In this piece, we will take a look at the 13 best extremely profitable stocks to invest in. If you want to skip our overview of the current stock market news and what profitability entails, then you can skip ahead to 5 Best Extremely Profitable Stocks to Invest in.
When it comes to analyzing a stock, investors take stock of several factors. One of these, which is perhaps quite widely used is profitability. A firm's profit is different from its revenue since the latter is the number of products and services that it sells while the former is the amount available to investors after all expenses have been accounted for. Profitability is widely used since it forms a central component of a common indicator that is used to evaluate whether a stock is a growth stock or a value stock. For some growth stocks, you can check out 12 Best Growth Stocks to Buy and Hold in 2024 and if you're interested in value stocks, then 11 Oversold Value Stocks To Buy Now shares a lot of details.
This ratio is the price to earnings ratio, and it divides the market price of an equity with its earnings per share. Since only stocks that are profitable, i.e., those that have positive earnings per share, can be evaluated as growth stocks in terms of price to earnings, it can be argued that some investors consider profitability to be a hallmark of growth as well.
At the same time, profitable stocks are lucrative not only because they are growth stocks. This is due to the nature of financial accounting, which requires management to first remove all expenses, taxes, and interest payments before it can deposit the remainder into the firm's 'coffers'. In accounting, the net profit is the money left after all costs (including interest) and taxes have been paid. The 'coffers' in this scenario is an account called Retained Earnings, and it doesn't have to be filled to the brim with profits after interest and taxes. Apart from potentially being growth stocks, even if profitable stocks have low price to earnings ratios, their management can pay out some of the profits as dividends to reward investors for their faith, keep the share price stable, and introduce an aura of stability around the firm. To learn more about dividend stocks, you can take a look at 12 Highest Yielding Dividend Stocks You Can Buy Right Now.
Yet, even though profitability is quite important in running a business as few people are likely to invest in a company that cannot generate or hope to generate more money than it takes to run the business, it is not guaranteed. A stock's profitability, as a result, depends on several factors. On a firm level, management has to ensure there are no excesses that are draining the balance sheet and that products and services are competitive to capture enough market share to drive significant revenue. On a broader level, interest rates and inflation are pivotal in determining a firm's profitability as they determine consumer budgets.
Shifting gears, while profitability on its own is important to investors, they also use other ways to determine management performance. Profitability is a measure of management efficiency, and another way in which profitability stocks are evaluated is the net margin. This simple calculation divides the net profit by the net sales (or revenue) to see how many cents on the dollar an investor can expect to earn. We took a deep look at some bank stocks ranked via their net profit margin, and you can check out that list by clicking on Top 20 Most Profitable Banks in the World.
One stock that has a high net profit margin and has performed well in 2024 is the Virginia, United States based enterprise analytics software provider MicroStrategy Incorporated (NASDAQ:MSTR). MicroStrategy's shares are up by 80% year to date, and its trailing twelve month net profit margin is 86%. MicroStrategy is a high margin business since developing software is not as cost intensive as manufacturing semiconductors, with chips firms such as the Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) often trying to woo investors by sharing that their margins can cross 50%. TSMC's trailing twelve month net margin is 38% - demonstrating why it is always important to compare metrics such as the profit margin with peers instead of the broader industry.
With these details in mind, let's take a look at some best extremely profitable stocks. A couple of notable picks are Liberty Broadband Corporation (NASDAQ:LBRDK), First Citizens BancShares, Inc. (NASDAQ:FCNCA), and VICI Properties Inc. (NYSE:VICI).
Our Methodology
To make our list of the best extremely profitable stocks, we ranked all firms with a market capitalization greater than $300 million by the net profit margin. Then, the 30 most valuable companies were ranked by the number of hedge funds that had bought the shares during Q4 2023 and the ones with the most hedge fund investors were chosen. Care was taken to ensure that the net margin was below 100%, as a margin greater than 100% means that profit might be from a one off event such as a business sale, with semiconductor and IP firm Rambus Inc. (NASDAQ:RMBS) getting the boot because of this.
For these extremely profitable stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
13. Enstar Group Limited (NASDAQ:ESGR)
Number of Q4 2023 Hedge Fund Shareholders: 15
Latest Trailing Twelve Month Net Margin: 75.72%
Enstar Group Limited (NASDAQ:ESGR) is a mid sized Bermuda based insurance company. March 2024 was a crucial month for the firm since it was able to secure an Insurer Financial Rating of 'A' from S&P Global. The full year 2023 was a historic one for the firm as it saw Enstar Group Limited (NASDAQ:ESGR) cross $1.1 billion in net income.
As Q4 2023 ended, 29 out of the 933 hedge funds surveyed by Insider Monkey were Enstar Group Limited (NASDAQ:ESGR)'s shareholders. Harry Gail's Harspring Capital Management was the largest shareholder due to its $51 million stake.
Along with Liberty Broadband Corporation (NASDAQ:LBRDK), First Citizens BancShares, Inc. (NASDAQ:FCNCA), and VICI Properties Inc. (NYSE:VICI), is a highly profitable stock that hedge funds are buying.
12. Hercules Capital, Inc. (NYSE:HTGC)
Number of Q4 2023 Hedge Fund Shareholders: 16
Latest Trailing Twelve Month Net Margin: 71.12%
Hercules Capital, Inc. (NYSE:HTGC) is an investment firm headquartered in San Mateo, California. The firm invests in a wide variety of industries such as information technology, biotechnology, semiconductors, enterprise resource software, and power generation. April 2024 is one of the most historic months for the firm, as it marks the first time that Hercules Capital, Inc. (NYSE:HTGC) has crossed the $20 billion mark with its loan financing products.
Insider Monkey's Q4 2023 survey covering 933 hedge funds revealed that 16 had bought and owned Hercules Capital, Inc. (NYSE:HTGC)'s shares. Paul Marshall and Ian Wace's Marshall Wace LLP was the firm's biggest shareholder among these, as it held 1.8 million shares that were worth $30.2 million.
11. MicroStrategy Incorporated (NASDAQ:MSTR)
Number of Q4 2023 Hedge Fund Shareholders: 16
Latest Trailing Twelve Month Net Margin: 86.47%
MicroStrategy Incorporated (NASDAQ:MSTR) is an American technology company that develops enterprise analytics software for the public and private sectors. It is an interesting firm, particularly when extremely profitable stocks are concerned since MicroStrategy Incorporated (NASDAQ:MSTR) is also closely involved with the integration of Bitcoin into the financial markets. Benchmark, BTIG, and Canaccord Genuity have rated the shares as Buy, and the average price target of five analysts is $1,494.
After compiling data from 933 hedge fund filings covering Q4 2023, Insider Monkey found that 16 had held a stake in the profitable stock. The biggest MicroStrategy Incorporated (NASDAQ:MSTR) hedge fund shareholder is Dmitry Balyasny's Balyasny Asset Management due to its $17.9 million investment.
10. Texas Pacific Land Corporation (NYSE:TPL)
Number of Q4 2023 Hedge Fund Shareholders: 16
Latest Trailing Twelve Month Net Margin: 64.20%
Texas Pacific Land Corporation (NYSE:TPL) is a Texas based oil royalty company that also manages land and has operations in the midstream oil and gas industry. The shares are rated Buy on average, and the average analyst share price target is $660.
During December 2023, 16 out of the 933 hedge funds part of Insider Monkey's database had invested in the firm. Texas Pacific Land Corporation (NYSE:TPL)'s largest stakeholder among these is Murray Stahl's Horizon Asset Management due to its $2.1 billion stake.
9. Essent Group Ltd. (NYSE:ESNT)
Number of Q4 2023 Hedge Fund Shareholders: 20
Latest Trailing Twelve Month Net Margin: 63.85%
Essent Group Ltd. (NYSE:ESNT) is a Bermuda based insurance and reinsurance firm with a presence in the mortgage industry. April 2024 came with some bad news for the firm's investors, as investment bank J.P. Morgan downgraded the shares to Neutral from Outperform. However, the downgrade was accompanied by a $3 share price upgrade to $61, as the bank shared its optimism for the firm's stable market and operations base.
For their fourth quarter of 2023 shareholdings, 20 out of the 933 hedge funds profiled by Insider Monkey were Essent Group Ltd. (NYSE:ESNT)'s investors. Brian Ashford-Russell and Tim Woolley's Polar Capital owned 2.3 million shares that were worth $125 million. This made it the largest Essent Group Ltd. (NYSE:ESNT) investor in our database.
8. Apartment Income REIT Corp. (NYSE:AIRC)
Number of Q4 2023 Hedge Fund Shareholders: 20
Latest Trailing Twelve Month Net Margin: 77.35%
Apartment Income REIT Corp. (NYSE:AIRC) is an American real estate investment trust that manages apartment homes. It's one of the most significant REIT apartment stocks on the market right now due to an impending $10 billion acquisition by investment giant Blackstone.
As of December 2023, 20 out of the 933 hedge funds covered by Insider Monkey's research had invested in the firm. Apartment Income REIT Corp. (NYSE:AIRC)'s largest hedge fund investor is Israel Englander's Millennium Management due to its $62 million stake.
7. Spectrum Brands Holdings, Inc. (NYSE:SPB)
Number of Q4 2023 Hedge Fund Shareholders: 25
Latest Trailing Twelve Month Net Margin: 63.61%
Spectrum Brands Holdings, Inc. (NYSE:SPB) is one of the most well known electronics and appliances companies in the U.S. Despite inflation continuing to be persistently high in America, the firm has held its ground on the financial front as it has beaten analyst EPS estimates in three out of its four latest quarters.
Insider Monkey dug through 933 hedge funds for their fourth quarter of 2023 shareholdings to find that 25 had bought the firm's shares. Spectrum Brands Holdings, Inc. (NYSE:SPB)'s biggest stakeholder among these is Richard S. Pzena's Pzena Investment Management as it owns $ 86.2 million worth of shares.
6. Assured Guaranty Ltd. (NYSE:AGO)
Number of Q4 2023 Hedge Fund Shareholders: 26
Latest Trailing Twelve Month Net Margin: 86.13%
Assured Guaranty Ltd. (NYSE:AGO) is an insurance and asset management firm headquartered in Hamilton, Bermuda. Its profitability in 2023 came on the back of significant revenue growth that saw Assured Guaranty Ltd. (NYSE:AGO)'s sales jump from $684 million to $1 billion during the course of a year.
As of December 2023 end, 26 out of the 933 hedge funds surveyed by Insider Monkey were Assured Guaranty Ltd. (NYSE:AGO)'s shareholders. Irving Kahn's Kahn Brothers was the largest shareholder due to its $73.8 million stake.
Liberty Broadband Corporation (NASDAQ:LBRDK), First Citizens BancShares, Inc. (NASDAQ:FCNCA), and VICI Properties Inc. (NYSE:VICI) are some profitable stocks that hedge funds are buying.
Click to continue reading and see 5 Best Extremely Profitable Stocks to Invest in.
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Disclosure. None.13 Best Extremely Profitable Stocks to Invest in was initially published on Insider Monkey.
