Hedge Funds' 25 Top Blue-Chip Stocks to Buy Now
What is the "smart money" up to lately? We explore the 25 most popular blue-chip stocks among the hedge fund crowd.
Hedge funds are back to their lagging ways so far in 2021, but it's irresistible nonetheless to see what the "smart money" is up to.
The Eurekahedge Hedge Fund Index has delivered a total return (price appreciation plus dividends) of 7.8% for the year-to-date, while the total return for the S&P 500 Index of blue-chip stocks is 13.3%.
Given that so many of hedge funds' favorite names are members of the Dow Jones Industrial Average or Nasdaq Composite, one might figure that the big money would be hurt at least in part by the relative underperformance of the blue-chip barometer and tech-heavy index this year.
But even then, hedge funds are lagging. Their roughly 8% total return is behind both the Dow (11.6%) and Nasdaq (9.8%).
Be that as it may, it's always interesting – and often edifying – to see which names rank as hedge funds' favorite stocks. Not that most investors will be surprised by some of their selections. Dow stocks are heavily over-represented when it comes to names with the highest number of hedge fund shareholders; fully 12 of the Dow's 30 blue-chip stocks rank among hedge funds' 25 top picks.
That's partly a function of Dow stocks' massive market capitalizations and attendant liquidity, which creates ample room for institutional investors to build or sell large positions. However, big-name blue chips also carry a lower level of reputational risk for professional money managers. It's a lot easier to justify holding a large position in a Dow stock than a no-name small-cap if restive clients start grumbling about their returns.
So what else are hedge-fund types holding on to right now?
Have a look at hedge funds' 25 favorite blue-chip stocks to buy now. With so many of last year's pandemic winners turning into this year's laggards – and the so-called recovery trade driving so much of 2021's upside action – it seemed like a good time to catch up on the smart money's favorite bets. All these names likely appeal to elite funds because of their size, strong track records or outsized growth prospects, but we'll delve into a few specifics that make each blue-chip stock special.
Share prices and other data are as of June 21, unless otherwise. Companies are listed in reverse order of popularity with hedge funds, according to WhaleWisdom. Analysts' ratings and other data provided S&P Global Market Intelligence, unless otherwise noted.
25. Exxon Mobil
- Market value: $265.0 billion
- Dividend yield: 5.6%
- Analysts' recommendations: 4 Strong Buy, 5 Buy, 17 Hold, 1 Sell, 0 Strong Sell
Exxon Mobil (XOM, $62.59) was removed from the Dow Jones Industrial Average in 2020, which is too bad for anyone invested in indexed products that track the blue-chip average.
Shares in the energy major are on a tear this year. XOM is up by about 52% for the year-to-date, vs. the Dow's 12% gain. Chevron (CVX), the Dow's only remaining energy stock, is up 26%.
As the largest listed energy company by market capitalization, Exxon Mobil is a natural holding for hedge funds that love blue-chip stocks and want to make a broad bet on the energy sector. The attendant liquidity allows big investors to move in and out of positions with relative ease.
XOM made headlines recently when activist shareholders waged a successful proxy fight to win seats on its board. The new directors intend to bring environmental, social and corporate governance (ESG) issues to the top of the company's agenda.
UBS Global Research analyst Jon Rigby, who rates the stock at Neutral (the equivalent of Hold), says "both new directors are credible and can add value."
"Management expects cash flow to cover capital spending and dividend payments this year as long as Brent crude prices remain above $50 per barrel," says Argus Research analyst Bill Selesky, who also rates the stock at Hold. "With Brent currently near $68 per barrel, we believe that the dividend is secure."
Selesky adds, however, that "energy prices remain volatile and that any sharp drop could have a substantial negative impact on XOM."
Analysts' consensus recommendation on Exxon shares stands at Hold, according to S&P Global Market Intelligence.
- Market value: $202.6 billion
- Dividend yield: 4.5%
- Analysts' recommendations: 11 Strong Buy, 6 Buy, 5 Hold, 1 Sell, 0 Strong Sell
AbbVie (ABBV, $114.73) is best known for blockbuster drugs such as Humira, a rheumatoid arthritis drug on pace to surpass Lipitor as the best-selling drug of all time. However, hedge funds are increasingly excited about what's in the pharma company's pipeline.
Humira has been approved for numerous other ailments. AbbVie also makes cancer drug Imbruvica, as well as testosterone replacement therapy AndroGel. But the real future upside in ABBV stock hinges on cancer-fighting and immunology drugs, as well as therapies acquired from Allergan in a $63 billion deal that closed in 2020.
"The current portfolio includes a growing oncology franchise anchored by Imbruvica and Venclexta, along with two growth drivers in the immunology space – Skyrizi and Rinvoq," says Argus Research analyst David Toung (Buy). "Allergan adds strengths in medical aesthetics, neuroscience and eyecare."
Another draw for hedge funds and other investors is the biopharma firm's storied dividend history.
AbbVie is a member of the S&P 500 Dividend Aristocrats, a list of blue-chip stocks that have increased their dividends annually for at least 25 years. The company hiked its payout for a 49th consecutive year in October 2020 – a 10.2% bump in the quarterly distribution to $1.30 per share.
There's also something comforting about having the imprimatur of the Oracle of Omaha. Warren Buffett's Berkshire Hathaway (BRK.B) has been a shareholder since the third quarter of 2020.
As for Wall Street's opinion, analysts' consensus recommendation on ABBV stands at Buy.
- Market value: $233.5 billion
- Dividend yield: 4.5%
- Analysts' recommendations: 4 Strong Buy, 3 Buy, 21 Hold, 0 Sell, 0 Strong Sell
As the Dow's only telecommunications stock, Verizon (VZ, $56.39) has the massive market cap and attendant liquidity required by large investors such as hedge funds.
It's the kind of core, large-cap holding that big pools of money tend to stick with over the long term, even when the market and the Street are less enthusiastic about the nearer-term prospects.
Shares in Verizon are off more than 4% for the year-to-date. That lags the S&P 500 by 16 percentage points. Like the market, the Street has become less bullish on the name too. Analysts have a consensus recommendation of Hold on VZ, down from Buy as recently as six months ago.
On the bull side of the equation, Argus Research (Buy) applauds Verizon's investment in 5G.
"We think that Verizon's recent large spectrum acquisition will be crucial in the company's buildout of true 5G service," says Argus' Joseph Bonner. He adds, however, that although VZ has often been the leader in next-generation wireless technology, it "may be playing more of a catch-up game with 5G as T-Mobile forges ahead."
CFRA Research (Sell), however, is less optimistic, citing increased competition from the likes of T-Mobile US (TMUS), as well as the costs of competing in ultra-fast 5G wireless network services. For example, VZ spent a whopping sum to license 5G spectrum at a March federal auction.
"We have a negative view of the $42.9 billion increase in debt as a result of spending on C-band spectrum and note the company will have to spend an additional $10 billion to deploy it over the next three years," says CFRA Research analyst Keith Snyder.
Something bulls and bears both applaud is Verizon's May decision to sell its media assets, including Yahoo and AOL, to private equity group Apollo Global Management (APO) for $5 billion.
"We like the fact that VZ has finally accepted defeat with its media ambitions and that it is receiving a better price for the business than we expected," CFRA's Snyder says.
- Market value: $263.2 billion
- Dividend yield: 1.8%
- Analysts' recommendations: 20 Strong Buy, 9 Buy, 5 Hold, 0 Sell, 1 Strong Sell
As the nation's largest cable company, Comcast (CMCSA, $57.28) regularly makes the list of hedge funds' favorite blue-chip stocks. That's because its combination of content, broadband, pay TV, theme parks and movies is unparalleled by rivals, and gives this blue-chip stock a huge strategic advantage.
CMCSA's diversification came in especially handy last year when the pandemic walloped theme parks, cinemas and spending on advertising.
"While the pandemic has materially impacted Comcast, the company's steady cable division continues to provide vital connectivity for its large base of 23 million subscribers," says Argus Research analyst Joseph Bonner (Buy).
Indeed, going forward, some analysts see the cable division as a key to CMCSA being a long-term outperformer.
"In our view, the company's current discount to its largest cable peer is largely unwarranted due to Comcast's best-in-class cable operations, similar potential from scaling wireless operations as well as its leading and innovative product offerings such as Flex," says Bank of America Global Research analyst Jessica Reif Ehrlich (Buy).
Peacock, the company's streaming service operated by NBCUniversal, also adds to the bull case for CMCSA stock. Think of it as one more feather in Comcast's cap of distribution, production and intellectual property assets. Peacock should also help CMCSA gain traction in what Erlich says is the next big growth area for streaming services: advertising-based video on demand (AVOD).
"In our view, Comcast is the best positioned company in the AVOD arena due to the company's: (1) leading ad-tech platforms; (2) ability to marry its own massive trove of first-party data attained through its NBCU unit; (3) global scale; (4) expansive breadth of content, including live sports; (5) sizable production capacity at NBC/Sky/Universal; (6) significant library of well-known content; (7) ability to enforce strict frequency caps; and (8) limited current overlap between NBC's primetime audience and Peacock users with 75% of Peacock viewers providing incremental reach to advertisers."
As bullish as hedge funds might be on Comcast, the Street is arguably even more so. Analysts' consensus recommendation stands at Buy, and with high conviction. Of the 35 analysts issuing opinions on CMCSA tracked by S&P Global Market Intelligence, fully 20 of them rate it at Strong Buy.
- Market value: $459.2 billion
- Dividend yield: 0.1%
- Analysts' recommendations: 27 Strong Buy, 7 Buy, 5 Hold, 2 Sell, 0 Strong Sell
Chipmaker Nvidia (NVDA, $737.09) is a no-brainer for hedge funds because of its strength in so many emerging technologies.
The company's high-powered graphics processing units (GPUs) drive everything from PCs and video game consoles to artificial intelligence (AI), data servers, supercomputers, mobile chips and even cryptocurrency mining.
Few blue-chip stocks offer so much exposure to so many emerging applications and technologies. And that lies at the heart of the bull case on NVDA for hedge funds and analysts alike.
"NVDA remains one of our favorite ideas based on our view that the company remains in the early stages of several secular growth drivers – independent of broader cyclical trends in semiconductors," writes Raymond James analyst Chris Caso (Strong Buy).
Although concerns remain about the global shortage of semiconductors, Caso says NVDA has "secured enough supply to drive sequential growth through the balance of the year." Meanwhile, its data center business enjoys an "established leadership position" and the "potential for an enterprise upgrade cycle as we collectively return to the office."
CRFA Research concurs with the bull case on NVDA shares.
"While supply constraints are somewhat constraining sales, we see better conditions ahead to support robust demand that NVDA is seeing in gaming," says CFRA Research analyst Angelo Zino (Buy). "In data centers, we see greater momentum from hyperscale customers as they build infrastructure to embed artificial intelligence (AI) in their services, as well as networking opportunities."
The Street forecasts the chipmaker to generate average annual earnings-per-share (EPS) growth of nearly 28% over the next three to five years. It should come as no surprise, then, that analysts' consensus recommendation comes to Buy, with high conviction.
Shares in NVDA are up about 36% for the year-to-date, or triple the performance of the S&P 500.
- Market value: $220.7 billion
- Dividend yield: 4.0%
- Analysts' recommendations: 5 Strong Buy, 0 Buy, 17 Hold, 0 Sell, 0 Strong Sell
Pharmaceutical giant Pfizer (PFE, $39.42) was removed from the Dow Jones Industrial Average in 2020, but it remains a go-to name for large institutional investors. After all, it's a classic defensive dividend stock with ample liquidity and a huge market value that gives it outsized influence on the healthcare sector.
Shares are lagging the broader market so far this year, but analysts expect PFE to play catch up once the market appreciates its potential for accelerating sales.
"We see stronger top-line growth in 2021 and beyond as the company moves past the spinoff of the Upjohn business to focus on developing innovative products," writes Argus Research analyst David Toung (Buy).
Pfizer spun off Upjohn in November 2020. It was combined with Mylan to form Viatris (VTRS).
The analyst adds that Pfizer's leading work on developing and distributing a vaccine for the novel coronavirus will also pay dividends in the not-too-distant future.
"We see Pfizer reinvesting the profits from vaccines to acquire and accelerate development of new therapies," Toung says in a note to clients. "Given the stock's below-peer-average valuation, we also think the market is underestimating the sustainability of Pfizer's COVID-19 vaccine franchise and its revenue contribution beyond 2021."
Bullish hedge funds can also point to Pfizer's biopharma business, which includes growth drivers such as Ibrance, Eliquis, Vyndaqel, Xtandi, Xejanz and Prevnar13.
Furthermore, PFE boasts "a robust pipeline of biologics," and strong capabilities for research and development, Toung says.
As much as hedge funds embrace PFE these days, analysts as a group actually tend to be cautious on the name. Their consensus recommendation stands at Hold. Indeed, of the 22 analysts covering PFE tracked by S&P Global Market Intelligence, 17 rate it at Hold. The other five call it a Strong Buy.
- Market value: $572.5 billion
- Dividend yield: N/A
- Analysts' recommendations: 36 Strong Buy, 9 Buy, 4 Hold, 0 Sell, 0 Strong Sell
Alibaba (BABA, $211.06) is a rare international play among the hedge funds' favorite blue-chip stocks, but its appeal is pretty straightforward. Alibaba is often called the Amazon of China ... and although there are important differences between the two, they do share the enviable trait of being undisputed titans in e-commerce.
Alibaba – just like Amazon – has never shied away from investing heavily in itself to both build out its existing businesses and enter new ones. As a result, BABA also finds itself spreading its tentacles far beyond its core e-commerce business into cloud computing, digital payments and much, much more.
Analysts who are bullish on Alibaba point to its history of innovation and ceaseless drive to enter new businesses.
"We expect continued solid China ecommerce growth with Alibaba as the biggest winner," says Raymond James analyst Aaron Kessler (Strong Buy). "Alibaba noted it will reinvest all incremental profits in fiscal 2022 to fund technology innovation, merchant support, local services and new retail developments."
Kessler says BABA is making wise strategic investments to gain market share in new business areas, and advises investors to focus on the "high profits of the core business, which we believe support a much higher share price."
Hedge funds can also take heart in the fact that Wall Street is extremely bullish on the stock. Analysts' consensus recommendation comes to Strong Buy. Indeed, 36 of the 49 analysts covering BABA rate it at Strong Buy.
The Street expects Alibaba to generate average annual EPS growth of nearly 27% over the next three to five years. With shares trading at less than 21 times next year's projected earnings, hedge funds can say that BABA looks like quite a bargain.
18. Procter & Gamble
- Market value: $325.8 billion
- Dividend yield: 2.6%
- Analysts' recommendations: 7 Strong Buy, 4 Buy, 10 Hold, 1 Sell, 0 Strong Sell
Procter & Gamble (PG, $133.07) is sort of a must-have stock for large pools of capital looking for exposure to the consumer staples sector. This Dow stock, with its massive market cap and liquidity, is a natural way to pick up a defensive name with especially low volatility that also happens to be a dividend-growth machine.
Indeed, PG is a member of the S&P 500 Dividend Aristocrats, having upped its payout annually for 65 consecutive years. It last hiked the quarterly dividend in April 2021, by 10% to 86.98 cents per share.
PG, whose vast portfolio of billion-dollar brands includes Charmin toilet paper, Head & Shoulders shampoo and Crest toothpaste, was an early winner during the pandemic, which saw consumers hoard all manner of basic household goods.
Shares are negative so far in 2021, however, as some analysts express concerns about increasingly difficult year-over-year comparisons, as well as higher costs for raw materials and other expense pressures.
UBS Global Research analyst Sean King (Hold) notes that the Street – and investors – are keying on post-COVID expectations, pricing and inflation when it comes to Procter & Gamble's prospects. The analyst in April cut his fourth-quarter EPS estimate for P&G to reflect the impact of rising costs.
More optimistically, Argus Research analyst Christopher Graja (Buy) believes the post-COVID landscape offers a long-term opportunity for the consumer products giant.
"We expect P&G to continue to benefit from increased attention to health and hygiene over the next year," Graja writes. "Even after infection rates diminish, we expect many shoppers to maintain inventories of essential products at home because they still want to minimize shopping trips, and because they don't want to be in the position of foraging again."
The Street's consensus recommendation comes to Buy, albeit not with particularly high conviction compared to many of the other blue-chip stocks favored by the hedge-fund set.
17. Home Depot
- Market value: $327.1 billion
- Dividend yield: 2.2%
- Analysts' recommendations: 17 Strong Buy, 8 Buy, 9 Hold, 0 Sell, 1 Strong Sell
Dow component Home Depot (HD, $307.60), the nation's largest home improvement chain, has long been a way for hedge funds and others to play the housing market.
Turns out, HD was also a good way to play COVID-19.
A country basically cooped up at home was great for business at Home Depot and analysts don't think the good times have to stop with the end of the pandemic.
"Although home improvement spending in the coming quarters may begin to decelerate from what are likely unsustainable growth levels, we expect home investment to remain above pre-COVID levels as the longer-term tailwinds for the home improvement industry are generally favorable," says BofA Global Research analyst Elizabeth Suzuki (Buy.) "We remain encouraged on the medium-term outlook for HD as the dominant retailer in a strong category of retail."
That's a sentiment shared by much of the Street. Argus Research's Christopher Graja (Buy) hits on some other common bullish themes:
"We believe that the drivers of future growth remain the same. There has been significant underinvestment in housing. About 70% of U.S. homes are more than 25 years old and likely in need of upgrades and repairs. We believe that increased time at home has prompted more consumers to take on small home improvement projects. HD has gained new customers, and those customers have increased their engagement with Home Depot."
Analysts' consensus recommendation stands at Buy, per S&P Global Market Intelligence. They forecast HD to deliver average annual EPS growth of 10.4% over the next three to five years.
Analysts also like Home Depot's valuation in a pricey market. At around 21 times expected earnings, HD trades essentially in line with the S&P 500.
16. Bank of America
- Market value: $340.6 billion
- Dividend yield: 1.8%
- Analysts' recommendations: 10 Strong Buy, 7 Buy, 6 Hold, 1 Sell, 1 Strong Sell
Bank of America (BAC, $39.75) is popular with hedge funds for the same reason other money center banks with huge market values and rivers of liquidity are: It offers a bet on both domestic and international growth.
Hedge funds can also take heart in the fact that Warren Buffett remains a big-time believer in the blue-chip stock. The nation's second-largest bank by assets is Berkshire Hathaway's (BRK.B) second-largest investment, comprising 14.5% of its total portfolio value.
Meanwhile, Berkshire is Bank of America's largest shareholder, with 11.8% of its shares outstanding. That's a remarkable vote of confidence considering how Buffett has cut or eliminated positions in most of Berkshire's other bank stocks.
On the Street, analysts' consensus recommendation comes to Buy. Piper Sandler analyst Jeffery Harte, who rates BAC at Overweight (the equivalent of Buy) raised his 2022 EPS estimate following the bank's April earnings report to reflect "lower credit costs, improved revenue expectations and the return of positive operating leverage."
Longer term, Harte likes Bank of America as a bet on the increasing digitization of banking for retail and enterprise customers.
"While the low interest rate environment creates meaningful revenue headwinds in consumer banking, we believe BAC will be a leading beneficiary of the pandemic-driven acceleration toward digital banking," the analyst says.
In another bullish view, Argus Research applauds the firm's strategic vision.
"Management continues to focus on what it terms 'responsible growth,'" says Argus analyst Stephen Biggar (Buy). "We believe this may be seen in the company's ability to expand its loan portfolio without taking on too much credit risk, and to maintain balanced growth across segments so that more volatile businesses, such as trading and investment banking, do not account for an outsized portion of profits."
The Street expects BAC to generate average annual EPS growth of 14.8% over the next three to five years, per S&P Global Market Intelligence.
- Market value: $225.6 billion
- Dividend yield: 2.5%
- Analysts' recommendations: 10 Strong Buy, 5 Buy, 17 Hold, 7 Sell, 3 Strong Sell
Intel (INTC, $55.87) has been one of the most troubled blue-chip stocks in recent years, falling far behind the competition on any number of fronts. That's why analysts and investors were so delighted when the chipmaker hired Pat Gelsinger, former CEO of VMWare (VMW), to take over in February.
Heck, some observers said it was the best decision the troubled company made in more than a decade. And, indeed, this Dow stock has been a disappointing long-term performer. Shares are up just 7% over the past three years vs. a gain of 54% for the S&P 500.
Nevertheless, as a Dow stock and mega-player in the global semiconductor industry, hedge funds interested in sector exposure almost have to buy the name. Some of them even appear to believe that INTC is finally at an inflection point.
Shares in the chipmaker are beating the broader market for the year-to-date, which is great news for Cavalry Management Group. The San Francisco hedge fund with $2.6 billion in assets under management initiated a large enough position in Q1 to instantly make Intel its top stock pick.
Be that as it may, the Street is generally more cautious on INTC than is the hedge fund crowd.
Analysts' consensus recommendation stands at Hold, and their collective conviction is weak, to say the least. Sell calls are rare on the Street, so it's noteworthy that of the 42 analysts issuing ratings on the stock, seven call it a Sell and three have it at Strong Sell.
You can count Wedbush analyst Matt Bryson among the Intel bears.
"Our belief remains that INTC is mostly doing the right things, but that results will be painful over an elongated period as: 1) revenues suffer from past missteps, and 2) costs increase as Intel invests in its turnaround strategy," writes Bryson, who rates shares at Underperform.
"Our view remains that the stock recovered too much/too quickly and we continue to see near-term downside from current levels," the analyst adds.
14. UnitedHealth Group
- Market value: $375.7 billion
- Dividend yield: 1.5%
- Analysts' recommendations: 16 Strong Buy, 5 Buy, 3 Hold, 1 Sell, 0 Strong Sell
Large institutional investors looking to make big bets in the health insurance sector can't avoid the gravitational pull of Dow component UnitedHealth Group (UNH, $398.07). With a market value of more than $375 billion and a 2021 sales forecast of $281.8 billion, this blue-chip stock is the largest publicly traded health insurer by a wide margin.
Meanwhile, like many of the other Dow Jones stocks, analysts' consensus recommendation on the name comes to Buy. And it's a pretty high-conviction consensus call, to boot, with 16 of the 25 analysts covering UNH giving it a Strong Buy nod.
Furthermore, analysts have become increasingly bullish over the past two months, thanks to a couple of upgrades.
CFRA Research bases its Strong Buy recommendation in part on the nation's ongoing return to something like the pre-pandemic normal.
"With the increase in COVID-19 vaccinations, we expect medical utilization patterns to return to normal levels, while at the same time we anticipate higher utilizations resulting from missed medical visits and delayed electives," writes CFRA Research analyst Sel Hardy in a note to clients.
Hedge funds adding to or initiating positions also have to like UNH stock's valuation. Shares currently trade at less than 19 times estimated earnings for 2022. They fetch an even more attractive 16.4 times 2023's expected earnings. At the same time, the pros forecast UnitedHealth's EPS to increase at an average annual pace of more than 14% over the next three to five years.
Put succinctly, UNH looks like a rare bargain stock in an otherwise pricey market.
- Market value: $194.3 billion
- Dividend yield: 3.4%
- Analysts' recommendations: 11 Strong Buy, 7 Buy, 6 Hold, 0 Sell, 0 Strong Sell
Yet another member of the Dow Jones Industrial Average, pharma giant Merck (MRK, $76.75) has the huge market value and related liquidity – as well as the blue-chip prestige and track record – to be an obvious stock pick for any large institutional investor.
And in another plus for the smart money, some analysts say MRK has been underperforming the market by so much for so long that it's simply too cheap to ignore.
Indeed, the pharmaceutical giant's shares are off more than 5% for the year-to-date. That lags the S&P 500 by 18 percentage points. The situation is even worse over the past 52 weeks, where MRK lags the broader market by more than 35 percentage points.
The sliding share price has left MRK trading at 10.7 times earnings estimates. That's well below its own five-year average of 15.3 times forward earnings. MRK is also about half as expensive as the S&P 500, which goes for about 21 times expected earnings.
As for the fundamentals, central to Merck's future prospects is Keytruda, a blockbuster cancer drug approved for more than 20 indications.
"We keep our strong positive long-term outlook for MRK," says CFRA Research, which rates shares at Buy. "We see a favorable patent setup with no key brands losing marketing exclusivity until 2022, and MRK's growth engine, Keytruda, on patent until 2028."
However, the recent spinoff of Merck's women's health business into a separate publicly traded company called Organon (OGN) did cause some analysts to rethink the stock.
Argus Research analyst David Toung downgraded MRK to Hold from Buy in May, saying "the spinoff will lower Merck's operating margin in the near term as Organon includes a range of high-margin products." It also means Keytruda will now represent a larger portion of Merck's total revenue, Toung adds.
On balance, the Street is as bullish on Merck as hedge funds are, giving it a consensus recommendation of Buy.
12. Johnson & Johnson
- Market value: $431.5 billion
- Dividend yield: 2.6%
- Analysts' recommendations: 9 Strong Buy, 4 Buy, 5 Hold, 1 Sell, 0 Strong Sell
Whether we're talking hedge funds, mutual funds or other large piles of equity money, Johnson & Johnson (JNJ, $163.84) is among the must-have blue-chip stocks for any large-cap healthcare portfolio.
The Street largely sees J&J as a worthy stock pick, as well. Analysts have a consensus recommendation of Buy on JNJ, with fairly high conviction. As noted above, of the 19 analysts issuing opinions, nine of them call it a Strong Buy and four say Buy.
Among the arguments in favor of Johnson & Johnson are its diversification. This multifaceted firm makes everything from pharmaceuticals to medical devices to consumer healthcare products. As such, bulls can point to JNJ's strong pharmaceutical pipeline – as well as a rebound in demand for medical devices as patients undergo elective procedures put off during the pandemic – as reasons to buy the stock.
"We expect the recovery in elective procedures and patient visit volumes to accelerate as the pandemic is starting to get under control in the U.S., which should result in a strong recovery in Medical Devices sales and solid growth in Pharma revenues," says CFRA Research analyst Sel Hardy, who rates shares at Buy.
Also important is Johnson & Johnson's success in integrating Momenta Pharmaceuticals, which it acquired in 2020 for $6.5 billion.
"In addition, the company is benefiting from a growing consumer business, boosted by newly acquired brands" says Argus Research's David Toung (Buy), noting strength in oral care, wound care and skin health & beauty products.
Hedge funds also appreciate the company's commitment to delivering income to investors. In April, JNJ announced a 5% quarterly dividend increase to $1.06 per share. That marked this Dividend Aristocrat's 59th consecutive year of payout hikes.
- Market value: $369.5 billion
- Dividend yield: 0.5%
- Analysts' recommendations: 22 Strong Buy, 11 Buy, 5 Hold, 1 Sell, 0 Strong Sell
It seems like everyone loves Mastercard (MA, $373.09).
The global payments processor is a favorite of hedge funds and analysts, and no less an eminence than Warren Buffett is a bull too. Berkshire Hathaway owns 4.7 million shares in Mastercard, a position initiated by lieutenant portfolio managers Todd Combs and Ted Weschler. Buffett himself has said he wishes he had pulled the trigger sooner.
Hedge funds and other Mastercard bulls are high on the name thanks to both company-specific strengths and the relentless global adoption of digital transactions.
"Mastercard is a key beneficiary of the long-term secular shift toward electronic forms of payments, and that new technology is helping accelerate the shift," writes William Blair analyst Robert Napoli (Outperform). "Mastercard continues to enjoy substantial barriers to entry because of its massive scale and global reach, leading security and data management skills, information intelligence, brand recognition and trust."
And make no mistake: Wall Street expects seriously outsized profit growth ahead. Analysts forecast MA to generate average annual earnings growth of more than 23% over the next three to five years, according to S&P Global Market Intelligence.
Furthermore, hedge funds and other bulls have to take heart in Mastercard's track record as a market-beating machine. MA has outperformed the broader market on an annualized basis by 12, 15 and 17 percentage points over the trailing three-, five- and 10-year periods, respectively, according to Morningstar data.
10. Berkshire Hathaway
- Market value: $632.8 billion
- Dividend yield: N/A
- Analysts' recommendations: 1 Strong Buy, 0 Buy, 3 Hold, 0 Sell, 0 Strong Sell
Think of it as a case of "if you can't beat 'em, join 'em."
Berkshire Hathaway's (BRK.B, $277.10) appeal to the hedge fund crowd is obvious. Warren Buffett's record going up against the broader market over long periods of time is second to none. So what could make a hedge fund manager's life easier than essentially offloading some of his or her work to Uncle Warren?
Under the direction of Buffett and partner Charlie Munger, Berkshire Hathaway created almost $356 billion in wealth from 1976 to 2016, good for an annualized return of 22.6%. That helped Berkshire Hathaway rank among the top 50 stocks of all time.
Going back even farther, Argus Research (Hold) notes that since 1965, Berkshire Hathaway's stock returns more than doubled those of the S&P 500, delivering compound annual growth of 20%, vs.10.2% for the index.
Although insurance is the cornerstone of Berkshire's business, scores of wholly owned subsidiaries such as BNSF Railway and Geico, as well as stakes in blue-chip stocks from Apple (AAPL) to American Express (AXP) to Coca-Cola (KO), make BRK.B shares a diversified bet on the broader economy.
Interestingly, Berkshire's equity portfolio is highly concentrated. Apple alone accounts for almost 44%. Indeed, including the iPhone maker, Berkshire Hathaway's top five positions account for 75% of its entire portfolio.
Most recently, Buffett has pared back or completely eliminated Berkshire's investments in banks. Newer investments include bets on Verizon (VZ) and insurance company Aon (AON). Buffett also has been adding to stakes in supermarket operator Kroger (KR) and upscale home-goods retailer RH (RH).
As for what the Street thinks, there's not much to go on. Only four analysts cover the B Class shares and just three track the A Class shares. For what it's worth, those shares enjoy a consensus recommendation of Buy – one Strong Buy and three Holds. The A Class shares also have a consensus recommendation of Buy, based on one Strong Buy call and two Holds.
- Market value: $332.6 billion
- Dividend yield: N/A
- Analysts' recommendations: 28 Strong Buy, 12 Buy, 4 Hold, 0 Sell, 1 Strong Sell
Digital mobile payments and financial technology/e-commerce stocks in general are hot, and only getting hotter. With its ample market value, reasonable moat and extensive reach, it makes sense that hedge funds would pour into PayPal (PYPL, $283.10).
The growth in mobile payments transactions, monetization of its Venmo property and incremental revenue growth in its Xoom business all help prop up the bull case for analysts and investors alike.
And as attractive as fellow blue-chip stocks Mastercard and Visa (V) might be in a world of expanding mobile payments, some analysts say PYPL is among the best bets in the space.
"Simply put, PayPal should continue to benefit from the secular shift to e-commerce that should drive a roughly 20% revenue compound annual growth rate (CAGR), which, coupled with margin expansion and capital allocation (mergers & acquisitions plus stock buybacks), should result in an earnings CAGR north of 20% over the next several years," writes Raymond James analyst John Davis, who rates the stock at Overweight (the equivalent of Buy).
At Argus Research, analyst Stephen Biggar underscores the fact that PYPL is "actively innovating" in the payments space.
"The company recently expanded its 'Buy Now Pay Later' offering by introducing short-term installment products in the U.S. and U.K.," Biggar notes. "The company also recently launched a new service enabling customers to buy, hold and sell cryptocurrency directly from their PayPal accounts."
The pros broadly agree on the bull case for PYPL. Analysts' consensus recommendation stands at Buy, with very high conviction. Indeed, 28 of 45 analysts polled by S&P Global Market Intelligence give it a Strong Buy rating.
It's not hard to see why analysts are so optimistic. They forecast PayPal to deliver average annual EPS growth of almost 22% over the next three to five years.
8. JPMorgan Chase
- Market value: $455.4 billion
- Dividend yield: 2.4%
- Analysts' recommendations: 11 Strong Buy, 6 Buy, 7 Hold, 0 Sell, 2 Strong Sell
As the nation's largest bank by assets – and a component of the Dow Jones Industrial Average – JPMorgan Chase (JPM, $150.43) exerts a strong pull on large institutional investors such as hedge funds.
The pros love it too. The blue-chip money center bank gets a consensus recommendation of Buy from Wall Street analysts. JPM's strength across multiple business lines and an improving economic backdrop make it a standout, they say. It also helps that interest rates appear to be headed directionally higher.
"We see JPM as the best managed large diversified bank and it is poised to benefit from higher consumer and commercial loan activity expected in the second half of 2021 and 2022," says CFRA analyst Kenneth Leon, who rates shares at Buy.
Leon adds that JPM is the only one of the Big Four banks to have "materially grown net interest income in the last five years." For the record, the other three big banks are Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C).
Sounding a more cautious note, BMO Capital Markets analyst James Fotheringham rates the blue-chip stock at Market Perform (Hold), citing concerns about valuation. That said, he still likes the stock as a core name for the long haul.
"With a two-year-forward valuation-sensitive stock outlook, we remain on the sidelines," Fotheringham writes in a note to clients. "For long-term investors insensitive to elevated valuations, we highlight JPM as an industry winner given its digital investments, earnings diversification, strong balance sheet and deep bench of management talent."
As a group, analysts' consensus recommendation comes to Buy, per S&P Global Market Intelligence. They forecast EPS to increase at an average annual rate of 13.5% over the next three to five years.
For what it's worth, Warren Buffett sold what was left of Berkshire Hathaway's rapidly diminishing stake in the bank at the end of 2020. On the flip side, JPM shares are up about 18% for the year-to-date, beating the S&P 500 by around 6 percentage points.
7. Walt Disney
- Market value: $316.1 billion
- Dividend yield: N/A
- Analysts' recommendations: 16 Strong Buy, 6 Buy, 5 Hold, 0 Sell, 0 Strong Sell
As a sprawling media and entertainment conglomerate – and component of the Dow Jones Industrial Average – Walt Disney (DIS, $173.97) is a natural way for hedge funds to make big bets on a growing sector of the economy.
Coronavirus took a huge bite out of some of the company's most important businesses: namely, its theme parks and studios. But after encouraging quarterly results, analysts say business is set to bounce back in a big way.
Disneyland and other California amusement parks are open for business, with remaining restrictions having been lifted in mid-June. Admissions at Florida's Disney World continue to climb.
"With mask mandates lifted and capacity constraints loosened further, we would not be surprised to see a step change in attendance in the near future," says Deutsche Bank analyst Bryan Kraft (Buy). "Disney CEO Bob Chapek said that he expects to see more of the full benefit of pandemic guideline relaxations closer to the end of the fiscal year (ending September)."
But that's nothing compared to what DIS has on its hands in the streaming media wars.
Disney+ is a smashing success. The streaming platform, which launched in November 2019, has already amassed almost 100 million subscribers – a staggering rate of growth. Consider that Disney+ now has about half as many subscribers as Netflix (NFLX) – but Netflix had a roughly 12-year head start.
"The old saying that 'luck favors the prepared' can be applied to Disney's November 2019 launch of the Disney+ video service," says Argus Research analyst Joseph Bonner (Buy). "The launch, exemplified by rapid subscriber acquisition, was a success even before the pandemic. Disney has the assets, intellectual property and management team needed for a robust revival as COVID-19 recedes."
The Street's consensus recommendation on this blue-chip stock stands at Buy, with fairly high conviction. Of the 27 analysts issuing opinions on DIS stock tracked by S&P Global Market Intelligence, 16 call it a Strong Buy.
- Market value: $499.8 billion
- Dividend yield: 0.6%
- Analysts' recommendations: 21 Strong Buy, 13 Buy, 3 Hold, 1 Sell, 0 Strong Sell
Few Dow stocks get higher marks from hedge funds, analysts, mutual funds and – yes – Warren Buffett than Visa (V, $234.32).
As the world's largest payments network, Visa is especially well-positioned to benefit from the growth of cashless transactions and digital mobile payments, analysts say. That secular part of the bull case helps explain why Berkshire Hathaway owns nearly 10 million shares in Visa, or 0.6% of its outstanding stock.
In the shorter term, although the pandemic greatly curtailed spending in a number of the company's categories – most notably travel and entertainment – those headwinds should now be in the past.
"Visa's cross-border recovery highlights our stance that cross-border revenue (in totality) can begin to surpass 2019 levels far before we reach a full recovery in travel," says Credit Suisse analyst Moshe Orenbuch (Outperform).
Over at Piper Sandler, analyst Christopher Donat upgraded the blue-chip stock to Overweight from Neutral in early June, thanks to a return to post-COVID-19 normal and certain advantages the firm has over its largest competitor.
"We expect Visa to benefit more from a vaccine-driven U.S. recovery than Mastercard," Donat writes in a note to clients. "Visa generated 45% of its pre-pandemic revenue from the United States, compared to only 32% for Mastercard. We believe higher vaccine rates in the United States are already driving higher domestic activity, which we view as a prerequisite to future cross-border travel."
The company is also getting in on the cryptocurrency craze.
"Visa looks to be an infrastructure provider and enabler for crypto transactions," says William Blair analyst Robert Napoli (Outperform). "Visa is now working with 50 different digital currency platforms, up from the recently published 35."
The Street's consensus recommendation on Visa stock stands at Buy – and with high conviction, at that. Twenty-one of the 38 analysts issuing opinions on V rate it at Strong Buy.
- Market value: $2.2 trillion
- Dividend yield: 0.7%
- Analysts' recommendations: 24 Strong Buy, 8 Buy, 8 Hold, 0 Sell, 2 Strong Sell
It's only natural that hedge funds are in love with Apple (AAPL, $132.30), given its massive market value – it reigns as the world's largest publicly traded company – its standing as a member of the Dow and its position as a cornerstone of the tech sector.
"I don't think of Apple as a stock," Warren Buffett has said about Apple. "I think of it as our third business."
AAPL stock is actually lagging the broader market by a wide margin for the year-to-date. Shares were down by less than 1 percent through June 21, vs. a gain of 12.5% for the S&P 500. But analysts are banging the Buy drum on the blue-chip stock as much as ever, arguing that recent underperformance affords investors an opportunity to get a great stock on sale.
One pressure on shares? The tough year-over-year comparisons AAPL is set to face as it laps the launch of iPhone 12 and related upgrade "supercycle." CFRA's Angelo Zino (Buy) cautions against such pessimism.
"While we do expect hardware growth to decelerate in the coming quarters, we are optimistic about AAPL's long-term business prospects and pipeline (e.g., Artificial Reality glasses, Apple car, health care, shift towards hardware as a service)," Zino says.
The global semiconductor shortage is also contributing to some weakness in Apple shares. Bulls believe such fears are overblown, however.
"Despite well-known industry chip supply constraints, we believe AAPL is executing extremely well and is seeing robust demand across all business lines," Zino says.
And let's not forget that Apple hiked its dividend by 7% earlier this year and announced a new $90 billion share repurchase program.
The Street's consensus recommendation stands at Buy, with 24 out of 42 analysts rating AAPL stock at Strong Buy.
- Market value: $1.6 trillion
- Dividend yield: N/A
- Analysts' recommendations: 32 Strong Buy, 12 Buy, 1 Hold, 0 Sell, 0 Strong Sell
It should come as no surprise that hedge funds are big believers in Google parent Alphabet (GOOGL, $2,436.25).
Thanks to its domination in search and other web services, Google forms a duopoly with Facebook (FB) in the relentlessly growing market for digital advertising. At the same time, Alphabet is hardly a one-trick pony, analysts say.
As Argus Research notes, Alphabet's immense earnings power is a natural consequence of its basic business model.
"Alphabet has come to dominate new developments in mobile, public cloud and big data analytics, as well as emerging areas such as artificial intelligence and virtual/augmented reality," says analyst Joseph Bonner (Buy). "Google disrupts by selling an interlocking and interdependent suite of products and services that increase in value as more are purchased."
In addition to the fundamentals – the company is forecast to generate average annual EPS growth of more than 19% over the next three to five years – hedge funds are likely drawn to GOOGL's massive market cap. At $1.7 trillion, there's ample room for big money to move in and out of large positions.
Not that there's anything wrong with hedge funds sticking around for the long haul, analysts note.
"We continue to favor Google as a core large-cap growth holding given the strong digital advertising backdrop, continued strength from Cloud, ongoing share repurchases (with the newly authorized $50 billion program) and a reasonable valuation," says Canaccord Genuity analyst Maria Ripps (Buy).
That outlook jibes with the majority view on the Street, which gives the blue-chip stock a consensus recommendation of Strong Buy, per S&P Global Market Intelligence.
- Market value: $942.2 billion
- Dividend yield: N/A
- Analysts' recommendations: 35 Strong Buy, 8 Buy, 5 Hold, 1 Sell, 1 Strong Sell
"Antitrust and regulatory issues continue to hound the company, which cannot seem to keep out of the headlines," writes Argus Research's Joseph Bonner (Buy), but hedge funds don't much care when it comes to investing in Facebook (FB, $332.29).
More than 39% of all hedge funds held shares in the world's most popular social network in Q1 – an increase of almost 2% from the previous quarter. Moreover, 246 hedge funds, or 14.4%, count FB as a top 10 holding, up from 12.2% at the end of 2020.
As much as Facebook is feeling the heat from regulators and would-be trustbusters, hedge funds simply can't resist its red-hot profit prospects. The key, as noted above with Alphabet, is the Facebook-Google digital ad duopoly.
"Digital advertising continues to benefit from the ongoing shift from offline to online channels, and we expect strong revenue growth from both FB and GOOGL to persist despite the law of large numbers and uncertainty related to privacy changes," writes Canaccord Genuity analyst Maria Ripps (Buy). "This dynamic, coupled with robust profitability and reasonable valuations, should make these two names appealing to large-cap investors."
Ripps adds that FB is seeing "impressive growth from both Story and video ads," with Facebook Watch now logging 1.25 billion monthly active users. The company's foray into e-commerce is also gaining traction. "More than 1 billion users visit Facebook Marketplace every month, and there are now more than 1 million active shops across Facebook, with 250 million monthly visitors," says Ripps.
That said, some analysts are increasingly concerned about both the blue-chip stock's valuation – FB is up by more than a fifth this year – and regulatory overhang. CFRA Research analyst John Freeman downgraded FB to Hold from Buy in May, citing its fast-rising share price, as well as the burden of "facing the biggest regulatory risk in Big Tech."
Nevertheless, the Street's consensus recommendation on FB comes to Strong Buy, with 35 of 50 analysts giving it their highest rating.
- Market value: $1.7 trillion
- Dividend yield: N/A
- Analysts' recommendations: 35 Strong Buy, 11 Buy, 1 Hold, 0 Sell, 0 Strong Sell
Amazon.com (AMZN, $3,453.96), with its massive market value and dominance in e-commerce, routinely ranks among the very most popular of hedge fund stocks.
Even Warren Buffett got in on the act. Berkshire Hathaway has been an Amazon shareholder since 2019.
And everyone has enjoyed outsized gains over the short, medium and long term. Get this: AMZN's total return has beaten the broader market by 8.3, 19.4, 18.6 and 24.5 percentage points, respectively, over the trailing three-, five-, 10- and 15-year year periods.
The pandemic has proven to be a bonanza for the e-commerce giant.
"Amazon is one of the primary beneficiaries of COVID given accelerated e-commerce sales growth and Prime membership adoption, as well as the digital transformation that will accelerate cloud services adoption," writes Stifel analyst Scott Devitt, who rates shares at Buy.
The analyst adds that the pandemic sparked online adoption of grocery and consumables, "categories Amazon has struggled to penetrate for many years," and which should support its next leg of retail growth.
Stifel's investment thesis is common on the Street, which is wildly bullish on AMZN's prospects – a state of affairs that certainly makes it easy for hedge funds to take the plunge.
At Jefferies Equity Research, analysts recently named AMZN to its list of top stock picks.
"We are adding AMZN to the Jefferies Franchise Picks list as fundamentals are likely to benefit from increased e-commerce adoption and faster growth at its highest margin businesses," the analysts write. "Our proprietary survey points to a permanent increase in online consumption, with 63% of respondents continuing to spend more online even after restrictions were lifted."
The valuation is also compelling, Jefferies notes, with Amazon's stock now trading at approximately a 10% discount to its historical average.
The Street's consensus recommendation on the name stands at Strong Buy, buttressed by 35 Strong Buy ratings.
- Market value: $2.0 trillion
- Dividend yield: 0.9%
- Analysts' recommendations: 26 Strong Buy, 10 Buy, 2 Hold, 0 Sell, 0 Strong Sell
Microsoft (MSFT, $262.63) might be second only to Apple when it comes to market value, but it beats the iPhone maker handily when it comes to hedge funds' ardor.
Indeed, nearly 43%, or 727, hedge funds own shares in the tech juggernaut. More than 22% of all hedge funds count it as a top 10 holding.
What gives MSFT the edge over Apple when it comes to hedge funds' sentiment is its overwhelming success in cloud services.
Wedbush analyst Daniel Ives (Outperform) called Microsoft's most recent quarterly results "another cloud masterpiece" as the company continued to see "massive" momentum in that business.
"Microsoft remains our favorite large-cap cloud play and we believe the stock (despite being on a treadmill path of late) will start to move higher over the coming quarters as the Street further appreciates the cloud transformation story in Redmond," Ives writes in a note to clients. "While many tech stocks overall are all being lumped together as part of the work-from-home trade, we believe the growth story at MSFT is not slowing down as more enterprises/governments head down this cloud path over the coming years."
CFRA Research analyst John Freeman (Strong Buy) adds that investors shouldn't lose sight of the company's other growth areas. For example, the launch of the Xbox Series X gaming console drove 51% year-over-year growth in Xbox content and services revenue in the final calendar quarter of 2020.
And let's not forget the blue-chip stock's suitability for income investors. This component of the Dow Jones Industrial Average offers a modest dividend yield of 0.9%, but it has been improving its payout at a robust clip of more than 9% compounded annually over the past five years.
The Street's consensus recommendation comes to Strong Buy, with high conviction, to boot.