Is Moody's Corporation (MCO) the Top Stock to Buy According to Akre Capital Management?

We recently published a list of Top 10 Stocks to Buy According to Akre Capital Management. In this article, we are going to take a look at where Moody’s Corporation (NYSE:MCO) stands against other top stocks to buy according to Akre Capital Management.

Akre Capital Management follows a disciplined investment philosophy centered around identifying exceptional businesses managed by honest and capable leaders who reinvest free cash flow wisely. This approach, referred to as the “three-legged stool,” emphasizes three key factors: extraordinary businesses, strong management teams, and effective reinvestment strategies. The firm’s primary objective is to compound investor capital at above-average rates while maintaining a lower level of risk compared to industry norms. Led by founder Chuck Akre until 2020, the firm has consistently adhered to this philosophy, delivering strong results over the years.

The foundation of Akre Capital’s investment strategy is built on the principle that long-term returns closely correlate with the return on an owner’s capital, assuming stable valuations and no distributions. Historically, the average return on U.S. equities has been around 9% to 10%, aligning with book value growth per share. Akre Capital seeks to outperform this benchmark by selecting businesses with superior return profiles, believing that these “compounding machines” are the best way to achieve sustainable wealth accumulation. The firm places great emphasis on patience and discipline, resisting short-term market fluctuations in favor of long-term growth.

Unlike many asset managers, Akre Capital does not rely on setting specific sell targets when acquiring shares. Instead, it evaluates potential investments with the intent of holding them indefinitely, selling only when one of the core aspects of the “three-legged stool” is compromised. This long-term approach distinguishes the firm from Wall Street’s frequent short-term focus on quarterly earnings surprises. Rather than reacting to minor earnings fluctuations, Akre Capital remains committed to businesses with solid economic fundamentals, viewing temporary price declines as opportunities to acquire high-quality companies at attractive valuations.

Another key differentiator of Akre Capital is its ability to capitalize on market inefficiencies. The firm takes advantage of Wall Street’s obsession with short-term earnings reports, often using quarterly “misses” as opportunities to invest in undervalued companies with strong long-term potential. With a focus on growth over five- and ten-year periods, Akre Capital prioritizes economic value per share rather than short-term stock price movements. This steadfast commitment to its investment philosophy has allowed the firm to consistently achieve its goal of compounding capital while mitigating risk.

Charles T. “Chuck” Akre, Jr. is a seasoned asset manager with over five decades of experience overseeing private funds, mutual funds, and separately managed accounts. He founded Akre Capital Management in 1989 after spending 21 years at Johnston, Lemon & Co., a NYSE member firm, where he gained expertise in research, asset management, and branch operations. During his time there, he developed a deep understanding of securities and investment strategies, which laid the foundation for his own firm’s approach.

From 1993 to 2000, Akre Capital Management operated under the umbrella of Friedman, Billings, Ramsey & Co. in Washington, D.C., providing Chuck with additional resources to refine and expand his investment philosophy. However, in 2000, he chose to take the firm private again, emphasizing independence and a long-term investment approach. He relocated Akre Capital to Middleburg, Virginia, a rural setting that reflected his preference for a focused and patient investment process, free from the distractions of Wall Street’s short-term mentality.

At Akre Capital, Chuck Akre’s leadership has shaped the firm’s long-term success, ensuring consistent capital growth for investors. Over the years, he has earned a reputation for his disciplined and insightful approach to asset management. Today, Akre continues to contribute his expertise as Chairman of Akre Capital Management. He works alongside John Neff, the portfolio manager of the Akre Focus Fund, ensuring that the firm’s investment principles remain intact. With decades of experience and a commitment to compounding capital at superior rates, Chuck Akre’s influence in the investment world remains significant.

As of its most recent filing for the fourth quarter of 2024, Akre Capital Management manages approximately $11.56 billion in 13F securities. The firm maintains a highly concentrated portfolio, with its top ten holdings accounting for 94.82% of total assets. This focused investment approach reflects Akre Capital’s commitment to selecting a small group of high-quality businesses with strong growth potential and disciplined management.

Our Methodology

The stocks discussed below were picked from Akre Capital Management’s Q4 2024 13F filings. They are compiled in the ascending order of the hedge fund’s stake in them as of December 31, 2024. To assist readers with more context, we have included the hedge fund sentiment regarding each stock using data from 1009 hedge funds tracked by Insider Monkey in the fourth quarter of 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Moody’s Corporation (NYSE:MCO)

Number of Hedge Fund Holders as of Q4: 91

Akre Capital Management’s Equity Stake: $1.46 Billion 

Moody’s Corporation (NYSE:MCO), a leading financial services firm, reported strong financial results for 2024, driven by substantial growth in both its credit rating and analytics businesses. Total revenue reached $7.09 billion, marking a 20% increase from $5.92 billion in 2023. This impressive performance was fueled by gains across Moody’s Investors Service (MIS) and Moody’s Analytics (MA), which provide essential credit ratings and financial analysis tools. Moody’s ability to capitalize on market demand for data-driven insights and risk assessment solutions has solidified its reputation as a key player in the financial industry.

Moody’s Analytics division generated $3.3 billion in revenue, reflecting an 8% year-over-year increase, with strong contributions from its Decision Solutions, Research and Insights, and Data and Information segments. Meanwhile, Moody’s Investors Service reported an outstanding 33% revenue increase to $3.79 billion, benefiting from broad-based growth across Corporate Finance, Structured Finance, Financial Institutions, and Public, Project, and Infrastructure Finance. This surge highlights the continued reliance on ratings and analytics by Moody’s Corporation (NYSE:MCO) in global financial markets, reinforcing its competitive advantage.

Despite higher operating expenses, which rose by 15% to $1.95 billion, and an increase in selling, general, and administrative expenses to $1.74 billion, Moody’s Corporation (NYSE:MCO) delivered strong profitability. Operating income climbed 35% to $2.88 billion, while net income increased to $2.06 billion from $1.61 billion in the prior year. Diluted earnings per share grew to $11.26, reflecting the company’s ability to manage costs effectively while expanding its revenue base. Although its effective tax rate increased to 23.7% from 16.9% due to prior-year tax benefits, Moody’s maintained a strong financial position, ending the year with $2.41 billion in cash and cash equivalents.

As a global leader in credit ratings and financial intelligence, Moody’s Corporation (NYSE:MCO) continues to benefit from the growing demand for risk assessment tools and analytics, particularly in uncertain economic environments. With a solid track record of revenue and earnings growth, strategic expansion in analytics, and a strong balance sheet, Moody’s remains a top stock to buy for investors seeking long-term value and resilience in the financial sector.

Overall, MCO ranks 3rd on our list of top stocks to buy according to Akre Capital Management. While we acknowledge the potential for MCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

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