We recently compiled a list of the 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where General Motors Company (NYSE:GM) stands against the other consumer discretionary stocks.
Many experts and analysts are concerned about a slowdown 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 foot traffic rose by 4.4% in June, indicating strong consumer activity despite flat overall sales.
While furniture and home improvement stores saw declines due to reduced monumental purchases and a sluggish housing market, grocery stores, and apparel retailers performed better. Grocery sales grew by 1.7%, with a nearly 5% increase in foot traffic, as consumers managed their budgets despite cutting costs. Apparel sales also increased by 3.8%, driven by early back-to-school shopping and wardrobe updates, leading to an 8.3% rise in foot traffic.
In July, consumer spending saw a modest increase compared to June, with gains across 10 of 12 retail categories, as reported by the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gas, rose by 0.7% month-over-month, slightly up from June’s 0.5%, but the year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail, which excludes restaurants, saw a 1% monthly increase. Significant sector performances included a 3.4% rise in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the healthcare, personal care, and garden supplies sectors experienced slight declines.
June and July data together indicate that consumer spending remains resilient, supported by strong household finances and a strong job market. While some sectors, particularly furniture and home improvement, are struggling due to reduced consumer confidence and a slow housing market, other categories are performing well.
The data suggests that consumers are still willing to spend, especially on essential and seasonal items, though they may be more cautious with larger purchases. Despite some areas of decline, the overall retail environment appears stable, with consumers continuing to spend where they find value, which indicates a cautiously optimistic outlook for the remainder of 2024.
Latest Updates on Interest Rates and Potential Effects On Consumer Spending
In the July meeting, Fed Chair Jerome Powell highlighted the Fed’s ongoing focus on achieving maximum employment and stable prices. He noted significant progress in the economy, with inflation dropping from 7% to 2.5% and a balanced labor market with low unemployment at 4.1%. The Fed chose to keep interest rates steady within the 5.25% to 5.5% range and continue to reduce its securities holdings to maintain a restrictive stance, which is aimed at aligning demand with supply and reducing inflationary pressures.
Powell mentioned that while inflation has eased, the Fed is not yet ready to lower rates and requires more consistent positive data before making such a move, possibly as early as September. According to the CME Fed Watch Tool, all the experts are expecting cuts in September. 50.5% of the experts predict a 25 basis points (bps) reduction in the interest rates while 49.5% expect a 50 bps cut.
Rate cuts generally have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which could lead to increased consumer borrowing and spending. This increased affordability can boost consumer confidence and promote spending on discretionary items. That’s a good set up for discretionary stocks, and with that, let’s look at the 10 best consumer discretionary stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz stock screener to identify over 50 large-cap consumer discretionary stocks then narrowed our list to 10 stocks that were most widely held by institutional investors as of Q1, and listed the stocks in ascending order of hedge fund sentiment.
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).
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General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 78
General Motors Company (NYSE:GM) is a leading American automotive manufacturer, headquartered in Michigan. It takes the 5th spot on our list of best consumer discretionary stocks according to hedge funds. The company produces vehicles under well-known brands such as Chevrolet, GMC, Cadillac, and Buick. In addition to its American brands, the company holds significant stakes in Chinese automotive ventures, including Baojun and Wuling through a joint venture with SAIC. In addition, the company also oversees the production of delivery vans, defense vehicles, and auto parts.
Despite facing challenges, such as losing its title as the world’s largest automaker to Toyota (NYSE:TM) in 2008 and navigating bankruptcy in 2009, General Motors (NYSE:GM) has remained resilient. It is now focused on innovation, particularly in electric vehicles, with plans to transition away from internal combustion engines by 2035 and achieve carbon neutrality by 2040.
General Motors (NYSE:GM) has been adjusting its focus as it navigates the transition to electric vehicles. Despite a promising 40% increase in electric vehicle deliveries, which reached 22,000 units in the second quarter, it is the company’s gasoline-powered vehicles that are driving substantial profits.
Owing to its internal combustion engine (ICE) division, General Motors (NYSE:GM) reported a significant boost in its earnings before interest and taxes (EBIT), reaching $4.4 billion for the second quarter. This represents a 37% increase compared to the previous year, largely fueled by strong demand for its pickup trucks and SUVs.
The GMC Sierra and Chevrolet Silverado are leading the charge in this segment. The GMC Sierra achieved its best first-half sales ever, while the Chevrolet Silverado posted its strongest sales since 2021.
General Motors’ (NYSE:GM) emphasis on internal combustion engine vehicles remains strong, with a steady stream of new and redesigned models entering the market. In the second quarter, eight new crossover models were introduced, including key vehicles like the Chevrolet Traverse, GMC Acadia, Buick Enclave, and Chevrolet Equinox.
By maintaining a strong lineup of profitable gasoline-powered vehicles while gradually expanding its electric vehicle offerings, General Motors (NYSE:GM) is positioning itself well for future growth. The company’s approach ensures continued profitability and market presence as it adapts to evolving industry trends.
As of Q1, General Motors (NYSE:GM) stock was held by 78 hedge funds at a combined value of $4.8 billion. Harris Associates holds the most prominent stake in the company with 35.5 million shares worth $1.61 billion as of the first quarter.
Diamond Hill Large Cap Strategy stated the following regarding General Motors Company (NYSE:GM) in its first quarter 2024 investor letter:
“Other top contributors included Allstate, Caterpillar and General Motors Company (NYSE:GM). Automobile manufacturer General Motors continues capitalizing on the shift to electric vehicles (EVs) while maintaining the strength of its core gas-engine truck and SUV business. Though it has experienced some setbacks — such as needing to roll back its Cruise driverless car project — we believe the company remains well-positioned relative to secular tailwinds within the automobile business.”
Overall GM ranks 5th on our list of the best consumer discretionary stocks to buy according to hedge funds. You can visit 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds to see the other consumer discretionary stocks that are on hedge funds’ radar. While we acknowledge the potential of GM 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 GM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.