We recently compiled a list of 10 stocks that are soaring high, and in this article we’ll take a look at how CyberArk Software Ltd. (NASDAQ:CYBR) stands up against the rest.
As you know, the main attraction of investing is making money. Every day thousands of investors flood the market to pick stocks they think will be winners to make themselves rich. And the market does just that. In 2024, the hype surrounding artificial intelligence is bringing previously unthinkable benefits, and this is very evident. Wall Street’s favorite AI stock, the chip maker that provides the industry with GPUs to run AI workloads, has risen a whopping 636% since ChatGPT was released in November 2022. The stock is ranked 4th in the list of 10 AI stocks that analysts say have the potential for further upside, so if you haven’t guessed it yet, take a look.
Looking at these impressive returns, it would be hard to jump to the conclusion that growth stocks are the way to go if you want to make money in the stock market. But like most things in life, there are details lurking beneath the surface that contradict this simple assumption. In this regard, professors from the University of Illinois looked at the returns of large and small value and growth stocks from 1969 to 2001. By taking the geometric mean of these returns, they found that large growth stocks (“glamour”) achieved average returns of 4.5%, 7.9% and 3.8% between 1969 and 2001, 1979 and 2001 and 1990 and 2001, respectively. Meanwhile, large value stocks achieved returns of 16.4%, 20.4% and 18% over the three periods, respectively. Moreover, value stocks’ returns in 1969 and 2001 even exceeded the S&P 500 Index’s return of 11.4%.
But what about small caps? After all, small caps have been all the rage on Wall Street as investors prepare for interest rate cuts. On July 11th, the S&P’s main index fell 91 basis points, while the tech-heavy NASDAQ lost 1.98%. The NASDAQ’s decline was led by the 100 most valuable non-financial companies, which fell 2.15% on the day. Meanwhile, small cap gains accelerated on the 11th. The main small cap index rose 2% intraday and was nearly equal in the first 30 minutes of trading on the 12th, opening significantly higher after the after-market and pre-market sessions.
The story continues
Looking at these gains, you might be wondering which small caps are worthwhile. We looked at analyst sentiment as part of our article on the 8 Best Small Cap Stocks Poised for Explosive Growth According to Analysts, and also looked at hedge fund sentiment as part of our article on 15 Small Cap Stocks with High Potential, so if you’re interested in small cap stocks, be sure to check those out.
Returning to their study, between 1969-2001, 1979-2001, and 1990-2001, small-cap growth stocks fell 2.8%, 1.8%, and 6.2%, respectively, while small-cap value stocks achieved geometric mean returns of 18.3%, 22.8%, and 17.7%, respectively. Over the long term, investments in value stocks appear to be as good or better than small caps, while large-cap growth stocks appear to outperform small caps.
While these statistics may not seem applicable to today’s market, they are somewhat relevant because internet stocks soared between 1990 and 2001. Today, despite investors moving away from big tech companies and towards smaller, lesser-valued stocks, AI is all anyone talks about. Back then, the California-based internet-connected equipment provider’s stock price soared 53,207% between January 1991 and April 2000. That means that an initial investment of $1,000 would have skyrocketed to $533,000 at its peak. That’s a life-changing amount for most people. But since then, that same stock has fallen 36%, and by February 2009, it was down 79%. If you’re curious to see what this stock is like, it’s ranked #8 on our list of the 10 Best Communications & Media Stocks to Buy According to Hedge Funds.
At the same time, not all growth stocks will fall. The biggest examples that weathered the storm after the dot-com bubble burst are today’s biggest companies. They are in e-commerce, consumer and enterprise software, and the broader technology industries. Today’s mega-cap stocks are up between 6,455% and 203,377% to 437,010% since they went public. It’s fair to say that these “fads” back then were not just a passing fad, and the market knew it for what it was.
These returns are also driving growth investors to flock to the stock market. E-commerce and consumer technology were trends of the past, but nowadays newsletter publishers are welcoming a number of trends that promise the next stocks that will bring 10x or even 100x returns. You probably already know about AI at this point, so we’ll skip that and list some other ideas. One of the biggest and perhaps least-reported ideas being touted by newsletters is quantum computing. Quantum computing expands the amount of data that classical computers can calculate. Quantum computing stocks have not yet delivered big returns, but publishers think the future is bright. For a look at some of the quantum computing stocks and the broader industry, read 12 Best Quantum Computing Stocks to Invest In.
One trend that has benefited is weight loss: since March 2023, these stocks have gained as much as 173%, and some believe there is still room to grow, with new products such as pills in the works. Another fast-growing trend is energy, specifically nuclear power, uranium mining, and energy infrastructure stocks, all of which will benefit from the increased power consumption of AI data centers, according to the newsletter publisher.
Our Methodology
To compile this list of stocks likely to soar, we scanned Stock Gumshoe’s investment newsletters and narrowed it down to 20 stocks from newsletters dating back to June 13. These were then ranked by the number of hedge funds whose shares were purchased in the first quarter of 2024, and the top 10 were selected. Stock Gumshoe’s thesis and the date of each newsletter are also provided.
We also mentioned the number of hedge funds that bought these stocks during the same filing period. Why are we interested in stocks that hedge funds are flooding? The reason is simple: our research shows that you can beat 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 (more here).
The 20 most valuable data companies in the world
Data center with repetitive design of computer servers, showing efficient and secure IT infrastructure of a company.
CyberArk Software Inc. (NASDAQ:CYBR)
Number of hedge fund investors in Q1 2024: 63
Newsletter date: June 26th
Returning to the new Magnificent 7 list of stocks that Oxford Club hedge funds also like, this stock appears to have taken an early lead in the niche AI industry. In doing so, the company has linked its fortunes to growth in the broader business world, leveraging AI to expand its product portfolio. The company “uses AI to protect businesses from identity theft and security breaches.” These products appear to be gaining acceptance from some of the world’s largest companies, and according to the Oxford Club, the future Magnificent 7 stock “even provides cybersecurity for NASA.”
According to Stock Gumshoe, the magic AI cybersecurity stock is CyberArk Software Ltd. (NASDAQ:CYBR). In today’s high interest rate era, CyberArk Software Ltd. (NASDAQ:CYBR) is valued at 17 times annualized recurring revenue, which was recently annualized at $622 million. The company is currently valued at 100 times expected earnings for 2024, and revenue has also grown 17% on average over the past five years. Stock Gumshoe warns that these high multiples could make the stock volatile in the future as fundamentals take time to catch up with market expectations.
Overall, CYBR ranks fifth on our list of stocks set to soar. To see other stocks that hedge funds are watching, see 10 Stocks Set to Soar. While we acknowledge the potential of CYBR as an investment, we believe that some AI stocks have a better chance of delivering higher returns in the short term. If you’re looking for AI stocks that are more promising than CYBR and trading at less than 5x price to earnings, check out our report on the cheapest AI stocks.
Read next: Analyst sees new $25 billion ‘opportunity’ in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.
