reduced third-party fees, driving most of the anticipated synergies…” (Click here to read the full text)
8. Centene Corporation (NYSE:CNC)
2024 Return: -2.6%
Number of hedge fund holdings: 57
Established in 1984, Centene Corporation (NYSE:CNC) is a healthcare organization that functions in Medicaid, Medicare, Commercial, and Other segments. In 2023, the company’s year-over-year growth rate was 6.54%. For the current year, the estimated growth is 1.30%, which is 11.80% for the following year. According to Yahoo Finance, the stock is undervalued as the Trailing P/E is 14.9%. With its low valuation, good fundamentals, growing demand, and attractive growth rate, the company is worth investing in. The current market capitalization of CNC is $39.449 billion.
Oakmark Global Fund stated the following regarding Centene Corporation (NYSE:CNC) in its first quarter 2024 investor letter:
“Centene Corporation (NYSE:CNC) is a large health insurer specializing in three major government-sponsored programs: Medicaid, Marketplace and Medicare Advantage. Each of these programs benefits from long-term secular tailwinds. In Medicaid, states are steadily outsourcing their programs to managed care companies like Centene to help reduce costs and improve care quality. Managed Medicaid penetration has increased meaningfully over the past two decades, and we expect further gains over time. In Marketplace, growth is driven by the trend toward more individuals buying health insurance. Centene holds the top market share in both of these programs and is well-positioned to capitalize on their continued growth. Finally, in Centene’s Medicare Advantage business, past missteps will result in losses next year, but we believe Centene can turn its Medicare Advantage segment around and generate positive earnings in the next few years. Centene currently trades for about 9x our estimate of normal earnings power, which we believe is a compelling value for a business that generates healthy returns on capital and is capable of growing EPS at a low double-digit rate.”
7. IQVIA Holdings Inc. (NYSE:IQV)
2024 Performance: -1%
Number of hedge fund holdings: 49
IQVIA Holdings Inc. (NYSE:IQV) is a leading provider of advanced analytics, technology solutions, and clinical research services to the life sciences industry. IQVIA Holdings Inc. (NYSE:IQV) is estimated to grow by 8.90% in the current year and by 9.50% in the next quarter. It reported a robust performance with a 4% growth rate in 2023. Given its promising earnings history, share repurchase program, and growth prospects, it stands out as a potential investment option.
Oakmark Global Select Fund stated the following regarding IQVIA Holdings Inc. (NYSE:IQV) in its first quarter 2024 investor letter:
“We purchased new positions in Reckitt Benckiser Group (U.K.), IQVIA Holdings Inc. (NYSE:IQV) and Centene (U.S.) during the first quarter. Fears about biotech funding and the sell-off in the broader life sciences area created an opportunity for us to invest in IQVIA, which we view as a high-quality business, at an attractive valuation. We believe that IQVIA is positioned to benefit from the trends of advanced therapeutics and personalized medicine given its ability to perform decentralized clinical trials that require digital capabilities. In our view, IQVIA can grow even further due to its data and software capabilities that enable the company to deliver real-world evidence so that biopharma companies and other health care providers can satisfy their regulatory and reimbursement mandates. We also appreciate CEO Ari Bousbib’s strong track record on operations and capital allocation, and we are impressed by his large equity holdings in the company, which give him significant skin in the game. We were pleased to purchase shares of IQVIA at a discount to our estimate of its intrinsic value.”
6. Distribution Solutions Group, Inc. (NASDAQ:DSGR)
Number of Hedge Fund Holdings: 7
2024 Performance:2.1%
Established in 1952, Distribution Solutions Group, Inc. (NASDAQ:DSGR), is a specialty distribution company. The company reported a 36.38% year-over-year revenue growth in 2023, with an anticipated growth estimate of 2.10% for the current year. The business growth strategy is focused on acquisitions. According to Yahoo Finance, Distribution Solutions Group, Inc. (NASDAQ:DSGR) maintains a healthy debt-to-equity ratio. Its sound financial position, growth strategy, and favorable growth rate render it an attractive investment opportunity. Distribution Solutions Group, Inc. (NASDAQ:DSGR) has a market capitalization of $1.542 billion.
Alphyn Capital Management stated the following regarding Distribution Solutions Group, Inc. (NASDAQ:DSGR) in its first quarter 2024 investor letter:
“I recently initiated a starter position in Distribution Solutions Group, Inc. (NASDAQ:DSGR), a private equity-owned specialty distributor. Unlike broadline distributors, DSGR focuses on niche products with a high-touch “vendor-managed inventory” (VMI) model. They operate a route-based business where customers outsource inventory management for essential, high-volume, low-value parts to DSGR’s employees. These employees build long-term relationships with customers through frequent on-site visits.
DSGR resulted from a three-way merger in April 2022, combining Lawson (maintenance and repair organizations), Gexpro Services (VMI for OEM customers), and TestEquity (test and measurement equipment and VMI for electronics production supplies). While some complexity exists due to the recent merger, the company aims to nearly triple free cash flow by 2028 through organic growth, margin expansion, and accretive acquisitions…” (Click here to read the full text)
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Disclosure: None. This article is originally published at Insider Monkey.
