We recently compiled a list of the 12 most promising stocks according to hedge funds. SentinelOne Inc. (NYSE:vinegar), This is one of the best stocks to buy right now.
Despite the concerns surrounding the market over the past few years, the overall market has performed exceptionally well, with the S&P 500 hitting a new all-time high of over 5,300 points by mid-May. Bearish sentiment has been swept across the market since 2022, and even after a phenomenal performance in 2023, many analysts have retracted their statements and now expect a brighter future. At the end of 2024, UBS and BMO expect the index to reach 5,600, Wells Fargo predicts it will be at 5,535 at the end of the year, and even one of the most bearish analysts, Morgan Stanley's Mike Wilson, has raised his target from his previous 4,500 to 5,400.
Interest Rate Forecast
Interest rate hikes and cuts have been a big topic in the market for the past few years. In 2023, many analysts expected up to six cuts in 2024, but the expectations have faded over time due to better-than-expected inflation data. At the Federal Reserve's May 1 meeting, Chairman Jerome Powell expressed reluctance to give a specific time frame for a rate cut decision, saying the Fed needs more data before taking any action. However, the chairman suggested that the chances of a rate hike are extremely low. Some experts believe that there may not be a rate cut this year, as we mentioned in our previous article on the best soap and cleaning supplies stocks.
According to CME's FedWatch tool, 98.9% of the market expects interest rates to remain unchanged at the June Fed meeting, while 1.1% believe the Fed may raise rates by 25 basis points (bps). Morgan Stanley predicts that the 25 basis point cut will begin in September as the Fed may feel confident enough to start cutting rates once inflation starts to fall. According to the FedWatch tool, 51.6% of the market does not expect a rate cut in September, 42.8% expect a 25 basis point cut, 5% expect a 50 basis point cut and 0.6% believe rates will be 25 basis points higher than the current 5.25%-5.5%.
Markets may rise amid tightening policy
Recently, the market has seen another pullback, with the overall market shrinking by 1.5% between May 27 and 30. However, some experts still expect an upswing and believe the market is in a healthy state.
On May 29, Jim Paulsen, former chief investment strategist at Leuthold Group and Wells Capital Management, told CNBC he was optimistic about the economy and stressed that it is resilient despite challenges such as previous recession predictions and an inverted yield curve. He pointed to the strength of corporate balance sheets, overall economic health, liquidity, and recent strong earnings reports. He also acknowledged that tightening policies such as rising yields, a stronger dollar, lower budget deficit-to-GDP ratios, slower monetary growth, and shrinking balance sheets will ultimately slow the economy and keep inflation in check. Paulsen predicts inflation will fall below 3%, creating favorable conditions for markets and signaling the possibility of further increases. He further noted that inflation is certainly declining compared to 9% in 2022, adding that he doesn't believe the Fed's 2% inflation target is necessary to “keep things rolling.”
Hedge funds are bullish on this hot cybersecurity stock
Our Methodology
For this article, we used Yahoo Finance's stock screener to identify over 400 stocks with year-over-year revenue growth of 40% or more and market caps over $300 million. We then narrowed the list to 12 stocks with rising hedge fund sentiment, positive analyst sentiment, and consistent revenue growth between Q4 2023 and Q1 2024. We listed the most promising stocks in ascending order of hedge fund sentiment.
Hedge fund data comes from Insider Monkey's database of 919 elite hedge funds as of Q1 2024. Why are we interested in stocks where hedge funds are concentrated? The reason is simple: our research shows us that we can outperform the market by mimicking the top holdings of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter and has returned 275% since May 2014, beating the benchmark by 150 percentage points (see details here).
Hedge funds are bullish on this hot cybersecurity stock
SentinelOne Inc. (NYSE:vinegar)
Q3 2024 YoY revenue growth: 42.4%
Q4 2024 YoY revenue growth: 38.2%
Q1 2025 YoY revenue growth: 39.7%
Number of hedge fund holders: 36
SentinelOne, Inc. (NYSE:S) is a cybersecurity provider whose products include the Singularity Platform, endpoint protection, and attack surface management. SentinelOne, Inc. (NYSE:S) was held by 36 hedge funds in the first quarter with shares worth $627.69 million. Of these, Eminence Capital was the company's largest shareholder with shares worth $128.603 million.
On May 30, SentinelOne, Inc. (NYSE:S) announced its first quarter results. The company beat EPS expectations by $0.05 and revenue of $186.36 million, up 39.7% year over year and $5.3 million above expectations. The company also saw continued and significant margin improvement in consecutive quarters, with gross margins increasing to a record high of 79%. According to company management, SentinelOne, Inc. (NYSE:S) is expanding its market presence and has significantly expanded its customer base. The number of customers with annual recurring revenue (ARR) over $100,000 increased 30% year over year, and the number of customers with ARR over $1 million set a new record for the company. Adoption of the company's platform and success with large enterprises has led to double-digit growth in ARR per customer.
In its fourth-quarter 2023 investor letter, Baron Discovery Fund said the following about SentinelOne Inc. (NYSE:S):
“SentinelOne, Inc. (NYSE:S) is a cybersecurity software company specializing in endpoint protection, cloud security, and security data analytics. Shares rose on the back of stellar quarterly earnings and strong guidance. SentinelOne is one of the fastest growing public cybersecurity companies, with revenues expected to grow more than 46% this fiscal year. Growth was driven by 1) market share gains from traditional endpoint vendors who are struggling to compete with SentinelOne's AI-enabled platform, 2) continued migration of information technology (IT) infrastructure to the cloud (triple-digit growth) driving demand for cloud application protection, and 3) consolidation of cybersecurity vendors who prioritize end-to-end platforms with comprehensive security portfolios over single-point solutions. The company is also leveraging its single data store and AI capabilities to cross-sell more products to its existing customer base and increase average selling prices. With increased deal size and improved operational efficiencies, we believe the company will continue to grow earnings at a significant pace and generate positive free cash flow in the next fiscal year.”
SentinelOne Inc. (NYSE:S) ranked #7 on our list of most promising stocks, and you can check out our free report to find other promising stocks that hedge funds and analysts love. Hedge funds pick the 12 best stocks to buy.
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Disclosures: None. This article was originally published on Insider Monkey.
