We recently published a list of The 10 best consumer goods stocks to buy, according to hedge funds. In this article, we take a look at the situation of Tesla, Inc. (NASDAQ:TSLA) compared to other stocks in the consumer discretionary sector.
Many experts and analysts are concerned about a decline in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail footfall increased by 4.4% in June, indicating strong consumer activity despite stagnant overall sales.
While furniture and home improvement stores saw declines due to fewer bulk purchases and a sluggish housing market, grocery stores and clothing retailers fared better. Grocery sales rose 1.7%, with footfall increasing nearly 5% as consumers watched their budgets despite cost-cutting. Clothing sales also rose 3.8%, driven by early back-to-school shopping and wardrobe refreshes, leading to an 8.3% increase in footfall.
In July, consumer spending showed a slight increase compared to June, with gains in 10 of 12 retail categories, according to the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gasoline, rose 0.7% month-over-month, up slightly from June’s 0.5%. However, year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail (excluding restaurants) posted a 1% month-on-month increase. Key developments in this sector included a 3.4% increase in gas station sales and a 2.1% increase in restaurant spending compared to the previous month. In contrast, the health, personal care and garden supplies sectors posted slight declines.
The June and July data together suggest that consumer spending remains stable, supported by strong household finances and a strong labor market. While some industries, particularly furniture and home improvement, are struggling due to falling consumer confidence and a sluggish housing market, other categories are performing well.
The data suggests that consumers remain willing to spend, particularly on essential and seasonal items, although they may be more cautious about making larger purchases. Despite some areas of decline, the overall retail environment appears stable and consumers continue to spend where they see fit, suggesting a cautiously optimistic outlook for the remainder of 2024.
Current information on interest rates and potential impacts on consumer spending
At the July meeting, Fed Chairman Jerome Powell stressed that the Fed remains focused on maximum employment and stable prices. He noted significant progress in the economy, with inflation falling from 7% to 2.5% and the labor market balanced with a low unemployment rate of 4.1%. The Fed decided to keep interest rates stable in the range of 5.25% to 5.5% and continue to reduce its securities holdings to maintain a hawkish stance aimed at balancing demand with supply and reducing inflationary pressures.
Powell mentioned that while the Fed has eased, it is not yet ready to cut rates. It needs more consistent positive data before it can take such a step, possibly as early as September. According to the CME Fed Watch tool, all experts expect rate cuts in September. 50.5% of experts predict a 25 basis point (bp) rate cut, while 49.5% expect a 50 basis point cut.
Interest rate cuts generally have a positive effect on consumer spending. When interest rates are cut, borrowing becomes cheaper, which can lead to increased borrowing and spending by consumers. This increased affordability can boost consumer confidence and encourage spending on non-essentials. That’s a good place to start for non-essential stocks. So let’s look at the 10 best non-essential consumer goods stocks to buy, according to hedge funds.
Our methodology
For this article, we used Finviz’s stock screener to identify over 50 large-cap stocks in the consumer discretionary space. We then narrowed our list down to the 10 stocks most held by institutional investors in the first quarter and listed the stocks in ascending order of 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).
The 25 most sought-after cars in 2024
Tesla, Inc. (NASDAQ:TSL)
Number of hedge fund owners: 74
Tesla, Inc. (NASDAQ:TSLA) is the leading global electric vehicle (EV) manufacturer. The company also offers other clean energy solutions such as stationary battery storage, solar panels, and solar shingles.
By 2023, the company has manufactured 1.8 million battery electric vehicles (BEVs) and is only the sixth company to cross the $1 trillion mark in market capitalization. In 2023, the company’s Model Y broke Toyota’s (NYSE:TM) dominance in the automotive market to become the world’s best-selling vehicle.
Even though Tesla (NASDAQ:TSLA) faces stiff competition from Chinese electric car manufacturers, particularly BYD, the company has made a name for itself in the electric car market and is expected to remain a top seller for the foreseeable future, especially in the North American market.
As of 2023, the company has a market share of nearly 20% in the global electric vehicle industry. According to Fortune Business Insights, the global electric vehicle industry is expected to exceed $670 billion by the end of 2024 and is expected to reach $1.9 trillion by 2032.
On August 8, RBC Capital analyst Tom Narayan slightly reduced Tesla’s (NASDAQ:TSLA) price target from $227 to $224, but maintained an “outperform” rating, expressing confidence in the company’s potential despite the minor adjustment. Narayan highlighted several key factors that make the company an attractive investment. It is positioned to benefit from increasing regulatory credits earned by producing electric vehicles that meet emissions standards, thus providing a lucrative revenue stream without additional production costs.
Tesla’s (NASDAQ:TSLA) growing energy storage business is also a key growth driver as demand for renewable energy solutions increases. In addition, Narayan pointed out that Tesla (NASDAQ:TSLA) could potentially lower the price of its Full Self-Driving (FSD) software, which would likely increase adoption and mean a significant increase in revenue. These factors make Tesla an attractive investment despite the slight downward revision to the price target.
In February, Stellantis (NYSE:STLA), the automaker behind Jeep, Ram and Chrysler, announced plans to adopt Tesla’s (NASDAQ:TSLA) North American Charging Standard (NACS) for its electric vehicles by 2025, joining major automakers like Ford (NYSE:F), General Motors (NYSE:GM) and others that are standardizing the charging port across North America.
This is great news for Tesla (NASDAQ:TSLA) as the company benefits significantly from the widespread adoption of its NACS by other automakers. First, it reinforces the company’s position as a leader in electric vehicle charging infrastructure, which is a testament to industry-wide recognition of the superiority and reliability of its Supercharger network. This adoption could lead to increased use of the company’s charging stations by other manufacturers’ vehicles, potentially creating a new and stable revenue stream.
In the first quarter, 74 hedge funds owned $4.95 billion worth of Tesla (NASDAQ:TSLA), making the company one of the best consumer staples stocks to buy. As of March 31, Cathie Wood’s ARK Investment Management was the company’s most prominent investor, with nearly 5.2 million shares valued at $910.316 million.
Baron Partners Fund stated the following about Tesla, Inc. (NASDAQ:TSLA) in its first quarter 2024 investor letter:
“The vast majority of the Fund’s underperformance this quarter resulted from the Fund’s 10-year investment in Tesla, Inc. (NASDAQ:TSLA). Tesla shares fell 29.3% during the period and detracted 13.41% from the Fund’s first quarter results. Although Tesla has been a major contributor to the Fund’s performance since 2014, it has occasionally detracted from quarterly performance. In previous cases where Tesla shares underperformed during a given period, they reflected the underlying company’s strong growth shortly thereafter and the stock rose significantly. We believe this will happen again, but cannot guarantee it.
A significant decline also occurred in late 2022. At that time, investors were concerned about a number of external factors. Investors believed the company’s founder, visionary and CEO Elon Musk was distracted by his acquisition of Twitter. They also believed that a weak Chinese economy due to COVID and U.S. government policies would limit the purchase of Tesla vehicles. These fears proved to be overblown. As the company hit milestones the following year, the stock price doubled over the next 12 months…” (Click here to read the full text)
Total TSLA takes 8th place on our list of the best consumer goods stocks to buy according to hedge funds. You can visit The 10 best consumer goods stocks to buy, according to hedge funds to see the other consumer goods stocks that are on hedge funds’ radar. While we recognize TSLA’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than TSLA but trades at less than 5x earnings, read our report on the cheapest AI stock.
Read next: Analyst sees a new $25 billion ‘opportunity’ for NVIDIA and Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
