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.
There's something irresistible about knowing what hedge funds are up to. Maybe it's the mystique, the massive sums of capital they command, and the fact that the best of the best hedge-fund managers are multi-billionaires.
But one thing's for sure: Hedge funds continue to be interested in blue-chip stocks.
To be fully transparent, hedge funds as a group actually have a pretty poor track record when it comes to long-term performance.
They're not doing so great in 2021, either. The Eurekahedge Hedge Fund Index delivered a total return (price appreciation plus dividends) of 7.8% for the year-to-date through Aug. 27. Meanwhile, the benchmark S&P 500 was up 21% on a total-return basis over the same span.
Be that as it may, it's always interesting – and, yes, sometimes even edifying – to see which names rank as hedge funds' favorite stocks. Although the so-called smart money might be lagging as a group, that doesn't automatically mean there is no collective wisdom to be found in this crowd.
Not that most investors will be surprised by many of hedge funds' favorite picks. 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. 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.)
But hey, more than half these names are not in the famed blue-chip average, and a few of these picks might seem completely out of left field. So either way, each hedge-fund favorite is an intriguing idea worth a closer look.
Have a look at hedge funds' 25 top blue-chip stocks to buy now. 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 special.
Share prices and other data are as of Aug. 27, 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: $236.1 billion
- Dividend yield: 6.24%
- Analysts' ratings: 4 Strong Buy, 5 Buy, 18 Hold, 1 Sell, 0 Strong Sell
Exxon Mobil (XOM, $55.77) was removed from the Dow Jones Industrial Average in 2020, which is too bad for anyone invested in index products that track the tight group of 30 blue-chip stocks.
Shares in the oil major are outperforming the Dow by nearly 20 percentage points for the year-to-date. Meanwhile, Chevron (CVX), the Dow's only remaining energy stock, is ahead of the industrial average by just 1 percentage point.
As the largest listed energy company by market capitalization, Exxon Mobil is an obvious holding for hedge funds looking for exposure to the sector. XOM's attendant liquidity allows big investors to move in and out of positions with relative ease.
However, the bull case for XOM has become a bit more complicated recently. Crude oil prices have weakened since the end of the second quarter, hurt by anxiety over the COVID-19 delta variant's impact on demand. The energy sector has cooled off accordingly, with XOM taking part in the sector-wide retreat.
"Exxon Mobil management expects cash flow to cover capital spending and dividend payments this year as long as Brent crude prices remain above $50 per barrel," writes Argus research analyst Bill Selesky, who rates shares at Hold. "We believe that the dividend is secure, but energy prices remain volatile and any sharp drop could have a substantial negative impact on XOM."
Brent crude – the global benchmark for oil prices – is currently trading around $72 per barrel, down from a 52-week high of almost $78 per barrel in early July.
Crude recently notched its steepest weekly loss in nine months, so it's understandable if oil-price volatility is giving some analysts pause on XOM stock. Bullish hedge funds, however, are no doubt happy to have ignored the pros. After all, the Street's consensus recommendation on Exxon hasn't budged from Hold for at least a year-and-a-half, per S&P Global Market Intelligence.
- Market value: $260.9 billion
- Dividend yield: N/A
- Analysts' ratings: 30 Strong Buy, 10 Buy, 8 Hold, 0 Sell, 0 Strong Sell
Salesforce.com (CRM, $266.53) was added to the Dow last year at the same time XOM was defenestrated from the blue-chip barometer. Being tapped for membership in the elite average made the software-as-a-service juggernaut more popular than ever with hedge funds.
CRM, which provides customer relationship management software to enterprise customers, was essentially providing cloud-based services before they were cool. That early mover advantage has helped the stock outperform the broader market on a trailing return basis for years.
Salesforce's massive market value and liquidity makes it a frictionless fit for institutional investors buying and selling large positions. But hedge funds are no doubt even more attracted to the company's commanding market share and analysts' bullish outlook.
True, shares have lagged the broader market for the year-to-date, hurt in part by sentiment over Salesforce's $27.7 billion acquisition of Slack, which was completed in July. The company also faces tough year-over-year comparisons caused by strong pandemic-fueled sales in 2020.
But bullish analysts contend that Salesforce's fundamentals remain robust, and it's only a matter of time before the Slack deal pays off.
"The pandemic is driving sustained long-term secular demand for digital transformation," writes Jefferies analyst Brent Thill, who rates shares at Buy. "Salesforce.com will unlock Slack's value over time just like it did with MuleSoft. We continue to believe the stock will recover over time given the strong fundamentals that power the story."
Salesforce acquired enterprise technology firm MuleSoft for $6.5 billion in 2018.
Thill is very much in the majority on the Street, where the consensus recommendation stands at Buy, with high conviction. Of the 49 analysts covering CRM tracked by S&P Global Market Intelligence, 30 rate it at Strong Buy, nine say Buy and 10 rate it at Hold.
Hedge funds are increasingly bullish too. Forty-one of them counted CRM as a top-10 holding at the end of Q2, up from just 25 at the end of the prior quarter.
- Market value: $272.6 billion
- Dividend yield: 1.68%
- Analysts' ratings: 21 Strong Buy, 8 Buy, 5 Hold, 0 Sell, 1 Strong Sell
As the nation's largest cable company, Comcast (CMCSA, $59.40) 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.
"The company's cable division continues to provide vital connectivity for its large subscriber base, and as economies reopen, the theme park, advertising, and theatrical businesses are also rebounding smartly," writes Argus Research analyst Joseph Bonner (Buy). "Comcast's solid balance sheet and cash flows remain key differentiating assets for this industry leader."
Bonner notes CMCSA's cable division posted 11% revenue growth in the second quarter, "driven, as usual, by the broadband business." NBC/Universal made a "strong" year-over-year recovery with 39% revenue growth in the quarter, thanks to the reopening of the company's theme parks.
And then there's Peacock, Comcast's streaming service operated by NBC/Universal. Analysts expect it to juice growth in the company's critical broadband segment.
"The broadband story at Comcast is continuing to push forward," writes Raymond James analyst Frank Louthan, who rates the stock at Outperform (the equivalent of Buy). "This is underscored with Peacock, which added approximately 12 million incremental sign-ups during Q2, finishing the quarter with approximately 54 million sign-ups vs. the approximately 42 million previously disclosed as of the end of Q1."
As bullish as hedge funds might be on Comcast, the Street is arguably even more so, giving it a consensus recommendation of Buy with high conviction. Of the 35 analysts issuing opinions on CMCSA tracked by S&P Global Market Intelligence, fully 21 of them rate it at Strong Buy. Another eight have it at Buy, five say Hold and one calls shares a Strong Sell.
- Market value: $432.3 billion
- Dividend yield: N/A
- Analysts' ratings: 36 Strong Buy, 8 Buy, 3 Hold, 0 Sell, 0 Strong Sell
Alibaba (BABA, $159.47) has long been a staple on the list of hedge funds' favorite blue-chip stocks to buy, but that reign might soon come to an end.
The Chinese government's crackdown on the country's technology sector has sparked a steep selloff in the so-called Amazon of China and peers. BABA alone is off 31% for the year-to-date.
But since big investors aren't required to disclose their current-quarter holdings until mid-November, we won't know BABA's continued standing with hedge funds for a few more months.
Although BABA is laboring under increased pressure from regulators on both sides of the Pacific – including a potential delisting from the New York Stock Exchange – Wall Street remains overwhelmingly bullish on the stock.
"We continue to view BABA as the China e-commerce category killer with a large secular growth opportunity ahead despite regulatory and listing concerns," writes Susquehanna Financial Group analyst Shyam Patil, who rates shares at Positive (the equivalent of Buy).
Alibaba's appeal to hedge funds and analysts alike is pretty straightforward. Like Amazon, the company has never shied away from investing heavily in itself to both build out its existing businesses and enter new ones. As a result, BABA has spread its tentacles far beyond its core e-commerce business into cloud computing, digital payments and much, much more.
Besides, even though Chinese regulators are pushing Alibaba and other tech firms to share their vast troves of data (potentially putting them crosswise with U.S. authorities), analysts believe Beijing will be the first to blink.
"We think that China will ultimately recognize the importance of letting BABA operate with some autonomy and protect customer and company data," says Argus Research analyst Jim Kelleher. "Given the company's market leadership and attractive valuation, we believe that BABA warrants a near-term Buy rating."
Argus Research has plenty of company in the bull camp. The Street's consensus recommendation – comprising opinions from 47 analysts – stands at Strong Buy, per S&P Global Market Intelligence.
21. Bank of America
- Market value: $357.6 billion
- Dividend yield: 1.98%
- Analysts' ratings: 9 Strong Buy, 7 Buy, 8 Hold, 1 Sell, 1 Strong Sell
Bank of America (BAC, $42.49) is a natural fit for hedge funds making bets in the financial sector. After all, it's a sprawling, international money-center bank with a massive market cap and abundant liquidity.
And it certainly doesn't hurt that BAC is one of Warren Buffett's favorite stocks. Berkshire Hathaway (BRK.B), the holding company of which Buffett is chairman and CEO, owns more than 1 billion shares. The stake accounts for 14.2% of Berkshire's equity portfolio – its second-largest holding after Apple (AAPL). BRK.B also is Bank of America's largest shareholder, owning 12% of its shares outstanding.
Hedge funds have more immediate reasons to fall in love with BofA, too. As a bet on domestic and international growth – both of which benefit from a receding pandemic – Bank of America also happens to be one of the best recovery stocks.
Although BAC stock has slowed down over the past few months – its three-month chart is essentially flat – analysts say it's poised to generate plenty more market-beating returns ahead.
"One shouldn't take a look at bank stocks' recent performance and then by a kind of reverse inquiry assume that there was something wrong with second-quarter numbers, or that bank fundamentals have become more risky or frail in recent weeks," writes Oppenheimer analyst Chris Kotowski (Outperform).
The vaccines "mainly seem to be working," the analyst adds. And as long as that's the case, it's "hard to imagine the developed economies that have access to them going back into widespread lockdowns."
In other words, economic growth and higher interest rates remain the path of least resistance, and so the reflation and recovery trades are still in play for BAC and peers.
Harte and Kotowski's bullish ratings contribute to the Street's consensus recommendation of Buy, according to S&P Global Market Intelligence.
20. Home Depot
- Market value: $341.3 billion
- Dividend yield: 2.04%
- Analysts' ratings: 16 Strong Buy, 7 Buy, 9 Hold, 0 Sell, 1 Strong Sell
Dow stock Home Depot (HD, $323.38) has long been one of the most popular blue-chip stocks for hedge funds and others who want to play the housing market.
Turns out, HD also was a profitable way to play COVID-19. A country basically cooped up at home was great for business at the nation's largest home improvement chain.
Analysts think the good times don't necessarily have to end with the close of the pandemic era – although that does add a layer of uncertainty.
"HD's second-quarter results show that it's capturing more than its fair share of steady demand for home improvement," writes UBS Global Research analyst Michael Lasser (Buy). "The key area of focus for the investment debate will likely be: How do the company's trends unfold as consumers shift their time to other activities?"
But hedge funds and other HD bulls needn't worry too much about what comes next, says Argus Research analyst Christopher Graja (Buy). Although there could be some volatility in HD stock as the company laps difficult year-over-year comparisons and people spend more time on activities away from home, the analyst remains "very upbeat" on Home Depot and the broader home improvement sector.
That's because the long-term investment thesis on HD stock is based on durable economic and demographic realities, such as the nation's "significant underinvestment in housing," Graja says.
After all, roughly 70% of U.S. homes are more than 25 years old and likely in need of upgrades and repairs. At the same time, the inventory of existing homes for sale is very low – particularly for cheaper homes – even as household formation continues to increase.
"Homeowner's equity has also grown, which helps people to think about their home as an investment rather than an expense," the analyst adds.
Hedge funds are likely also attracted to the Street's consensus recommendation on HD stock, which stands at Buy, with high conviction, per S&P Global Market Intelligence.
- Market value: $218.6 billion
- Dividend yield: 2.58%
- Analysts' ratings: 10 Strong Buy, 6 Buy, 16 Hold, 7 Sell, 3 Strong Sell
Intel (INTC, $53.89) has been one of the most troubled Dow stocks in recent years, falling far behind its 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 Intel made in more than a decade. And indeed, this iconic stock has been a disappointing long-term performer. While the broader market has more than doubled over the past five years, INTC is up just a bit more than 50%.
Nevertheless, as a blue-chip stock and mega-player in the global semiconductor industry, hedge funds interested in broad tech-sector exposure can hardly avoid it.
Take Voloridge Investment Management (and its $20.4 billion in assets under management) as an example. The hedge fund, led by renowned data scientist David Vogel, took the plunge in Q2, initiating a position in INTC worth $38.8 million.
The Street, however, is more cautious than the hedge fund crowd.
"We remain on the sidelines with a Hold opinion," writes CFRA analyst Angelo Zino. "We see heightened competitive threats from Advanced Micro Devices and uncertainty about the PC space as near-term concerns. Should the new management team improve manufacturing execution and capture significant new business within its foundry business, we could become more constructive over time."
Intel earlier this year announced the creation of Intel Foundry Services, which includes a $20 billion investment to build two factories in Arizona.
Analysts' consensus recommendation stands at Hold, but with a bearish tilt. Sell ratings are rare on the Street, so it's noteworthy that of the 42 analysts issuing opinions on INTC, seven call it a Sell and three have it at Strong Sell.
- Market value: $193.1 billion
- Dividend yield: 3.41%
- Analysts' ratings: 11 Strong Buy, 7 Buy, 5 Hold, 0 Sell, 0 Strong Sell
Yet another member of the Dow Jones Industrial Average, pharma giant Merck (MRK, $76.30) has the huge market value and related liquidity – as well as the blue-chip prestige and track record – to be an obvious sector 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 nearly 7% for the year-to-date. That lags the S&P 500 by almost 27 percentage points. The situation is even worse over the past 52 weeks, where MRK lags the broader market by close to 40 percentage points.
The sliding share price has left MRK trading at 12 times analysts' 2022 earnings-per-share (EPS) estimate. That's well below its own five-year average of 15.2 times forward earnings, per Refinitiv Stock Reports Plus. Additionally, MRK trades at a 43% discount to the S&P 500, which goes for about 21 times expected earnings.
The depressed valuation is partially attributable to concerns about growth following MRK's June spinoff of its women's health business to shareholders.
"We are maintaining our Hold rating on Merck, reflecting the company's uncertain growth and margin profile after the Organon (OGN) spinoff," write Argus Research analysts David Toung and Caleigh McGough. "The spinoff should help Merck to achieve higher revenue and EPS growth over time; however, the company has also lost a range of mature, higher-margin products."
The Organon spinoff also makes the company more dependent on its blockbuster cancer drug Keytruda at a time when Merck is likely to see increased competition in that treatment area, the analysts add.
On balance, however, the Street is as bullish on Merck as hedge funds are, giving it a consensus recommendation of Buy, with fairly high conviction. Of the 23 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy, seven say Buy and five call it a Hold.
17. Procter & Gamble
- Market value: $345.6 billion
- Dividend yield: 2.44%
- Analysts' ratings: 6 Strong Buy, 4 Buy, 10 Hold, 1 Sell, 0 Strong Sell
Procter & Gamble (PG, $142.31) 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 up just 2.3% so far in 2021, however, as analysts express concerns about tough comparisons to last year's pandemic-fueled revenue growth, as well as higher prices for key raw materials and shipping.
"Our Hold rating reflects less expected relative outperformance as comparisons become increasingly difficult, including downside risk from slower sales growth and higher input costs," writes Stifel analyst Mark Astrachan in a note to clients.
It's also the case that defensive names like PG have simply fallen out of favor since last year. Investors often "shift their focus to more cyclical companies whose earnings may rebound more sharply as the economy recovers," notes Argus Research analyst Christopher Graja (Buy).
That said, whether you're a hedge fund or retail investor, PG remains an attractive buy-and-hold name, Graja says.
"We believe the 2.4% dividend yield is very attractive and that the stock is attractively valued at current levels," the analyst adds. "The company's AA credit ratings and ability to issue debt in turbulent times are an illustration of the financial strength that Argus appreciates."
The Street's consensus recommendation comes to Buy, albeit not with the same high conviction usually seen with most hedge-fund favorites. Of the 21 analysts covering PG tracked by S&P Global Market Intelligence, 10 call it a Hold and one says Sell. Another six rate it a Strong Buy and four say Buy.
- Market value: $211.3 billion
- Dividend yield: 4.35%
- Analysts' ratings: 11 Strong Buy, 5 Buy, 7 Hold, 0 Sell, 0 Strong Sell
AbbVie (ABBV, $119.58) 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 – not to mention the products acquired from Allergan in a $63 billion deal that closed in 2020.
Indeed, contributions from last year's mega-deal helped ABBV beat Wall Street's second-quarter profit and sales forecasts, analysts note.
"Most of the beat was driven by legacy Allergan products, and we meaningfully raise our estimates for products such as Botox, Juvederm, Ubrelvy and Vraylar given how effectively AbbVie has integrated the assets into their business and accelerated their growth," writes Mizuho Securities analyst Vamil Divan (Buy).
Allergan's aesthetic and neuroscience assets combined with AbbVie's strength in immunology and hematology-oncology gives ABBV a "diversified growth story," the analyst adds, with "the stock still trading at a significant discount to its peers."
Like with other blue-chip stocks in the pharmaceutical industry, another draw for hedge funds and civilians is AbbVie's storied dividend history. The biopharma firm is a member of the S&P 500 Dividend Aristocrats – a list of companies that have increased their payouts annually for at least 25 consecutive years. ABBV notched a 49th straight year of dividend growth in February when it raised the quarterly payout by 10.2% to $1.30 per share.
However, there is something bulls might want to keep in mind as they survey what other investors are doing with the stock. It appears that Warren Buffett seems to have changed his tune on ABBV. Berkshire Hathaway has now reduced its stake in the company for two consecutive quarters, most recently by 10%.
As for what Wall Street thinks, analysts' consensus recommendation on ABBV stands at Buy.
- Market value: $565.9 billion
- Dividend yield: 0.07%
- Analysts' ratings: 28 Strong Buy, 7 Buy, 4 Hold, 2 Sell, 1 Strong Sell
Chipmaker Nvidia (NVDA, $226.36) 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.
But as much as bulls like NVDA's multifaceted exposure to so many areas of tech, the short- to medium-term case hangs mostly on its opportunity in servers.
True, management expects the global shortage of semiconductors to last through most of next year, notes Baird Equity Research analyst Tristan Gerra (Outperform), but the company's ongoing push into AI and data analytics enterprise software suites opens up a market of "tens of millions" of data servers.
Jefferies analyst Mark Lipacis (Buy) concurs with the server thesis, noting that "NVDA remains the dominant supplier of acceleration solutions in the data center space."
Over at BofA Global Research, analyst Vivek Arya likewise points to data centers, writing that "NVDA continues to hold leadership with upgrades to high speed products and key wins across cloud service providers, enterprise and high performance computing."
BofA (Buy) calls Nvidia a "top pick." The stock also makes Wedbush's "Best Ideas List," with analyst Matt Bryson (Outperform) saying data center momentum will continue to more than offset slowdowns in the gaming and cryptocurrency segments.
"Data Center should be viewed as inherently more valuable than sales in gaming or the more fickle crypto market in light of the far larger forward total addressable market tied to the enterprise/AI opportunity (not to mention the better gross margins attached to this segment)," Bryson writes.
Indeed, this is one of the pros' favorite blue-chip stocks in the semiconductor space, with a consensus recommendation that stands at Buy, but borders on Strong Buy, per S&P Global Market Intelligence.
- Market value: $261.3 billion
- Dividend yield: 3.35%
- Analysts' ratings: 5 Strong Buy, 0 Buy, 15 Hold, 1 Sell, 0 Strong Sell
Pharmaceutical giant Pfizer (PFE, $46.60) was removed from the Dow 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 were lagging the broader market for much of 2021 until enthusiasm over the commercial potential for Pfizer's COVID-19 vaccine drove them to all-time highs in mid-August.
But Mizuho Securities analyst Vamil Divan says fundamental investors need to look past the vaccine bump and focus on how Pfizer navigates the expiration of key patents from 2026 to 2029. The so-called "patent cliff" represents a threat to annual revenue of $18 billion to $20 billion, says the analyst, who rates shares at Neutral (the equivalent of Hold).
Argus Research, however, says Pfizer has it all covered.
"We expect Pfizer to generate sustainable revenue from its coronavirus vaccine, and to reinvest its vaccine earnings in acquisitions and in the development of new therapies," writes analyst David Toung (Buy). "We see stronger top-line growth in 2021 and beyond as the company moves past the spinoff of the Upjohn business."
Pfizer spun off Upjohn in November 2020. It was combined with Mylan to form Viatris (VTRS).
The analyst adds that Pfizer's valuation makes it a bargain at current levels.
"Given the stock's below-peer-average price/earnings multiple, we believe that investors are underestimating the sustainability of the COVID-19 vaccine franchise and its revenue contribution beyond 2021," Toung says.
However, as much as hedge funds embrace PFE these days, the Street is more cautious, with a consensus recommendation of Hold. Indeed, of the 21 analysts issuing opinions on PFE tracked by S&P Global Market Intelligence, 15 rate it at Hold. Five call it a Strong Buy and one says Sell.
13. UnitedHealth Group
- Market value: $394.9 billion
- Dividend yield: 1.39%
- Analysts' ratings: 17 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, $418.76). With a market value of almost $395 billion and a 2021 revenue estimate of $283.7 billion, this blue-chip stock is the largest publicly traded health insurer by a wide margin.
Hedge funds and analysts alike praise the company on a number of fronts, and frequently single out contributions from Optum, its pharmacy benefits manager segment.
"We believe UNH is well positioned by virtue of its diversification, strong track record, elite management team and exposure to certain higher growth businesses," writes Oppenheimer analyst Michael Wiederhorn (Outperform).
The analyst adds that Optum is a "nice complement" to UNH's core managed care operations and continues to account for a large share of earnings. Furthermore, UNH's vertical integration strategy "strengthens the company's competitive positioning across many areas of the healthcare landscape," Wiederhorn says.
BofA Global Research analyst Kevin Fischbeck (Buy) concurs with that assessment, saying UNH's "scale and diversity should position it well, while the strong trajectory at Optum provides a unique growth opportunity." He adds that the company's earnings power "still seems underappreciated" by the market.
Oppenheimer and BofA have plenty of company on the Street. Of the 26 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 17 rate it at Strong Buy and five say Buy, versus just three Holds and one Sell. That gives UNH a consensus recommendation sitting on the cusp of Strong Buy.
The Street projects UnitedHealth to deliver average annual EPS growth of 13.7% over the next three to five years, while shares change hands at 19.4 times 2022 EPS estimates. That makes for an attractive valuation in a seemingly pricey market, analysts say.
- Market value: $351.0 billion
- Dividend yield: 0.49%
- Analysts' ratings: 22 Strong Buy, 9 Buy, 7 Hold, 0 Sell, 0 Strong Sell
It seems like everyone loves Mastercard (MA, $355.73).
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 4.6 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 believers are high on the name thanks to both company-specific strengths and the relentless global adoption of digital transactions.
"We are attracted to MA's powerful brand, vast global acceptance network and strong business model," writes Oppenheimer analyst Dominick Gabriele, who rates shares at Perform (the equivalent of Hold). "We believe the company is well positioned to benefit from the long-term secular shift from paper currency to plastic."
At Jefferies, analyst Trevor Williams (Buy) calls MA a "core growth story with sustainable secular tailwinds," including the shift to plastic from paper, especially in underpenetrated international markets. The stock should also benefit from the company's "strong competitive moat" and "underappreciated earnings power."
William Blair equity research analyst Robert Napoli (Outperform) emphasizes Mastercard's competitive advantages, as well.
"We believe 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," he writes.
And make no mistake: the Street expects seriously outsized profit growth ahead. Analysts forecast EPS to increase at an average annual rate of close to 27% over the next three to five years, according to S&P Global Market Intelligence. Their consensus recommendation stands at Buy, with high conviction.
Furthermore, hedge funds and other bulls have to take heart in Mastercard's track record as a long-term outperformer, beating the broader market by double-digit percentage-point margins over the past five-, 10- and 15-year periods.
11. Walt Disney
- Market value: $327.3 billion
- Dividend yield: N/A
- Analysts' ratings: 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, $180.14) is a natural way for hedge funds to make big bets on a growing sector of the economy.
True, the big money might be disappointed with recent share performance. Disney stock is negative for the year-to-date, trailing the broader market by more than 20 percentage points. But analysts say it's only a matter of time before a sort of "recovery trade 2.0" reinflates DIS shares.
After all, the coronavirus took a huge bite out of some of the company's most important divisions: specifically, its theme parks and studios. But while attendance at amusement parks and cinemas remains below pre-pandemic levels, it does continue to track higher.
Although Disney "still faces risks from the pandemic, particularly from the spread of the Delta variant," notes Argus Research analyst Joseph Bonner (Buy), "strength in its television, theme parks and direct-to-consumer businesses should continue to gain momentum."
Bonner adds that the old saying that "luck favors the prepared" can be applied to Disney's November 2019 launch of the Disney+ video service. The streaming platform is a smashing success, having already amassed more than 100 million subscribers – a staggering rate of growth. Indeed, Disney+ quickly claimed about half as many subscribers as Netflix (NFLX), which had a roughly 12-year head start.
At CFRA Research, analyst Tuna Amobi (Buy) writes that Disney is showing "major strides" on the road to recovery.
"With further reopening of theme parks, theaters and live sports events amid the vaccine rollout, we see a silver lining on the gradual path to more normalized operations through the second half of the fiscal year, accelerating in fiscal 2022," the analyst adds.
Analysts as a group are solidly bullish on Disney, giving it a consensus recommendation of Buy, with high conviction.
- Market value: $327.1 billion
- Dividend yield: N/A
- Analysts' ratings: 28 Strong Buy, 12 Buy, 5 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 and extensive reach, it makes sense that hedge funds would pour into PayPal (PYPL, $278.33).
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 PayPal is among the best bets in the space.
"It's slightly difficult to process, at least for us, but it seems as if PYPL's total addressable market is growing as fast as its already large top line, which we see as a function of both strong fundamentals and the company opportunistically casting a wider and wider net," writes Canaccord Genuity analyst Joseph Vafi (Buy).
At Argus Research, analyst Stephen Biggar (Buy) notes that although the coronavirus pandemic accelerated the shift to digital payments, it "remains a secular benefit" for PYPL, especially because it is "actively innovating" in the 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 46 analysts polled by S&P Global Market Intelligence rate it at Strong Buy.
It's not hard to see why analysts are so optimistic. They forecast PayPal to deliver average annual EPS growth of 23.5% over the next three to five years.
9. Johnson & Johnson
- Market value: $455.2 billion
- Dividend yield: 2.45%
- Analysts' ratings: 8 Strong Buy, 4 Buy, 7 Hold, 0 Sell, 0 Strong Sell
Whether we're talking hedge funds, mutual funds or other large piles of equity capital, Johnson & Johnson (JNJ, $172.93) is among the must-have blue-chip stocks for any large-cap healthcare portfolio.
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 believe that the company's current growth opportunities, pharmaceutical pipeline strength and success in integrating acquisitions support our $200 price target," says Argus Research's David Toung (Buy). "In particular, we see stronger growth in the Medical Device segment as procedural volume recovers in 2021. J&J is also benefiting from a growing consumer business, boosted by newly acquired brands."
Toung's 12-month price target gives JNJ stock implied upside of about 16%. That would be a welcome result for shares that are lagging the broader market by about 10 percentage points so far this year.
Stifel analyst Rick Wise lauds JNJ as a long-term holding, but is cautious about initiating or adding to positions at current levels.
"We view Johnson & Johnson as a core healthcare holding and total return vehicle in any market environment for investors looking for relative safety and stability," Wise writes. "Still, we rate shares at Hold as we believe there could be more opportune entry points from both a timing and valuation standpoint."
The Street largely sees this Dow component as a worthy stock pick, with a consensus recommendation of Buy.
Hedge funds also likely appreciate the company's commitment to delivering income to investors. In April, JNJ announced a 5% quarterly dividend increase to $1.06 per share, marking its 59th consecutive year of dividend growth.
8. Berkshire Hathaway
- Market value: $647.9 billion
- Dividend yield: N/A
- Analysts' ratings: 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, $286.60) 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 42%. Indeed, including the iPhone maker, Berkshire Hathaway's top five positions account for 75% of its entire portfolio.
More 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).
Only four analysts cover Berkshire Hathaway, but both share classes enjoy consensus recommendations of Buy. UBS Global Research's Brian Meredith rates BRK.A and BRK.B at Buy, citing an increase in share repurchases, as well as higher revenue and margins in the company's manufacturing, services and retail segment.
7. JPMorgan Chase
- Market value: $487.2 billion
- Dividend yield: 2.21%
- Analysts' ratings: 10 Strong Buy, 6 Buy, 7 Hold, 1 Sell, 2 Strong Sell
As the nation's largest bank by assets – and a component of the Dow Jones Industrial Average – JPMorgan Chase (JPM, $163.05) exerts an almost irresistible pull on large institutional investors such as hedge funds.
Indeed, at least one famous billionaire initiated a decent-sized stake in JPM in the most recent quarter. Jim Simons' Renaissance Technologies hedge fund (with $130.9 billion in assets under management) bought 434,186 shares in JPM worth $67.5 million as of June 30. Simons himself has an estimated net worth of more than $25 billion, per Forbes.
The Street mostly likes the stock too. The blue-chip money center bank gets a consensus recommendation of Buy. 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 did not find anything not to like," writes Oppenheimer analyst Chris Kotowski of JPM's Q2 results. "Investment banking and trading came in higher than expected, the outlook seems brighter on improving card balances and lower net charge off expectations, and asset quality indicators are tracking better quarter-to-quarter and year-over-year."
The analyst rates JPM at Perform (Hold), however, based on valuation. Although he views shares as a "high-quality core holding," they're not the "bargain they were even in the fairly recent past" relative to peers BofA and Citigroup (C). That said, JPMorgan Chase is "a well-managed company that should create value over time," he adds.
Analysts' consensus recommendation breaks down to 10 Strong Buy calls, six Buys, seven Holds, one Sell and two Strong Sells. They forecast EPS to increase at an average annual rate of 10% over the next three to five years.
JPM stock has gained 28% year-to-date. However, the Street's 12-month target price of $167.18 leaves shares with implied upside of only 2.5% from current levels.
- Market value: $494.9 billion
- Dividend yield: 0.55%
- Analysts' ratings: 22 Strong Buy, 10 Buy, 5 Hold, 0 Sell, 0 Strong Sell
Few Dow stocks get higher marks from hedge funds, analysts, mutual funds and even Warren Buffett than Visa (V, $232.69).
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 0.5% 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 are gradually dying down.
"Payment volume and processed transactions bottomed in April 2020 and have been improving consistently since then," say Argus Research analysts Stephen Biggar and Caleigh McGough (Buy). "We continue to expect secular growth in payment volumes and believe that solid cost controls and strong buyback activity will aid earnings."
True, the COVID-19 Delta variant disrupted what was looking like a clean and clear recovery story. CFRA Research concedes that the pandemic continues to hinder Visa's cross-border transaction volumes. But the broader recovery trend and secular bull case remain intact.
"Visa is seeing a continuing acceleration driven by the reopening, as well as the affluent customer beginning to spend more," writes CFRA's Chris Kuiper (Buy). "We continue to see investors underappreciating the long-term trend of cash displacement and Visa's other products and services, such as its continued investments in open banking."
The bottom line is that bullish analysts and hedge funds believe the more immediate COVID-19 headwinds are no match for Visa's long-term tailwinds. With EPS expected to grow at an average annual rate of more than 20% over the next three to five years, it should come as no surprise that the Street's consensus recommendation on V stock stands on the cusp of Strong Buy.
- Market value: $2.46 trillion
- Dividend yield: 0.59%
- Analysts' ratings: 26 Strong Buy, 7 Buy, 7 Hold, 1 Sell, 2 Strong Sell
It's only natural that hedge funds are in love with Apple (AAPL, $148.60) 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."
As noted above, Apple is Berkshire Hathaway's top stock holding, accounting for nearly 42% of its total portfolio value. Hedge funds are big boosters, too. Fully 36% of all hedge funds own AAPL, and more than 18% have it as a top-10 holding.
AAPL is actually lagging the broader market for the year-to-date, up just 12% to the S&P 500's 20%. One factor pressuring shares has been anxiety over what the global semiconductor shortage could mean for the upcoming launch of iPhone 13. But bulls say such concerns are overblown.
Wedbush analyst Daniel Ives notes that recent supply-chain checks suggest the iPhone 13's debut should go off without a hitch in September – amid robust demand, to boot.
"Asia supply chain builds for iPhone 13 are currently still in the approximately 90 million unit range compared to our initial iPhone 12 reads at 80 million units (pre-COVID), and represent an approximately 10%-plus increase year-over-year out of the gates," writes Ives (Outperform).
The analyst adds that the data "speaks to an increased confidence with Apple CEO Tim Cook & Co. that this 5G-driven product cycle will extend well into 2022, and should also benefit from a post-vaccine consumer 'reopening environment.'"
Even as Apple's gadgets get all the glory, hedge funds no doubt appreciate the stock for income, as well. 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 26 out of 43 analysts rating AAPL stock at Strong Buy.
- Market value: $1.92 trillion
- Dividend yield: N/A
- Analysts' ratings: 31 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, $2,880.08).
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. Combined, the two companies will claim roughly 54% of all global digital ad revenue in 2021, according to eMarketer.
With such a foundation in place, Alphabet's immense earnings power is a natural consequence of its basic business model, Argus Research contends.
"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).
Importantly, Alphabet's multiple areas of interest belie criticisms that it's a "'Johnny One Note' for its dependence on digital advertising," the analyst adds.
Besides, it's a heck of a note. Shares in GOOGL are leading the broader market by a whopping 44 percentage points so far this year.
"The powerful ramp-up in digital advertising as economies have reopened, combined with Google's dominant position, has certainly been a financial plus that shows little sign of weakening," Bonner says.
In addition to the fundamentals – the company is forecast to generate average annual EPS growth of more than 29% over the next three to five years – hedge funds are surely drawn to GOOGL's massive market cap. At $1.92 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.
"Alphabet continues to drive growth at scale through strength in mobile search, YouTube, and programmatic advertising, while investing in other key initiatives (cloud, hardware, AI) that should serve as multi-year growth levers," writes Stifel analyst Scott Devitt (Buy).
That outlook jibes with the majority view on the Street, which gives the blue-chip stock a consensus recommendation of Strong Buy.
- Market value: $1.05 trillion
- Dividend yield: N/A
- Analysts' ratings: 32 Strong Buy, 7 Buy, 7 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, $372.63).
More than 39% of all hedge funds held shares in the world's most popular social network in Q2 – an increase of almost 1% from the previous quarter. Moreover, 260 hedge funds, or 15.1%, count FB as a top 10 holding, up from 14.3% at the end of Q1.
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.
"The ongoing shift of ad spend to digital channels and the company's efforts to integrate commerce across its platform should support continued strong growth, which combined with a reasonable valuation supports our favorable view on the stock," writes Canaccord Genuity analyst Maria Ripps (Buy).
With more than 3.6 billion monthly users across all properties, Oppenheimer analyst Jason Helfstein sees FB as uniquely positioned to benefit from the "fragmentation" of media and communication.
"As users upload more personal information, this increases Facebook's competitive position," says Helfstein (Outperform). "We believe consumers will increasingly find media and information through their social graph, positioning FB in the middle of this information exchange."
At Mizuho Securities, analyst James Lee (Buy) notes that although FB's user growth did slow in the most recent quarter, he believes "unlocking monetization for new products such as commerce and influencers is more important." The analyst maintained FB as a top U.S. internet pick.
That view jibes with the Street's majority opinion on this hedge-fund darling, which gets a consensus recommendation of Buy, with high conviction. Indeed, of the 48 analysts issuing ratings on FB, 32 call it a Strong Buy.
- Market value: $2.25 trillion
- Dividend yield: 0.75%
- Analysts' ratings: 25 Strong Buy, 9 Buy, 2 Hold, 0 Sell, 0 Strong Sell
Microsoft (MSFT, $299.72) 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, 41%, or 707, 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' interest is its overwhelming success in cloud services with products such as Azure and Office 365.
"Microsoft remains our favorite large cap-cloud play and we believe the stock will move higher into year-end as the Street further appreciates the cloud transformation story," writes Wedbush analyst Daniel Ives (Outperform). "We believe Azure's cloud momentum is still in its early days of playing out within the company's massive installed base, and the Office 365 transition for both consumer/enterprise is providing growth tailwinds over the next few years."
Workforces are increasingly moving to a "heavy remote focus," says Ives, a "cloud shift" that is just beginning its next stage of global growth. Ultimately, this digital transformation represents a total addressable market worth $1 trillion, he estimates, with MSFT in position to take a disproportionate share.
Stifel analyst Brad Reback (Buy) likewise cites Azure and Office 365 as core to the stock's long-term fortunes. But MSFT has other things going for it beyond those "large, multi-year, secular-growth engines."
Although the analyst remains "cautious on the Windows franchise," other businesses are gaining scale, notably Bing search, Surface tablets and the Xbox gaming segment.
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 0.8%, 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.
- Market value: $1.70 trillion
- Dividend yield: N/A
- Analysts' ratings: 35 Strong Buy, 11 Buy, 0 Hold, 0 Sell, 0 Strong Sell
Amazon.com (AMZN, $3,349.63), with its massive market value and dominance in e-commerce, routinely ranks among the very most popular of hedge fund stocks.
Indeed, more than 41% of all hedge funds own AMZN, and nearly 22% have it as a top-10 holding. Even Warren Buffett is 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 2.2, 16.2, 15.9 and 26.4 percentage points, respectively, over the trailing three-, five-, 10- and 15-year year periods.
Shares are lagging the broader market by a wide margin this year – up less than 3% YTD – after 2020's torrid run, but that sort of hangover shouldn't come as a surprise, analysts say.
"Reopenings have shifted consumer shopping habits more toward offline, leading to a readjustment of expectations, which we view as something that was bound to happen given the massive spike in e-commerce throughout the pandemic," writes Susquehanna Financial Group analyst Shyam Patil (Positive).
Two-year trends remain "very strong," he adds, and show no cause for concern.
"Ultimately, we continue to see AMZN as a long-term secular grower underpinned by its strong e-commerce, cloud and advertising businesses," Patil says.
Stifel analyst Scott Devitt agrees, citing AMZN's wealth of both shorter term and secular catalysts.
"As the leader in two large and rapidly growing sectors (e-commerce and cloud), with an emerging high-margin marketing business, Amazon remains well positioned in a recovery scenario given cloud services, marketing services and certain e-commerce categories/geographies are still in the early phases of development," writes Devitt (Buy).
The Street's consensus recommendation stands at Strong Buy, with very high conviction. Indeed, of the 46 analysts issuing opinions on AMZN, 35 rate it at Strong Buy.
Perhaps most remarkably, they forecast this $1.7-trillion-market-cap company to generate average annual EPS growth of nearly 35% over the next three to five years.