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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| June 24, 2019
Always keep one eye on the so-called smart money. Yes, hedge funds don’t always live up to the hype, and they’re renowned for charging an arm and a leg. But considering they represent more than $3 trillion in assets under management and have built a reputation of having stock-market savvy, it’s good to know what they’re putting their capital toward – and they’re often putting it toward blue-chip stocks.
The folks at WalletHub keep regular tabs on stocks that hedge fund managers are buying, selling and holding every quarter. Combing through regulatory filings, WalletHub looks at the positions of more than 400 hedge funds, tallies their positions in individual stocks, then ranks those stocks by their total holdings value.
These stocks are massive in market value, ranging from the hundreds of billions of dollars to more than $1 trillion. Indeed, their very size helps attract more institutional interest. Unsurprisingly, then, most of these stock picks are household names – a number happen to belong to Warren Buffett’s Berkshire Hathaway portfolio.
Here are hedge funds’ 25 favorite blue-chip stocks to buy now. All these stocks likely appeal to the “smart money” because of their size and strong track records. But we’ll delve into a few specifics that make each company special.
Data is as of June 21, unless otherwise noted. Companies are listed in reverse order of popularity with hedge funds, according to WalletHub. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided S&P Global Market Intelligence.
Market value: $157.2 billion
Dividend yield: 2.7%
Analysts’ opinion: 13 strong buy, 10 buy, 3 hold, 1 sell, 0 strong sell
As the nation’s fourth-largest bank by both assets and market value, Citigroup (C, $67.97) is a natural fit for hedge funds looking for exposure to the financial sector. Bank of America Merrill Lynch analysts have a “Buy” rating on Citigroup, noting that it “seems to be the one bank stock where the bad news is largely priced in.”
Wall Street expects the money-center bank to generate average annual earnings growth of nearly 14% over the next three to five years, according to data from S&P Global Market Intelligence. Their average price target of $79.24 gives C stock implied upside of about 17% in the next 12 months or so.
The firm’s massive market value, share liquidity and standing as one of the nation’s biggest banks make it difficult for hedge funds to pass up. They’re being handsomely rewarded for holding C shares in 2019 – Citigroup’s stock is up more than 31% year-to-date vs. a gain of less than 18% for the S&P 500.
Market value: $117.8 billion
Dividend yield: 0.3%
Analysts’ opinion: 12 strong buy, 2 buy, 3 hold, 1 sell, 0 strong sell
Thermo Fisher Scientific (TMO, $292.78), the world’s largest maker of scientific instruments, cracked the top 25 most popular hedge fund stocks last quarter, helped by big buys on the part of Marshall Wace, Viking Global Investors and Citadel Advisors.
Part of the allure for hedge funds could be simple price momentum; TMO stock is up 32% year-to-date to outpace most of the blue-chip stocks on this list. After number-crunching various technical indicators, StockReports+ from Refinitiv gives Thermo Fisher Scientific a price momentum rating of 9, which is significantly higher than the advanced medical equipment industry average rating of 5.6.
The fundamentals look compelling too, given TMO’s vast portfolio of laboratory equipment, applications and techniques it provides to the pharmaceutical and biopharmaceutical industries.
“As the ‘Amazon of Life Science Tools,’ we believe that TMO should remain a core holding in any Life Science Tools portfolio as TMO will benefit from robust industry growth,” say analysts at Janney, who rate shares at “Buy.”
Market value: $242.8 billion
Dividend yield: 3.3%
Analysts’ opinion: 6 strong buy, 4 buy, 6 hold, 0 sell, 0 strong sell
Pfizer (PFE, $43.67) is the largest pure-play pharmaceutical company in the U.S. by market value and revenue, and a component of the Dow Jones Industrial Average. Both those traits make it a natural holding for institutional investors seeking a balance of income and growth.
“We are bullish on the Pfizer new product story and see the stock as a Top Pick as a new day dawns following an extended period of facing various patent expirations,” say Credit Suisse analysts, who rate shares at “Market Outperform” (equivalent of “Buy”).
This blue-chip drug company has raised its dividend annually every year since 2010. At the same time, analysts expect steady (if unspectacular) bottom-line gains. They estimate Pfizer will generate average annual earnings growth of nearly 7% for the next three to five years, according to data from S&P Global Market Intelligence.
Pfizer’s massive market value – and related liquidity – as well as its long-term track record of outperformance should help maintain its popularity with the hedge fund crowd.
Market value: $217.7 billion
Dividend yield: 2.6%
Analysts’ opinion: 10 strong buy, 5 buy, 2 hold, 0 sell, 0 strong sell
Merck (MRK, $84.57), just like fellow Dow pharma play Pfizer, is a hit with hedge funds. Its massive market cap, blue-chip status and attendant liquidity are no doubt part of the appeal. It also doesn’t hurt that Merck has a bunch of blockbuster drugs on its hands.
Cancer drug Keytruda is a runaway best-seller, having been approved for advanced melanoma, non-small-cell lung cancer, head and neck cancer, classical Hodgkin’s lymphoma and bladder cancer. The pharmaceutical giant is seeking additional approvals for Keytruda for a wide range of other cancers. Bulls also point to strength in Januvia for diabetes, as well as Gardasil, a human papillomavirus (HPV) vaccine.
Merck has something else in common with rival Pfizer: Both pharma giants rank among the 50 best stocks of all time.
Atlantic Equities in May upgraded Merck to “Overweight” (equivalent of “Buy”) from “Neutral” (equivalent of “Hold”), citing its attractive valuation and low-risk growth profile.
Market value: $121.8 billion
Dividend yield: N/A
Analysts’ opinion: 29 strong buy, 11 buy, 3 hold, 0 sell, 0 strong sell
Salesforce.com (CRM, $156.84) sells subscriptions to web-based applications to help companies increase and manage their sales. And it started delivering software-as-a-service long before cloud-based services became all the rage.
Stifel analysts rate CRM shares at “Buy,” thanks in part to the company’s market-leading position in its industry and a focus on bringing new products to life. UBS analysts, who also consider the stock a “Buy,” applaud Salesforce’s $15.7 billion acquisition of analytics platform Tableau Software (DATA), which was announced in June.
As a group, analysts have a “Strong Buy” rating on CRM. Their average target price of $184.18 gives shares implied upside of more than 19% in the next year or so.
But what really gets hedge funds’ blood flowing is the company’s growth prospects. Analysts project Salesforce’s earnings to rise at an average annual clip of more than 25% over the next three to five years.
Market value: $209.2 billion
Dividend yield: 2.2%
Analysts’ opinion: 11 strong buy, 3 buy, 8 hold, 0 sell, 1 strong sell
Boeing’s (BA, $371.84) stock is still well below where it was trading before airlines around the world grounded its popular 737 Max jets amid safety concerns. The aerospace giant has lost some hedge-fund fans – it was 13th place in the previous quarter – but it continues to be popular among the “smart money.”
Boeing’s massive market value and blue-chip status – it’s yet another member of the Dow – make it a natural home for hedge funds and other institutional investors.
USB analysts, who rate BA at “Buy,” point to surveys showing that nearly two-thirds of respondents seldom or never check what type of aircraft they will be flying. Those analysts expect the 737 Max “stigma” to fade with time and don’t see Boeing losing significant market share.
A long record of consistent share-price outperformance also helps explain why Boeing remains popular with the hedge-fund crowd despite its shorter-term woes. BA stock has beaten the broader market by wide margins over the last one-, three-, five- and 10-year periods. That makes it one of the best S&P 500 stocks of the past 25 years.
The company is a dividend-growth fiend, too, having more than doubled its quarterly payout since 2015.
Market value: $238.9 billion
Dividend yield: 4.2%
Analysts’ opinion: 7 strong buy, 4 buy, 18 hold, 0 sell, 0 strong sell
Hedge funds like big, blue-chip stocks. Check and check for Verizon (VZ, $57.77), which also delivers defense and income.
The only telecommunications stock in the Dow delivers a hefty dividend yield. It’s also a Dividend Achiever, which requires a minimum of 10 consecutive years of dividend growth, versus 25 years for the Dividend Aristocrats. But it’s still substantial. And VZ has improved its payout every year since 2007.
Verizon isn’t going to overwhelm you with growth, but it’s hardly a slowpoke like, say, your average utility company. Analysts expect earnings to increase at an average annual pace of 2.7% for the next three to five years. At the same time, as a defensive telecom stock, it tends to hold up better when the market is in a downturn. With a five-year beta of 0.48, Verizon can be thought of as roughly half as volatile as the S&P 500.
Verizon also has an enviable track record as an investment. From 1984 to 2016, VZ delivered an annualized return of 11.2%, which created $165.1 billion in wealth.
Market value: $230.4 billion
Analysts’ opinion: 17 strong buy, 5 buy, 10 hold, 1 sell, 0 strong sell
Home Depot (HD, $209.39) is an irresistible way for institutional investors such as hedge funds to bet on both the housing market and the health of U.S. consumers.
Not only is Home Depot the nation’s largest home improvement retailer, it’s also one of the elite 30 members of the Dow. Blue-chip stocks don’t get bluer than that.
Guggenheim analysts, who rate HD at “Buy,” write that the company was able to raise $1.4 billion in the debt market in June at low interest rates. The cash gives HD “greater near-term financial flexibility,” says Guggenheim, which made no change to its interest expense forecast.
Stifel analysts also rate shares in Home Depot at “Buy,” citing “the company’s continued demonstration of executing operational improvements while delivering strong top-line growth.”
Analysts surveyed by S&P Global Market Intelligence expect HD to deliver average earnings growth of more than 9.6% annually over the next three to five years.
Market value: $377.3 billion
Analysts’ opinion: 5 strong buy, 5 buy, 9 hold, 0 sell, 1 strong sell
Why, yes, it’s another Dow stock.
Johnson & Johnson (JNJ, $142.09) is the largest health care company in the blue-chip index. In addition to pharmaceuticals, JNJ also makes medical devices and well-known over-the-counter consumer brands such as Listerine mouthwash, Tylenol pain reliever and Johnson’s Baby Shampoo.
Johnson & Johnson has been under stress lately. Recent reporting suggests JNJ had known for years that its talcum powder contained the known carcinogen asbestos, underscoring what many have suspected for quite some time now. It’s also being sued for its alleged role in the opioid crisis.
Nonetheless, analysts project long-term earnings growth to average 6.5% a year for the next three to five years, according to S&P Global Market Intelligence.
“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,” write analysts at Stifel. “Still, we rate JNJ shares ‘Hold’ as we believe there could be more opportune entry points from both a timing and valuation standpoint.”
Hedge funds, however, are keeping the faith. JNJ’s mega market value, central role in the health care sector and status as a top long-term holding make it difficult for hedge funds to ignore.
Market value: $146.1 billion
Analysts’ opinion: 12 strong buy, 6 buy, 11 hold, 0 sell, 0 strong sell
Adobe (ADBE, $299.33) is the undisputed leader in making software for designers and other creative types. Its software arsenal includes Photoshop, Premiere Pro for video editing and Dreamweaver for website design, among others.
Adobe’s dominant position is partly why Argus analysts have a “Buy” rating on the stock. They note ADBE is well-positioned at the “center of the exploding market for digital video content” thanks to Creative Cloud apps such as Premiere Pro, the leading video editing software for film, TV and the web.
Hedge funds clearly agree, no doubt lured by earnings growth that’s forecast to rise at an average rate of 17% annually for the next three to five years. However, analysts’ average target price of $313.50 gives ADBE implied upside of less than 5% over the next 12 months – which explains why 11 pros surveyed by S&P Global Market Intelligence rate shares at “Hold.”
Market value: $104.2 billion
Dividend yield: 1.3%
Analysts’ opinion: 9 strong buy, 4 buy, 16 hold, 1 sell, 0 strong sell
If it’s good enough for Warren Buffett, it’s good enough for hedge funds.
Buffett first took a stake in American Express (AXP, $124.73) in 1963 and he has held on ever since. Today, Berkshire is AXP’s largest shareholder with an 18.2% stake in the firm. The payments processor and credit card company accounts for 8.3% of Berkshire Hathaway’s total portfolio value, making it Buffett’s fifth-largest holding.
Uncle Warren’s ardor for American Express has been well-placed. Management is strong, AmEx is a dominant brand in the industry, and the company generates large amounts of free cash flow (the money left over after essential capital expenditures are made that can be used to finance dividends and stock buybacks).
Analysts forecast AXP to deliver average annual earnings growth of more than 12% over the next three to five years. “We reiterate our ‘Outperform’ (‘Buy’) rating as we believe the strength of the AmEx franchise remains materially undervalued,” analysts at William Blair & Co. write. “We believe AmEx is one of the premier global payments companies.”
Did we mention that American Express also happens to be a Dow stock?
Market value: $219.9 billion
Dividend yield: 3.1%
Analysts’ opinion: 8 strong buy, 4 buy, 12 hold, 1 sell, 0 strong sell
Dow stock alert! Coca-Cola (KO, $51.55) – while struggling with shrinking interest in sugary drinks – has been a mainstay of Warren Buffett’s collection of blue-chip stocks. He first bought shares in the fizzy drink maker in 1987; today, KO comprises fully 9.4% of Berkshire Hathaway’s equity portfolio.
As a massive stock and cornerstone of the consumer staples sector of the market, it’s a natural fit for a wide swath of institutional investors too.
It’s also an income investor’s dream come true. King Coke has paid a quarterly dividend since 1920, and that dividend has increased annually for 57 years.
The dependable, rising dividend and comparatively low volatility make KO a way to add defensive ballast to a portfolio. Meanwhile, there’s plenty of room for institutional investors to build large positions thanks to the stock’s gargantuan market value and attendant liquidity.
Market value: $161.4 billion
Analysts’ opinion: 22 strong buy, 8 buy, 9 hold, 1 sell, 2 strong sell
Netflix (NFLX, $369.21) is popular with hedge funds? You don’t say!
The streaming media and production company holds the pole position in its industry and boasts a torrid growth forecast. Analysts expect Netflix to generate average annual earnings growth of more than 40% over the next three to five years, according to data from S&P Global Market Intelligence. That’s remarkable for a company with a market value of $160 billion.
Although some investors worry about new competing streaming services from the likes of Apple (AAPL) and Walt Disney (DIS), a plurality of analysts aren’t too concerned.
“Netflix has been successfully launching multiple new original TV series every year,” says Credit Suisse, “something traditional TV networks increasingly struggle with, and representative of a clear scale, brand and engagement advantage for Netflix – something quite underestimated, in our view, by those fretting about upcoming competition.”
Credit Suisse analysts rate NFLX shares at “Market Outperform” (equivalent of “Buy”).
Market value: $197.7 billion
Dividend yield: 1.9%
Analysts’ opinion: 19 strong buy, 7 buy, 6 hold, 0 sell, 0 strong sell
Cable, broadband and media giant Comcast (CMCSA, $43.56) has a full load of “Strong Buy” ratings from Wall Street analysts, so it should come as no surprise that it’s popular with hedge funds, as well.
Comcast, which also owns NBC Universal, closed its $39 billion takeover of European pay-TV giant Sky in October. Jefferies Equity Research says Comcast is a “franchise pick” for investors’ portfolios. Among other points in CMCSA’s favor: Analysts say NBC Universal is undervalued by the market.
Rosenblatt Securities initiated coverage of Comcast in mid-June at “Buy,” citing the company’s ability to take broadband market share and expand profit margins in its cable business. Analysts forecast the company to deliver average annual earnings growth of almost 10% over the next three to five years.
Additionally, Comcast is a big hit with active mutual fund managers and happens to be one of the 50 best stocks of all time. CMCSA generated an annualized return of 12.4% from 2002 to 2016 – good for lifetime wealth creation of $147 billion.
Market value: $210.7 billion
Dividend yield: 3.8%
Analysts’ opinion: 6 strong buy, 3 buy, 18 hold, 1 sell, 2 strong sell
Wells Fargo (WFC, $46.89) can’t shake bad press, but the nation’s third-largest bank by assets remains popular with hedge funds, analysts, and yes, a resolute Warren Buffett.
We’ve been bullish on WFC on more than one occasion in the past. After all, it’s one of Warren Buffett’s top holdings and has been an exemplary stock for retirement. That said, shares have underperformed the broader market over the past one-, three- and five-year periods, hampered by the bank’s phony accounts scandal and other issues.
Perhaps hedge funds smell a bargain. Analysts at Sandler O’Neill highlighted WFC’s cost controls and aggressive capital management when they assigned a “Buy” rating on the stock a few months ago.
“We are quite cognizant of WFC’s current challenges with regulators and that the shares may be range-bound in the near-term until the company names a permanent CEO,” Sandler O’Neill analysts write. “But we continue to find the expense and capital management opportunities very compelling, and we see the naming of a new CEO as the next potential catalyst for the shares.”
The mega-sized market value, liquidity – and the fact that Buffett refuses to back down from Berkshire’s 9.9% stake in the firm – make it tough for hedge funds to forgo WFC.
Market value: $270.1 billion
Dividend yield: 0.5%
Analysts’ opinion: 24 strong buy, 12 buy, 2 hold, 1 sell, 0 strong sell
It seems like everyone loves Mastercard (MA, $264.47). The global payments processor is a favorite of analysts and active mutual fund managers, too.
And then there’s the imprimatur of the world’s greatest long-term investor. Warren Buffett’s Berkshire Hathaway owns 4.9 million shares in Mastercard worth about $1.2 billion.
Analysts at William Blair rate MA at “Outperform,” noting that the company’s foray into business-to-business payments remains a multi-decade opportunity. Mastercard management estimates that the B2B market is $120 trillion globally, about $20 trillion of which is “cardable,” the analysts say.
Mastercard has proven to be among the top blue-chip stocks to buy in recent history. It has outperformed the broader market by wide margins over the past one-, three-, five- and 10-year periods. That may just continue. Analysts project earnings growth to average nearly 18% annually for the next three to five years.
Market value: $267.4 billion
Dividend yield: 2.1%
Analysts’ opinion: 8 strong buy, 9 buy, 12 hold, 0 sell, 0 strong sell
Bank of America (BAC, $28.12) is another blue-chip stock beloved by both hedge funds and Warren Buffett alike. The nation’s second-largest bank by assets is a top Berkshire position. The holding company owns a stake worth about $24.7 billion, second in value only to its investment in Apple.
BMO Capital Markets upgraded BAC to “Outperform” from “Market Perform” in mid-June, noting that higher fees, lower taxes, reduced loan-loss provisions and share buybacks should more than offset any hit to lending margins if the Federal Reserve does indeed cut interest rates later this year.
As a massive money-center bank, BofA is almost unavoidable for hedge funds looking to make big bets on the financial sector. Analysts’ average price target of $33.04 gives BAC stock implied upside about 17% over the next 12 months or so.
Market value: $239.8 billion
Dividend yield: 1.7%
Analysts’ opinion: 16 strong buy, 9 buy, 1 hold, 0 sell, 0 strong sell
Large institutional investors looking to make big bets in the health insurance sector can’t really avoid UnitedHealth Group (UNH, $252.28). With a market value of $233.2 billion and a 2020 sales forecast of $264.8 billion, UNH is the largest publicly traded health insurance company by a wide margin.
UNH stock has been dead money so far in 2019, prompting some analysts to call it a bargain. Citigroup upgraded shares to “Buy” from “Neutral” in May, citing an opportunity to snag “a bellwether name at discounted valuation.”
UnitedHealth’s girth stems from a long history of mergers and acquisitions – including MetraHealth, HealthWise of America and AmeriChoice – and stock-price outperformance. In the past five years alone, UNH shares delivered a total return (price appreciation plus dividends) of 26%, according to Morningstar. The broad U.S. stock market generated a total return of just 10% over the same span.
Analysts expect UnitedHealth’s earnings to increase an average of 14.5% annually for the next five years, according to data from S&P Global Market Intelligence.
Market value: $355.0 billion
Dividend yield: 2.9%
Analysts’ opinion: 7 strong buy, 6 buy, 14 hold, 0 sell, 1 strong sell
What goes for BofA goes double for JPMorgan Chase (JPM, $109.44) when it comes to hedge funds looking to make big bets on the financial sector. Not only is JPM America’s largest bank by assets, it’s a member of the Dow Jones Industrial Average too.
With its status among blue-chip stocks, huge market value and highly respected (if not occasionally controversial) CEO Jamie Dimon, JPMorgan is naturally a magnet for hedge funds. It also helps that Warren Buffett is a fan too.
Berkshire Hathaway initiated a position in JPM in the third quarter of 2018 and has been boosting it ever since. The holding company upped its stake by 40% in the fourth quarter of last year and again by 18% in the first quarter of 2019. Berkshire Hathaway now owns 59.5 million shares worth about $6 billion.
Analysts forecast average annual earnings growth of almost 10% over the next three to five years. Their average price target of $118.38 gives JPM stock implied upside of about 8% over the next year or so.
Market value: $781.3 billion
Analysts’ opinion: 27 strong buy, 12 buy, 6 hold, 0 sell, 0 strong sell
It should come as no surprise that hedge funds are big believers in Google parent Alphabet (GOOGL, $1,125.37). The stock has been a key driver of the bull market’s returns throughout its 10-year run, and Alphabet’s growth prospects remain bright.
As for concerns about Alphabet coming under antitrust fire, analysts at Jefferies, who rate shares at “Buy,” say a breakup is unlikely. Jefferies adds that in a worst-case antitrust scenario, Alphabet’s “sum-of-the-parts may be worth more than the whole.”
Analysts expect Alphabet to deliver average annual earnings growth of almost 16% over the next three to five years, according to data from S&P Global Market Intelligence. That’s a red-hot pace for a company already worth more than $750 billion. Revenue is forecast to rise almost 18% this year to $160.9 billion and 16% to $186.9 billion in 2020.
Longer-term, it helps that Alphabet is no one-trick pony. True, thanks to Google, it owns commanding market share in the fast-growing digital advertising industry. But Alphabet also is a major player in cloud-based services. Additionally, it’s home to self-driving car startup Waymo, as well as Nest Labs, a developer of gadgets for the Internet of Things. Artificial intelligence, machine learning and virtual reality are other major areas of investment.
Market value: $379.0 billion
Dividend yield: 0.6%
Analysts’ opinion: 23 strong buy, 12 buy, 2 hold, 1 sell, 0 strong sell
It’s easy to see why Visa (V, $173.44) is popular with hedge funds. As the world’s largest payments network, the company is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Analysts polled by S&P Global Market Intelligence expect Visa’s profits to increase an average of 17% a year over the next three to five years.
Wall Street is wildly bullish on Visa, too. Of the 38 analysts tracked by S&P Global Market Intelligence, 23 call it a “Strong Buy,” 12 have it at “Buy” and two say it’s a “Hold.” One analyst rates it at “Sell.”
“We continue to believe Visa remains uniquely positioned to benefit from several tailwinds, including growth in global consumption, the secular shift to electronic forms of payments, growth of B2B payments, and technological innovation,” say William Blair analysts, who rate shares at “Outperform.”
But it’s not just analysts and highflying hedge-fund managers who have taken a shine to Visa. It’s also among the many blue-chip stocks held by Berkshire Hathaway. Buffett’s holding company owns 10.6 million shares in Visa, worth roughly $1.7 billion.
Including dividends, Visa has delivered a whopping annualized return of more than 21% over the past 10 years.
Market value: $914.6 billion
Dividend yield: 1.6%
Analysts’ opinion: 18 strong buy, 3 buy, 19 hold, 0 sell, 3 strong sell
A gigantic Dow dividend-paying stock owned by Warren Buffett? Check. So naturally it follows that Apple (AAPL, $198.78) is a hedge fund darling.
Slower iPhone sales have knocked shares down from the 2018 highs that gave Apple a trillion-dollar market value. But hedge funds and Warren Buffett believe the company has plenty of growth left in it. Analysts see average annual earnings growth in excess of 12% over the next three to five years.
The bull case for AAPL stock is that the company’s customers, a famously loyal bunch, don’t just buy a single gadget; they buy into an entire ecosystem of hardware, software and services. That includes things such as apps from the App Store, music on iTunes and financial services such as Apple Pay. AAPL accounts for 24% of the total value of Berkshire Hathaway’s equity portfolio, which makes it Warren Buffett’s single-biggest bet in the stock market.
Although the U.S.-China trade war has made Apple more volatile, the stock market has hardly given up on the name. AAPL has gained 26% since the start of the year. Hedge funds are likewise standing firm. Apple slipped just one spot in the rankings of the blue-chip stocks most popular among the smart money since last quarter.
Market value: $545.6 billion
Analysts’ opinion: 30 strong buy, 10 buy, 7 hold, 1 sell, 1 strong sell
Facebook (FB, $191.14) might be feeling increasing heat from critics and would-be regulators, but hedge funds don’t much care. Such is the potential earnings power of the world’s largest social network. Despite bad press and regulatory concerns, FB stock is up 46% year-to-date.
Facebook forms a digital-advertising duopoly with Google, thanks to its 2.3 billion monthly active users. But there’s more to the company than its eponymous network. It also owns Instagram, the increasingly popular photo-sharing platform, and mobile instant-messaging apps WhatsApp and Messenger. And don’t forget about Oculus, a virtual reality company.
Analysts forecast annual average earnings growth of almost 19% for the next three to five years, according to S&P Global Market Intelligence data. Their average price target of $218.86 gives FB implied upside of about 17% over the next 12 months or so.
MoffettNathanson upgraded FB to “Buy” from “Neutral” on June 11, noting that “improving underlying fundamentals offsets the risk of greater regulatory scrutiny.”
Market value: $940.1 billion
Analysts’ opinion: 35 strong buy, 12 buy, 0 hold, 0 sell, 0 strong sell
From Wall Street analysts to mutual fund managers, it seems everyone loves Amazon.com (AMZN, $1,911.30). No surprise, then, that hedge funds do too.
The e-commerce giant, which did not prioritize profits for years, is forecast to generate average annual earnings growth of 43% for the next three to five years. That’s an astonishing growth rate for a company of Amazon’s size. And Amazon isn’t just a retailer. The company has several additional drivers of revenue, including Amazon Web Services (AWS), its Echo smart speakers, even ads.
Even Warren Buffett, a longtime admirer of Amazon founder and CEO Jeff Bezos, is on board. Berkshire Hathaway lumped Amazon in with its other blue chips during the first quarter of 2019. Berkshire’s 483,300 shares are worth roughly $860 million.
Loop Capital, which rates AMZN at “Buy,” says “Amazon’s earnings power suggests the company’s market cap could still triple over the next four to five years.”
Market value: $1.0 trillion
Analysts’ opinion: 22 strong buy, 9 buy, 2 hold, 0 sell, 1 strong sell
Microsoft (MSFT, $136.97) continues its reign as the stock most popular with hedge funds, as well as the world’s most valuable company. Indeed, MSFT is the only publicly traded firm with a market value above $1 trillion.
The folks at the software giant’s Redmond, Oregon, headquarters should take a deep bow. The Dow stock has staged a remarkable run over the past half-decade, more than tripling on a price basis alone. For comparison’s sake, the S&P 500 is up about 50% over the past five years.
Credit the software giant’s transition to subscription-based services and cloud computing. “Microsoft remains in an enviable position heading into the rest of 2019 and 2020 on the heels of its cloud success and is firing on all cylinders around its Office 365 and Azure strategic vision,” write analysts at Wedbush, who rate shares at “Outperform.” MSFT is one of just 18 names on the brokerage’s “Best Ideas List.”
Analysts forecast average earnings growth of 13% a year for the next three to five years, according to S&P Global Market Intelligence data. That’s pretty darn impressive for a trillion-dollar company.