We recently published a list of 10 great stocks to buy right now at fair prices. In this article, we’ll take a look at how Emerson Electric Co. (NYSE:EMR) stands compared to other great stocks you can buy at fair prices right now.
So far in the second half of this year, there are signs that the S&P 500 is expanding beyond its technology leadership and that the index is returning to a more normalized state. This means that there are multiple good stocks in addition to well-known stocks, and investors are required to diversify. This diversification should not be limited to the style level, but also extend to the equity level. Market experts are of the opinion that the AI theme mainly stimulated a narrow market. This concentration, along with the rise of passive investing, has resulted in a significant cycle of consensus positioning and overvaluation. This led to market fragility and a sharp correction in July and early August.
When it comes to passive investing in the S&P 500, you’ll find that nearly a third of your holdings are in just seven stocks, according to Fidelity International. Given their dominance, a stumble in performance means a significant impact on the index, and investors have already seen several mega-cap tech stocks fail to live up to strong expectations.
S&P 500 Index – Migration and Concentration
According to ClearBridge Investments (Franklin Templeton Company), U.S. stocks performed impressively in the first half of 2024, with the S&P 500 index up 15.3%. The investment company believes that the impact of rising interest rates has been mitigated by strong financial results and fiscal stimulus. However, the headline performance numbers, supported by the rally in mega-cap stocks and more specifically the leadership of the semiconductor industry, masked recent signs of deterioration behind the scenes.
ClearBridge Investments expects small-cap earnings to rebound over the next 12 to 18 months, as the Mag 7 stocks have disproportionately driven earnings growth over the past two years. The investment firm believes small-cap companies are feeling the impact of rising interest rates. In 2023, Russell 2000 companies’ profits fell by ~12%. It will increase by up to 13.6% this year, and the forecast for 2025 will remain around 31%. If that happens, the market could expand, creating an opportunity for active managers.
Opportunities outside of the Magnificent Seven
Companies that fail to meet high expectations may suffer disproportionate declines, and stocks riding the AI wave may be at greater risk given the amount invested and the uncertain future environment. be. Given these trends, it’s surprising to see the S&P 500 expanding beyond technology leadership so far in the second half of 2024, with some non-tech sectors showing signs of outperforming the broader market. Fidelity International believes that this is not the case.
In addition to famous brands, there are many other excellent brands. This means that dozens of companies in the S&P 500 continue to achieve return on invested capital (ROIC) and revenue growth of 30% or more. This holds true for several other quality metrics as well, reflecting the underestimation of the depth of opportunity across U.S. stocks.
Diversification remains important, but looking beyond the Magnificent Seven may not necessarily provide the needed diversification, given that the US market remains heavily skewed towards growth areas such as IT. yeah. According to Fidelity International, a diversified portfolio requires negative correlation between assets, but few styles provide consistent negative correlation for high-quality growth companies. That said, cyclical value and defensive value remain two important exceptions.
To obtain a negative correlation, investors should avoid duplication at the stock level. At the moment, the US market offers a wide range of attractive equity opportunities that provide this valuable diversification.
The top five stocks currently account for about 27% of the S&P 500, and the top 10 stocks account for about 37%, according to ClearBridge Investments. That concentration could stall around current levels, the investment firm said, and while megacaps are solid, earnings growth could be slower than in recent years. The investment firm expects its diversified portfolio to outperform over the next 12 to 18 months.
With this in mind, let’s take a look at 10 great stocks to buy at fair prices right now.
our methodology
First, we sifted through multiple online rankings and ETFs to identify blue-chip stocks with wide moats. We then selected stocks that were trading at a forward P/E of less than approximately 23.65x (as the broader market trades at a forward P/E of approximately 23.65x, according to WSJ). Stocks are ranked by the number of hedge funds that own the stock as of Q2 2024.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points (Learn more here Please take a look).
Emerson Electric Co. (EMR): Strengthen your market position with financial confidence
Engineers who analyze complex networks of process control software and systems.
Emerson Electric Company (NYSE:EMR)
Expected profit growth rate: 23.4%
Number of hedge fund holders: 51 people
Expected PER multiple (as of September 30): 18.45x
Emerson Electric Co. (NYSE:EMR) is a technology and software company that provides a variety of solutions to customers in industrial, commercial, and consumer markets.
Emerson Electric Co. (NYSE:EMR) has a wide economic moat based primarily on switching costs and brand intangibles. Additionally, the company’s strong geographic presence and diverse customer base further strengthen its moat. Emerson Electric Company (NYSE:EMR) remains confident in its financial health and strategic initiatives. The company remains focused on the integration of National Instruments and the potential for stock repurchases.
The company expects its order backlog to increase year-on-year in fiscal 2025. Emerson Electric (NYSE:EMR) is adjusting its strategy to focus on growth areas such as innovation and investments in renewable energy, while also focusing on managing its soft segment. Therefore, Wall Street analysts are optimistic about the company’s future performance and strategic position in the global automation market.
The company sold its remaining interest in the Copeland joint venture, signaling the fact that Emerson Electric (NYSE:EMR) is focused on simplifying its portfolio. It highlighted that demand in process and hybrid markets, driven by a constructive capital investment cycle, is meeting expectations. Operating leverage performance in Q3 2024 demonstrated the benefits of highly differentiated technology. In 2024, Emerson Electric Co. (NYSE:EMR) expects net sales to increase approximately 15% and operating cash flow to approximately $3.2 billion.
Redburn Atlantic began reporting on the company’s stock on July 8th. The investment decision is “buy” and the target price is $135.00. Insider Monkey’s Q2 2024 data reveals that Emerson Electric Co. (NYSE:EMR) participated in 51 hedge funds.
Overall, EMR ranks #7 on our list of great stocks to buy right now at fair prices. While we see EMR’s potential as an investment, we believe some highly undervalued AI stocks have a better chance of delivering higher returns and in a shorter time frame. I’m doing it. If you’re looking for highly undervalued AI stocks with more promise than EMR but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: A $30 trillion opportunity: Morgan Stanley and Jim Cramer say NVIDIA has ‘become a wasteland’, 15 humanoid robot stocks to buy
Disclosure: None. This article was originally published on Insider Monkey.
