We recently compiled a list of the 10 Most Owned Stocks by Hedge Funds Right Now.In this article, we are going to take a look at where Uber Technologies, Inc. (NYSE:UBER) stands against the other stocks owned by hedge funds.
Wall Street stocks surged this month after the Federal Reserve released minutes of its September meeting, which resulted in the first interest rate cuts in over four years. The details disclosed a ‘substantial majority’ of central bankers backing the 0.5 percentage-point cut, raising optimism among investors for further cuts ahead.
The broader market hit record highs on October 11, driven by several financial stocks reporting stronger-than-expected results during the recently concluded quarter. Another factor encouraging investors has been the downturn in US inflation, which fell to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate. This has raised hopes of a quarter-point cut in the central bank’s next meeting in November.
However, some analysts warn against diving into stocks after interest rate cuts, citing uncertainty around the upcoming presidential elections. Liz Young Thomas, the head of investment strategy at SoFi, while talking to Business Insider in early September discussed historic patterns in US markets towards the end of the third quarter and the beginning of the fourth.
She noted how the market performs well between June and August due to thinner volumes when traders are on vacation, while volatility picks up with an uptick in activity after they return to their desks in September. However, during the election year, this volatility peaks around mid-October, instead of September, according to Young Thomas.
Fundstrat Global Advisors’ co-founder, Tom Lee, has also cautioned investors against election-related uncertainty. Here is what he stated in an interview with CNBC late last month:
This Fed cut cycle I think is setting the stage for markets to be really strong over the next one month or next three months. But, what the stocks do between now and let’s say election day, I think is still a lot of uncertainty. And that’s the reason why I’m a little hesitant for investors to dive in.
Earlier that month in the weeks leading to the interest rate cuts, Lee, who is generally bullish on the stock market, forecasted a 7-10% dip between September and October amid nervousness around the presidential elections. However, Lee urged investors to ‘buy the dip’, indicating that he sees the likely fall as an opportunity to buy stocks while they trade for a lower value.
Adam Turnquist from LPL Financial also anticipates seasonal volatility in the weeks ahead but reiterated what Lee did, that the dip presents an opportunity to buy when the share is trading low and earn high returns when the market stabilizes. Turnquist advises investors not to readjust their existing portfolios because seasonal volatility has short-term effects and is difficult to forecast.
With that said, let’s now shift focus to hedge fund sentiment on the stock market and discuss some of the most widely held stocks by hedge funds.
Methodology
We scanned Insider Monkey’s database of 912 hedge funds for the second quarter of 2024 and picked the top 10 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up view of a hand holding a smartphone, using a ride sharing app.
Uber Technologies, Inc. (NYSE:UBER) is an American transportation company that provides ride-hailing services, food delivery, courier services, and freight facilities. According to Insider Monkey, it is one of the most owned stocks by hedge funds right now, with 145 hedge funds having investments in the company as of the second quarter of 2024.
The recently concluded Q2 was another profitable quarter for the company, during which it registered a 21% increase in gross bookings, 14% growth in audience, and 6% expansion in frequency. This helped UBER beat earnings estimates, as it logged an EPS of $0.47 against expectations of $0.31. The company’s revenue also soared 16% to $10.7 billion from $9.23 billion a year ago.
Mobility gross bookings surged 23% during the quarter to a total of $20.6 billion, while delivery gross bookings jumped 16% compared to the same period in 2023 to reach $18.1 billion. This significant growth in Q2 indicated strong consumer demand for mobility services as the economy gradually improves. For the third quarter, Uber Technologies, Inc. (NYSE:UBER) anticipates booking revenue to range between $40.25 billion and $41.75 billion.
The company has also seen its profitability and cash flow improve due to effective cost management and operations efficiency. One example of that is that it has reduced its spending on incentives and promotions, and instead adopted a more sustainable business model to drive sales. In Q2, UBER’s operational income spiked to $796 million, up from $326 million during the same period in 2023.
While the forecasted EBITDA of $1.58 billion to $1.68 billion in Q3 is below expectations, analysts believe this is due to foreign exchange rates and has little to do with a decline in demand. The overall sentiment around the stock is bullish, with Street analysts having a consensus on UBER’s Strong Buy rating.
Another critical factor fueling investor confidence is its adoption of autonomous vehicles (AV) technology. In September this year, UBER announced an expansion of its ongoing partnership with Waymo to make self-driving cars available to users via UBER. As part of the agreement, in early 2025, autonomous vehicles will be available for consumers to book through the UBER app in Austin and Atlanta. The company is also engaging other major players in the self-driving industry and expects AV to generate substantial revenue over the next 5-10 years.
Overall UBER ranks 9th on our list of the most owned stocks by hedge funds right now. While we acknowledge the potential of UBER as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UBER but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
