Booking Holdings Inc. (BKNG): Among the best consumer discretionary stocks according to hedge funds?

We recently compiled a list of Top 10 Consumer Discretionary Stocks to Buy, According to Hedge Funds. In this article, we will examine how Booking Holdings Inc. (NASDAQ:BKNG) stands relative to other stocks in the Consumer Discretionary sector.

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 from Colliers Retail Market Intelligence, retail traffic increased by 4.4% in June, indicating strong consumer activity despite stagnant overall sales.

While furniture and home improvement stores saw declines due to reduced big ticket purchases and a weak housing market, grocery and clothing retailers performed better. Grocery sales rose 1.7%, with footfall up nearly 5% as shoppers managed their budgets despite cost-cutting. Clothing sales also rose 3.8%, driven by back-to-school shopping and wardrobe refreshes, leading to an 8.3% increase in footfall.

Consumer spending edged up in July from June, with gains in 10 of 12 retail categories, the CNBC/National Retail Federation (NRF) Retail Monitor reports. Retail sales excluding autos and gasoline rose 0.7% month-over-month, up slightly from 0.5% in June, but year-over-year growth slowed to 0.9% from 3.4% in June.

Core retail, which excludes restaurants, posted a 1% month-over-month increase. Notable sector performances included a 3.4% increase in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the health care, personal care and gardening supply sectors saw slight declines.

Data for June and July indicate that consumer spending remains resilient, supported by strong household finances and a buoyant jobs market. While some sectors, notably furniture and renovation, are struggling due to weaker consumer confidence and a slowdown in the housing market, other categories are performing well.

The data suggests that consumers are still willing to spend, particularly on essential and seasonal items, although 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, indicating a cautiously optimistic outlook for the remainder of 2024.

Latest updates on interest rates and their potential effects on consumer spending

At the July meeting, Fed Chairman Jerome Powell emphasized the Fed’s focus on achieving maximum employment and price stability. He noted significant progress in the economy, with inflation down from 7% to 2.5% and a balanced labor market with a low unemployment rate of 4.1%. The Fed chose to hold interest rates steady in the 5.25% to 5.5% range and continue to reduce its holdings of securities to maintain a restrictive stance, which aims to align demand with supply and reduce inflationary pressures.

Powell indicated that while inflation has eased, the Fed is not yet ready to cut rates and needs more consistent positive data before making such a decision, perhaps as early as September. According to the CME Fed Watch Tool, all experts expect rate cuts in September. Fifty-five percent of experts expect a 25 basis point (bps) cut in interest rates, while 49.5% expect a 50 bps cut.

Rate cuts typically have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which can lead to more borrowing and spending by consumers. This increased affordability can boost consumer confidence and encourage spending on consumer discretionary goods. This is a good situation for discretionary stocks, and with that in mind, let’s take a 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 the 10 stocks most widely held by institutional investors in the first quarter, and ranked the stocks in ascending order of hedge fund sentiment.

Why do we care about the stocks that hedge funds are heavily invested in? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (see more details here).

Booking Holdings Inc. (NASDAQ:BNG)

Number of hedge fund holders: 97

Booking Holdings Inc. (NASDAQ: BKNG) is a leading provider of online travel and related services, offering a range of services such as hotel reservations, car rentals, flight reservations, and restaurant reservations. It is one of the best consumer discretionary stocks to buy according to hedge funds.

Through its renowned brands such as Booking.com, Priceline, Agoda, Kayak and OpenTable, the company strives to deliver a complete travel planning experience. With a strong presence in more than 220 countries and territories, Booking (NASDAQ: BKNG) has solidified its role as a leading provider in the online travel market, connecting users to a variety of travel options around the world.

Booking (NASDAQ: BKNG) is well-positioned for continued growth, driven by changing traveler preferences and its ability to adapt to changing market conditions. A Trends Global Survey shows that 80% of travelers now prefer to book their entire trip online, with Millennials and Gen Z leading the way.

This shift toward online travel agencies (OTAs) presents a promising growth opportunity for Booking (NASDAQ: BKNG), which is meeting this demand by providing a comprehensive platform where users can book flights, hotels, car rentals and experiences, often at discounted rates.

In the second quarter, Booking (NASDAQ:BKNG) saw revenue rise 7.3% year over year to $5.86 billion, beating Wall Street expectations of $5.77 billion. The company also saw a 7% increase in room nights booked, to 287 million. Gross travel bookings reached $41.4 billion, up 4% from a year earlier. The company’s EPS reached $44.38, up 27% from a year earlier.

Booking (NASDAQ: BKNG) continues to expand its diverse suite of services. The company’s focus on integrating artificial intelligence (AI) and technology has played a crucial role in this growth.

Innovations such as a generative AI-powered trip planner and enhanced mobile apps have simplified booking processes and improved the user experience. Additionally, the company has expanded its revenue streams through significant advancements in flights, ground transportation and restaurant reservations through OpenTable.

While platforms like Airbnb, Inc. (NASDAQ:ABNB) have grown in popularity, demand for traditional hotel accommodations and the convenience offered by OTAs remains strong. The coexistence of these options suggests a thriving market for both, with Booking (NASDAQ:BKNG) continuing to benefit from travelers’ need for comprehensive and efficient booking solutions.

In the first quarter, 97 hedge funds held stakes in Booking (NASDAQ:BKNG), with positions worth $7.9 billion. Fisher Asset Management is the company’s largest shareholder in the first quarter, with a position worth $1.42 billion.

Wedgewood Partners said the following about Booking Holdings Inc. (NASDAQ: BKNG) in its Q2 2024 investor letter:

“Booking Holdings Inc. (NASDAQ: BKNG) contributed to performance as travel spending in the U.S. and Europe remains fairly healthy, while the company has been taking stakes in alternative accommodations and appears poised to expand margins after a few years of reinvestment. The company has also been aggressively trimming its share count at reasonably attractive valuation multiples. Booking should be able to generate earnings at an attractive double-digit rate over the next few years given these various initiatives.”

Overall BKNG ranks 3rd on our list of the best consumer discretionary stocks to buy according to hedge funds. You can visit Top 10 Consumer Discretionary Stocks to Buy, According to Hedge Funds to see other consumer discretionary stocks that are on hedge funds’ radar. While we recognize BKNG’s potential as an investment, our conviction lies in the belief that AI stocks have more promise to deliver higher returns and do so in a shorter time frame. If you’re looking for an AI stock that has more promise than BKNG but is trading at less than 5x earnings, check out our report on the the cheapest AI stock.

Read next: Analyst sees new $25 billion ‘opportunity’ for NVIDIA and Jim Cramer recommends these 10 stocks in June.

Disclosure: None. This article was originally published on Insider Monkey.