We recently compiled a list of the 8 Unstoppable Stocks That Could Make You Richer.In this article, we are going to take a look at where Root, Inc. (NASDAQ:ROOT) stands against the other unstoppable stocks.
Navigating Volatile Equity Markets
In the current climate of extreme market volatility, finding safe and stable investments is challenging. Valuations seem overstretched following one of the longest bull runs, with major indices reaching record highs. Despite this, the focus should remain on stocks of companies with strong fundamentals and solid long-term prospects.
Similarly, it's crucial to consider companies that can withstand uncertainties caused by various headwinds, such as rising geopolitical tensions, the US election, and the high interest rate environment. While the recent Federal Reserve rate cut, declining inflation rates, and a prolonged bull market have benefited investors, not all stocks are responding uniformly.
How Are Economic and Geopolitical Factors Influencing Investments?
As the US election approaches, economic issues remain the primary concern for most voters. Despite the equity market's upward trend, the US economy has experienced several shocks, including slowdowns in the labor and real estate markets. Although inflation has decreased from a high of 9.2% to 2.4%, the Federal Reserve had to cut interest rates by 50 basis points to prevent a recession.
"Even as the data shows inflation has theoretically been slowing down, it has become more important in people's minds over the course of the last three quarters, not less important," said Jay Campbell, partner at Hart Research, the Democratic pollster for the survey.
The significant drop in inflation has coincided with higher growth expectations, driving upward momentum in the equity markets. Strong macroeconomic data, such as impressive GDP and retail sales figures, have supported these growth expectations. Amid these expectations, bond yields have increased, indicating that investors are selling safe-haven assets. Economists at Goldman Sachs suggest that the rise in yields is due to promising growth prospects rather than factors like the anticipation of Donald Trump's potential presidency or concerns about the Fed's rate cuts causing inflation to spike again.
"Yields have risen significantly over the past several weeks, which we find has owed primarily to continued strong U.S. growth momentum rather than shifts in election odds," Goldman said in a recent note.
Conversely, escalating trade and tariff tensions between the US and China pose a threat to market sentiment. The International Monetary Fund has warned that these tensions could have costly economic consequences globally.
"We are seeing geopolitically driven trade around the world, which is why when you look at overall trade to GDP that's holding up fine, but who's trading with whom is certainly changing," said Gita Gopinath, deputy managing director of the International Monetary Fund, to CNBC on October 23, 2024.
In response to perceived unfair trade practices by Beijing, the US and EU have increased tariffs on certain Chinese goods, further escalating trade tensions this year.
Despite rising geopolitical tensions, long-term investing remains the best strategy for building a profitable portfolio and sustaining growth over time. Key factors to consider include investing in businesses rather than just share prices, understanding the underlying business, and consistently investing during both market highs and lows.
Our Methodology
For this article, we identified approximately 20 stocks with a year-to-date share price gain of over 30% as of October 25 and an average analyst price target upside of at least 30%. We then narrowed the list to the 8 stocks with the highest average analyst price target upsides, ranking them primarily by upside potential and secondarily by year-to-date gains.
At Insider Monkey, we are obsessed with 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).
An experienced insurance agent explaining the benefits of an insurance product to a customer.
Average Analysts Upside Potential as of October 25: 93.15%
Year-to-date gains as of October 25: 275.21%
Number of Hedge Fund Holders: 11
Root, Inc. (NASDAQ:ROOT) is a financial services company that provides insurance products and services to homeowners and renters. While trading at a discount with a price-to-earnings multiple of 1.90, it is one of the unstoppable stocks that could make you richer as it continues to disrupt the car insurance industry.
Root, Inc. (NASDAQ:ROOT) optimizes pricing and improves customer satisfaction using its in-house technology and machine learning models. Thanks to this strategy, it's been able to focus on profitability while achieving some of the best loss ratios in the industry. Additionally, it has increased new writings by 120% annually, demonstrating significant progress in its partnership channel. The business is well-positioned to spur further growth with over a dozen partners and a strong pipeline of new opportunities.
Root, Inc. (NASDAQ:ROOT)'s competitive edge in the insurance sector stems from using driving behaviour rather than demographics to base insurance rates. Therefore, it utilizes over 20 billion miles of mobile telematics data to offer personalized insurance coverage. It also stands out due to its strong financial results that underline solid fundamentals and growth metrics backed by proprietary data, allowing it to streamline operations and enhance customer service.
While Root, Inc. (NASDAQ:ROOT) did deliver a net loss of $0.52 a share in the second quarter, it was better than the $1.74 a share expected and the $2.55 a share loss delivered last year in the same quarter. Disciplined underwriting and a focus on cost reduction have helped Root, Inc. (NASDAQ: ROOT) achieved a gross loss ratio of 61.6%, indicating its operational effectiveness and potent risk management skills.
Consequently, analysts on Wall Street believe the stock is a buy, going by the average price target of $75.60, which implies a 93.15% upside potential as of October 25, 2024.
Overall ROOT ranks 2nd on our list of the unstoppable stocks that could make you richer. While we acknowledge the potential of ROOT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
