We recently published a list of 10 Wonderful Stocks to Buy Now at a Fair Price. In this article, we are going to take a look at where Emerson Electric Co. (NYSE:EMR) stands against other wonderful stocks to buy now at a fair price.

In H2 of the year so far, there are signs that the S&P 500 index has been broadening beyond technology leadership and the index is reverting to a more normalized state. This means that there are several high-quality stocks outside of the popular names and investors are required to be diversified. This diversification should not be limited to the style level, but also to the stock level. Market experts opine that the AI theme has largely fuelled the narrow market. This concentration, along with an increase in passive investments, resulted in a significant cycle of consensus positioning and stretched valuations. This led to the vulnerability in the market, which resulted in a sharp correction in July and early August.

As per Fidelity International, when it comes to passive investing in the S&P 500, it demonstrates nearly a third of holdings in only 7 stocks. Considering their dominance, a stumble in performance means the index will see a significant impact, and the investors have already seen some mega-cap technology names that are unable to deliver on strong expectations.

S&P 500 Index – Transition and Concentration

The US equities saw an outstanding performance in H1 2024, with the S&P 500 Index rising 15.3%, as per ClearBridge Investments (A Franklin Templeton Company). The investment firm believes that solid earnings results and fiscal stimulus mitigated the influence of higher interest rates. However, the headline performance numbers, aided by a ramp-up in mega-cap stocks and, more specifically, semiconductor leadership, eclipsed the recent signs of deterioration below the surface.

Since the Mag 7 stocks have disproportionately driven earnings growth over the previous 2 years, ClearBridge Investments expects a rebound in earnings among small-cap stocks in the upcoming 12– 18 months. The investment firm believes that small-cap companies have seen the impacts of higher rates. In 2023, profits for Russell 2000 companies declined ~12%. This year, they are up ~13.6%, and for 2025, the projections hover at around ~31%. If this happens, there might be a broadening of the market which should provide an opportunity for active managers.

Opportunities Apart from Magnificent Seven

Companies that are unable to meet hefty expectations might see a disproportionate sell-off, and the stocks riding the wave of AI might be significantly exposed considering the amount of capital deployed versus the uncertain future environment. Given such trends, Fidelity International believes it is unsurprising that so far in H2 2024, there have been signs that the S&P 500 is broadening beyond tech leadership, with some non-tech sectors surpassing the broader market.

There are abundant high-quality stocks apart from the popular names. This means that dozens of companies in the S&P 500 continue to offer a return on invested capital (ROIC) and earnings growth of more than 30%. This is true for several other quality metrics, reflecting an underappreciated depth of opportunity in the broader US equities.

While diversification remains critical, even looking beyond the Magnificent Seven might not necessarily offer the required diversification considering that the US market remains heavily weighted towards growth sectors like IT. As per Fidelity International, diversified portfolios need negative correlations between assets, but few styles provide consistent negative correlations to quality growth companies. That being said, cyclical value and defensive value remain 2 key exceptions.

To get a negative correlation, the investors are required to avoid an overlap at the stock level. As of now, the US market provides a range of attractive stock opportunities that offer this valuable diversification.

As per ClearBridge Investments, the top 5 stocks now constitute ~27% of the S&P 500 and the top 10 make up ~37%. As per the investment firm, this concentration might stagnate near current levels, with mega caps delivering solid, but slower, earnings growth in comparison to the recent past. The investment firm expects that diversified portfolios should outperform in the upcoming 12–18 months.

With this in mind, we will now have a look at 10 Wonderful Stocks to Buy Now at a Fair Price.

Our methodology

We first sifted through multiple online rankings and ETFs to identify quality stocks with wide moats. Next, we selected stocks that were trading at a forward P/E of less than ~23.65x (since the broader market trades at a forward multiple of ~23.65, as per WSJ). The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.

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).

Engineers analyzing a complex network of process control software and systems.

Emerson Electric Co. (NYSE:EMR)

Expected Earnings Growth: 23.4%

Number of Hedge Fund Holders: 51

Forward P/E Multiple (As of September 30): 18.45x   

Emerson Electric Co. (NYSE:EMR) is a technology and software company, which provides various solutions for customers in industrial, commercial, and consumer markets.

Emerson Electric Co. (NYSE:EMR) has a wide economic moat, which is mainly based on switching costs, and on brand intangible assets. Moreover, the company’s strong geographic presence and diversified customer base further solidify its moat. Emerson Electric Co. (NYSE:EMR) remains confident in its financial health and strategic initiatives. The company continues to focus on integrating National Instruments and potential share buybacks.

The company expects its backlog to increase YoY as it enters FY 2025. Emerson Electric Co. (NYSE:EMR) has been adjusting its strategy to focus on growth areas like innovation and renewable energy investments while, at the same time, managing softer segments. Therefore, Wall Street analysts are optimistic about the company’s future performance and its strategic positioning in the global automation market.

The company sold its remaining interest in the Copeland joint venture, hinting at the fact that Emerson Electric Co. (NYSE:EMR) is focusing on simplifying its portfolio. It highlighted that demand in process and hybrid markets, which is being led by a constructive capex cycle, has been meeting expectations. In Q3 2024, its operating leverage performance exhibited the benefits of its highly differentiated technology. For 2024, Emerson Electric Co. (NYSE:EMR) anticipates net sales growth of ~15% and operating cash flow of ~$3.2 billion.

Redburn Atlantic initiated coverage on 8^th July on the shares of the company. It gave a “Buy” rating and a $135.00 price target. Insider Monkey’s Q2 2024 data revealed that Emerson Electric Co. (NYSE:EMR) was part of 51 hedge funds.

Overall, EMR ranks 7th on our list of Wonderful Stocks to Buy Now at a Fair Price. While we acknowledge the potential of EMR as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than EMR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’

Disclosure: None. This article is originally published at Insider Monkey.

This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

The labor market offered an unexpected surprise on Friday as the September jobs report showed 254,000 payrolls added in September — 104,000 more than expected.

Worries of a flagging labor market have been the main point of economic focus over the past month as the conversation has turned from inflation, which appears to be in control at last, to the other half of the Fed’s dual mandate.

In the leadup this week, two key reports showed mixed data. The JOLTS numbers showed more job openings, but more conservative hires and quits. The ADP numbers showed surprising strength in private payrolls, but lower wage gains for job switchers — a key labor market thermometer that dogged the inflationary 2021 and 2022 years.

As our Chart of the Week shows, the economists have been caught off guard. September’s report has suddenly changed expectations for the Fed’s trajectory, as the market now sees four 25 basis point rate cuts over the next four meetings and a higher terminal rate when the cuts end.

Renaissance Macro Research’s Neil Dutta sees the print as bolstering the guidance of a 25 basis point cut per meeting until 2025, noting that the report “overwhelms all other employment indicators” that showed a weakening labor market.

“Today’s data might be the first sign of stabilization,” Dutta wrote on X, formerly Twitter.

Nearly every note we saw from Wall Street economists Friday was in agreement. This shifting dynamic suggests that not only is 50 basis points off the table for November’s meeting — some are even questioning any further cutting with numbers so strong.

“Looking at the [labor] market strength evident in September’s employment report, the real debate at the Fed should be about whether to loosen monetary policy at all,” Capital Economics chief North America economist Paul Ashworth wrote in a note to clients on Friday. “Any hopes of a [50 basis point] cut are long gone.”

On the one hand, life comes at you fast. A new report comes and blows everybody’s views out of the water and even threatens to pull the dreaded topic of inflation back in, just when we thought we were out.

On the other, to quote Fed Chair Powell from the June meeting, “it always makes sense to look at a series … rather than just one report.” The “totality” of data, not just one report — which of course will get more weight because it’s still warm from the printer, magnifying the effect of an already huge beat.

Story continues

What is clear is that the Fed’s wait-and-see, meeting-by-meeting attitude is far from ready to be abandoned, as the moment’s uniqueness keeps showing itself.

Besides the unexpected headline numbers, the unemployment rate-focused Sahm Rule — which has already been played down by its creator, Claudia Sahm — showed an unusual retreat after previously surpassing a recessionary mark that, once passed, usually keeps going up. Another point for the “this time could be different” camp.

It doesn’t end there. Year-over-year wage growth was 4%, up from 3.9%, a gain that would typically spark serious inflation concerns, but hasn’t. Putting aside whether “not cutting” is perhaps tantamount to hiking, the fundamental narrative of the Fed’s directionality hasn’t changed, only adjusted.

Counterbalancing the jobs numbers is survey after survey that shows labor sentiment declining — a factor arguably as important as the actual numbers. (If people feel like jobs are scarce, they may also feel like spending a little more conservatively.)

“On the face of this the Fed should be hiking rates with these sorts of figures, not cutting rates,” wrote ING’s James Knightley. “Nonetheless, we feel that the risks remain skewed towards weaker growth and lower Fed funds given the perception amongst households of a deteriorating jobs market (even if today’s numbers don’t confirm that), which may lead to consumers spending more cautiously.”

For the Fed, at least, the wait-and-see approach looks even better than it did previously as it seeks to gently land the plane. With both the economy looking strong and inflation getting in check, nothing sits to force its hand — for now.

Ethan Wolff-Mann is a Senior Editor at Yahoo Finance, running newsletters. Follow him on X @ewolffmann.

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