Hedge Funds' 25 Top Blue-Chip Stocks to Buy Now
Hedge funds are typically loaded with blue-chip stocks. Here, we examine the smart money's favorite stock picks and what makes them so attractive.
2020 has been a wild year for everyone: even blue-chip stocks and the "smart money" investors that hold them.
Hedge funds ended 2019 with a record $3.32 trillion in assets under management (AUM). However, in 2020, volatility and a stock market led by only a narrow range of equities have damaged hedge fund returns and forced a number of investors to head for the exits.
Just have a look at industry statistics. Hedge funds' collective assets under management fell 11% to $2.96 trillion in the quarter ended March 31, according to Hedge Fund Research. That's the first time AUM has fallen below $3 trillion since the third quarter of 2016. More than $333 billion in assets was wiped out by performance losses, while net outflows claimed another $33.3 billion.
And yet hedge funds are still worth keeping tabs on. They command a vast pool of assets and have unparalleled resources for research. Heck, the best of the best can make a billion dollars in a single trade.
To get a sense of what hedge funds are holding these days, we turned to WhaleWisdom, which is a fount of data when it comes to institutional investors. We were able to determine hedge funds' favorite bets based on the number of funds holding a position in any given stock.
It should come as no surprise that big blue-chip stocks dominate the list. Indeed, of the 25 most popular hedge fund stocks, 14 are components of the Dow Jones Industrial Average. Partly that's a function of their massive market capitalizations and attendant liquidity. There's ample room for big institutional investors to build or sell large positions.
Have a look at hedge funds' 25 favorite blue-chip stocks to buy now. All these names 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 pick special.
Data is as of June 10, unless otherwise noted. Companies are listed in reverse order of popularity with hedge funds, according to WhaleWisdom. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided S&P Capital IQ.
- Market value: $196.0 billion
- Dividend yield: N/A
- Analysts' opinion: 12 Strong Buy, 8 Buy, 9 Hold, 1 Sell, 0 Strong Sell
As the undisputed leader in making software for designers and other creative types, Adobe (ADBE, $406.82) is a no-brainer holding for hedge funds and other large pools of cash looking for blue-chip stocks to buy. In addition to Reader for PDFs, its software arsenal includes Photoshop, Premiere Pro for video editing and Dreamweaver for website design, among others.
"As a result of its early-mover position and strategic M&A transactions, Adobe has established itself as the unchallenged leader in Creative software for both the Enterprise and consumer markets," write Stifel analysts, who rate the stock at Buy.
"Our checks indicated some deal delays given an uncertain near-term environment, but noted an increased focus by companies on their digital engagement strategy, positioning Adobe well in the medium to long term," Morgan Stanley analysts write. "Despite (near-term) risks, we remain confident in Adobe's 20%+ EPS growth potential coming out of the crisis, which we see as underpriced at current levels and remain Overweight."
Hedge funds clearly are on board, no doubt lured by excellent earning growth forecasts of 15.8% annually over the next three to five years, according to S&P Capital IQ.
ADBE has garnered a total of 20 Buy calls vs. nine Holds and one Sell in the analyst community, too.
- Market value: $135.7 billion
- Dividend yield: 0.9%
- Analysts' opinion: 12 Strong Buy, 6 Buy, 12 Hold, 2 Sell, 0 Strong Sell
Costco (COST, $307.33) has long been the warehouse club Warren Buffett likes best. The chairman and CEO of Berkshire Hathaway first added COST to Berkshire's portfolio back in 2001. And if it's good enough for Uncle Warren, it's good enough for hedge funds too.
The company's private-label branded products are part of COST's secret sauce, Buffett says.
"Here (Kraft Heinz) are, 100 years plus, tons of advertising, built into people's habits and everything else," Buffett told CNBC in a February 2019 interview. "And now, (Costco's) Kirkland, a private-label brand, comes along and with only 250 or so outlets, does 50% more business than all the Kraft Heinz brands."
The retailer further proved its worth during the pandemic, as Americans swarmed Costco locations to stockpile necessities as states rolled out stay-at-home policies.
True, the company has its challenges, but Wall Street's professional researchers are broadly bullish on the stock.
"We maintain our Buy rating and target price of $330 … with the premium multiple justified by strong comp growth, share gains, and a durable and cash-generative business model," Stifel writes.
Oppenheimer is bullish too, with an Outperform (Buy) rating and $335 price target on COST. "Given the recent earnings per share miss out of the way, we now see a brighter shorter and longer-term outlook for Costco shares."
- Market value: $314.3 billion
- Dividend yield: 0.5%
- Analysts' opinion: 21 Strong Buy, 9 Buy, 5 Hold, 1 Sell, 0 Strong Sell
Mastercard (MA, $313.15) has proven to be an outstanding blue-chip stock in recent history. It has clobbered the broader market by wide margins over the past one-, three-, five- and 10-year periods.
That helps explain why it has been so popular with hedge funds, mutual funds, analysts and, yes, even Warren Buffett.
For the time being, the payments processor is getting hit by the sharp drop in international travel and commerce caused by COVID-19. Some analysts say that could be a headwind that lasts a while.
"While we believe sectors of the global economy should recover quickly, we believe that long-haul travel and other components of cross-border volume fees will be among the slowest sectors to recover from the pandemic," says Piper Sandler, which rates the stock at Neutral.
Longer term, however, Wall Street loves how Mastercard is positioned to benefit from the growth of global commerce, digital mobile payments and other secular trends. Analysts see long-term earnings growth running at more than 16% annually for the next three to five years.
22. UnitedHealth Group
- Market value: $290.0 billion
- Dividend yield: 1.6%
- Analysts' opinion: 15 Strong Buy, 7 Buy, 5 Hold, 0 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, $305.75). With a market value of $290 billion and a 2020 sales forecast of $278.7 billion, this blue-chip stock is the largest publicly traded health insurer by a wide margin.
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 an annual average total return (price appreciation plus dividends) of 22%, according to Morningstar. The broad U.S. stock market generated a total return of less than 11% over the same span.
The road ahead looks promising, too, as UNH ramps up its health insurance exchange operations.
"Following its recent decision to reenter the individual exchange market in Maryland, UNH has filed plans to offer individual health plans in the state of Washington in 2021 in 10 service areas," says Credit Suisse, which rates UnitedHealth's shares at Outperform.
Analysts' Buy calls on UHN outnumber Hold calls by 22 to five. The Street also expects brisk average annual growth of almost 15% over the next three to five years, according to S&P Capital IQ.
21. Abbott Laboratories
- Market value: $163.0 billion
- Dividend yield: 1.6%
- Analysts' opinion: 11 Strong Buy, 5 Buy, 4 Hold, 2 Sell, 0 Strong Sell
Hedge funds always have a place in their portfolios for blue-chip stocks doling out dependable dividends. In that regard, they could do a lot worse than Abbott Laboratories (ABT, $92.16). Abbott first paid a dividend in 1924 and it has raised its dividend annually for 48 consecutive years.
Operationally, the company has a great deal going for it too.
ABT focuses on branded generic drugs, medical devices, nutrition and diagnostic products. Its product list includes the likes of Similac infant formulas, Glucerna diabetes management products and i-Stat diagnostics devices.
Additionally, ABT is "at the front-line of COVID diagnostic technology and information gathering," says Janney Montgomery Scott, which has no rating on the stock.
Sixteen analysts rate ABT at Strong Buy or Buy, vs. four Holds and two Sells. They project the company will grow its profits by 9.2% annually over the next three to five years.
- Market value: $170.8 billion
- Dividend yield: 4.9%
- Analysts' opinion: 9 Strong Buy, 4 Buy, 6 Hold, 0 Sell, 0 Strong Sell
Pharmaceutical company AbbVie (ABBV, $96.90) was spun off from Abbott Laboratories in 2013, but it kept the longstanding tradition of annual dividend growth. Indeed, AbbVie and Abbott are both members of the Dividend Aristocrats.
Of perhaps more interest to hedge funds is AbbVie's acquisitive nature. The firm closed its $63 billion acquisition of Botox-maker Allergan in May. The deal goes a long way toward bolstering AbbVie's current lineup of blockbuster drugs such as Humira – a rheumatoid arthritis drug that has been approved for numerous other ailments.
Argus Research, which rates ABBV at Buy, applauds the acquisition for "diversifying its revenue and substantially expanding its product portfolio."
AbbVie also makes cancer drug Imbruvica, as well as testosterone replacement therapy AndroGel. All told, AbbVie's pipeline includes dozens of products across various stages of clinical trials.
Analysts' Buy calls outpace their Hold calls by more than 2-to-1. Their compound annual growth forecast stands at 4.8% for the next three to five years.
19. Cisco Systems
- Market value: $200.2 billion
- Dividend yield: 3.0%
- Analysts' opinion: 8 Strong Buy, 4 Buy, 16 Hold, 0 Sell, 0 Strong Sell
Cisco Systems (CSCO, $47.42) is among the blue-chip stocks of the Dow that hedge funds can't really ignore if they're looking for big, broad exposure to the technology sector.
The company, which owns a vast portfolio of networking hardware, software and telecom equipment, has been a serious market laggard over the past year, trailing the S&P 500 by more than 26 percentage points … but it has been on par with the index so far in 2020.
Cisco's strong performance during the coronavirus lockdown has been a shot in the arm for the bulls.
"Cisco beat in a very difficult climate," Instinet's Jeff Kvaal wrote about the company's fiscal Q3 earnings. "Furthermore, Cisco suggested business was unlikely to worsen beyond F4Q absent a worsening pandemic."
Regardless, the Street as a group tends to be neutral on the name, with 16 Hold calls vs. 12 Buy calls. The latter camp includes Evercore ISI's Amit Daryanani, who writes, "While we understand CSCO performance will be driven by macro dynamics to some extent, we do think the diversity of their portfolio will enable better performance vs. past recessions."
- Market value: $199.5 billion
- Dividend yield: 4.2%
- Analysts' opinion: 6 Strong Buy, 2 Buy, 9 Hold, 0 Sell, 0 Strong Sell
Pfizer (PFE, $35.92), a pharmaceutical giant and Dow stock, is another go-to name for large institutional investors. It's a classic defensive dividend stock with ample liquidity and a huge market value that gives it outsized influence on the health care sector.
Even then, PFE is susceptible to the occasional headache. For instance, Pfizer was dealt a setback in a clinical trial for a new breast cancer treatment. In late May, the company halted its Phase 3 PALLAS trial for its Ibrance treatment, as it was unlikely to meet the endpoint of improving survival rates.
Citigroup, which has the stock at Neutral, thinks this could be something of a blessing in disguise. "We see the event as an important clearing event to de-risk the stock and potentially begin to form a constructive long-term thesis from a lower earnings base," Citi writes.
Analysts as a group tend to be cautious on the name these days, with eight Buy calls and nine Sells. But their price targets are a bit more optimistic. The pros' average price of $41.28 implies that PFE could rise nearly 15% over the coming year.
- Market value: $186.1 billion
- Dividend yield: 3.1%
- Analysts' opinion: 6 Strong Buy, 5 Buy, 9 Hold, 0 Sell, 0 Strong Sell
Snack-and-beverage giant PepsiCo (PEP, $134.13), like its rivals, is working successfully against a long-term decline in soda sales.
Its energy drinks, fruit drinks, teas and other non-carbonated beverages are gaining in popularity. Furthermore, demand for salty snacks – such as Lay's, Fritos, Doritos, Tostitos and Rold Gold pretzels – remains solid.
To that end, last year, Pepsi struck deals to buy BFY Brands, the maker of PopCorners snacks, and South Africa-based Pioneer Foods, to widen its reach in the snacks industry.
Analysts are particularly impressed with how PEP is handling the global pandemic.
"Fight, not flight," says Credit Suisse (Buy). "Companies able and willing to invest through crises are more likely to outperform peers at exit. PepsiCo is one of those companies – upping investment in people, capabilities, and retailer execution – setting for share gains today with an improved position for future growth."
You're not going to get rampant growth with Pepsi. Analysts' outlook for the next three to five years is for average annual profit gains of 4.9%. But you will get a dependable dividend history – PEP has hiked its payouts for 48 consecutive years.
- Market value: $206.4 billion
- Dividend yield: 3.0%
- Analysts' opinion: 11 Strong Buy, 4 Buy, 5 Hold, 0 Sell, 0 Strong Sell
Merck (MRK, $81.77), is the Dow Industrials' other giant pharmaceutical firm. Like Pfizer, Merck's market value and attendant liquidity make it a natural investment for large pools of money looking for exposure to the health care sector.
Although Big Pharma's blue-chip stocks are known in part for defense and dividends, they are not immune to a shock like the coronavirus.
COVID-19 is taking a bite out of Merck's revenue because more than two-thirds of its revenue comes from drugs administered in doctors' clinics, analysts note. Trips to clinics declined sharply during the lockdown.
But JPMorgan Chase, which rates the stock at Buy, expects sales of vaccines and veterinary products to revive after bottoming in June.
In addition to work on a COVID-19 vaccine, MRK has 20 studies under way on expanded use of Keytruda, its blockbuster cancer drug. Keytruda already is approved for treatment of lung cancer, melanoma, head and neck cancer, classical Hodgkin's lymphoma and bladder cancer.
The Street's Buy calls outnumber its Holds by 15-to-1.
- Market value: $229.0 billion
- Dividend yield: 6.4%
- Analysts' opinion: 7 Strong Buy, 3 Buy, 21 Hold, 0 Sell, 1 Strong Sell
AT&T (T, $32.14), the mammoth telecommunications company, has long been a stalwart blue-chip stock with a dividend that investors can count on.
Indeed, T has raised its payout on an annual basis for 36 consecutive years, and it typically boasts one of the highest yields in the S&P 500. Happily for income investors, the dividend appears to be safe in these cash-challenged times.
"We do not believe the dividend is even close to being in jeopardy given the company's estimated $25 billion in (trough) free cash flow this year vs. its $15 billion in dividends," says Deutsche Bank, which rates T at Buy.
In non-analyst speak, the company has more than enough cash left after expenses and capital expenditures to cover the dividend.
At the same time, T is no mere bond in drag. The company has undergone some dramatic changes in recent years. From acquiring DirecTV to merging with Time Warner, AT&T has morphed into a true media conglomerate with 170 million direct-to-consumer relationships across mobile, internet and TV.
But while hedge funds love T, the pros are lukewarm. Hold calls outstrip Buy calls by more than 2-to-1. And one analyst even slaps a Strong Sell on the stock. Moreover, Wall Street's compound annual growth forecast stands at 4% over the next three to five years, according to S&P Capital IQ.
14. Home Depot
- Market value: $273.7 billion
- Dividend yield: 2.3%
- Analysts' opinion: 13 Strong Buy, 8 Buy, 11 Hold, 0 Sell, 1 Strong Sell
Dow component Home Depot (HD, $254.45), 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 also is a good way to play the lockdown.
Many retailers are only just beginning to reopen from the pandemic lockdown, but Home Depot, an essential business, has been open the whole time – and doing brisk business.
"We are clearly seeing the home winning share of wallet, even in the midst of the pandemic," writes Stifel, which rates HD at Buy. "We think this trend continues although the do-it-yourself surge may wane somewhat as people go back to offices and re-opened businesses."
Even though customers are beginning to emerge from their homes, Stifel thinks HD will continue to benefit: "In our minds … HD will gain share of wallet through this pandemic and can continue to grow at impressive rates on the other side."
According to S&P Capital IQ, the pros expect HD to generate average annual earnings growth of 7.9% over the next three to five years.
- Market value: $270.4 billion
- Dividend yield: 2.1%
- Analysts' opinion: 9 Strong Buy, 7 Buy, 23 Hold, 1 Sell, 4 Strong Sell
Chipmaker Intel (INTC, $63.87), another Dow stock, is a natural fit for large investors looking for broad exposure to the hardware side of the tech sector.
Although Apple is reportedly set to start making Mac computers with its own chips in 2021, the blow to supplier INTC is old news and overblown, analysts say.
New Street Research says Intel isn't going to lose a significant slice of business and Apple's intentions to make chips in-house was already widely known. Indeed, it says INTC is a "screaming buy," thanks to massive growth in cloud computing and the Intel-based servers that power them. New Street analysts say cloud computing spending tripled to roughly $15 billion in 2019, with Intel capturing 72% of that growth.
On the bearish side, Wedbush, which rates INTC at Underperform (equivalent of Sell), worries about what happens to Intel as the year progresses.
"Our concerns center around: 1) what the 2nd half might look like once COVID-19 related purchasing slows, and 2) our belief that AMD will likely take share through 2021 due to products that currently are comparable, if not superior to INTC parts," Wedbush says.
Either way, INTC remains very popular with hedge funds. The Street is a little more neutral on the name, with 16 Buy calls, 23 Holds and five Sells.
- Market value: $240.2 billion
- Dividend yield: 4.3%
- Analysts' opinion: 6 Strong Buy, 3 Buy, 20 Hold, 0 Sell, 0 Strong Sell
Telecom giant and Dow stock Verizon (VZ, $58.05) is seen by some as another port in the pandemic storm.
"We think Verizon is well positioned in the context of today's socio-economic backdrop given that mobile communications and broadband are essential services for most consumers, and increasingly so, and thus should see durable performance even during this crisis," writes Deutsche Bank, which ranks the stock at Hold.
Further out, VZ is betting big on rolling out a high-speed 5G wireless network, a strategy that won't start to move the revenue needle until 2021.
Verizon also is taking a shot at red-hot Zoom Video Communications (ZM) by acquiring video conferencing company BlueJeans for about $500 million. However, KeyBanc analyst Brandon Nispel warns that "(telecoms) are where applications go to die" and that developing apps isn't one of Verizon's core competencies.
VZ sports a pretty hefty payout, even compared to other dividend-paying blue-chip stocks. That helps make up for the low growth forecast. Analysts expect average annual earnings growth of just 2.9% over the next three to five years.
- Market value: $674.5 billion
- Dividend yield: N/A
- Analysts' opinion: 33 Strong Buy, 8 Buy, 6 Hold, 1 Sell, 1 Strong Sell
Any hedge fund that wants to bet on social media can't really forego a substantial stake in Facebook (FB, $236.73). The social network forms a digital-advertising duopoly with Google, thanks to its 2.6 billion monthly active users worldwide.
True, the recession has clobbered spending on advertising, but it's hardly an existential crisis for the likes of Facebook.
"Although widespread shelter-in-place measures have led to record levels of usage across a number of Facebook's services, advertiser demand has dropped off precipitously," says Stifel, which rates FB at Buy. "We continue to believe Facebook is among the best-positioned digital media companies to navigate this crisis and come out stronger (more market share of a bigger digital market) when the economy returns to normal."
Another advantage Facebook has over the competition is that it's not a one-trick pony. In addition to its eponymous social network, FB also owns Instagram, the increasingly popular photo-sharing platform, and mobile instant-messaging apps WhatsApp and Messenger.
Analysts foresee average annual earnings growth of more than 20% for the next three to five years. As such, Facebook is a no-brainer investment for hedge funds looking for growth stocks.
10. Berkshire Hathaway
- Market value: $465.4 billion
- Dividend yield: N/A
- Analysts' opinion: 1 Strong Buy, 1 Buy, 3 Hold, 0 Sell, 0 Strong Sell
Berkshire Hathaway's (BRK.B, $191.51) appeal for the hedge fund crowd is obvious. Warren Buffett's conglomerate has been one of the best long-term investments of all time.
Think of it as a case of if you can't beat 'em, join 'em.
Berkshire is having a rough 2020, underperforming the S&P 500 significantly, with a 16% loss to the index's 1% decline. However, 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%. Berkshire Hathaway ranks among the top 50 stocks of all time, too.
Although insurance is the cornerstone of Berkshire's business, scores of wholly owned subsidiaries and stakes in blue-chip stocks from Apple to Bank of America (BAC) to Coca-Cola (KO) make BRK.B shares a diversified bet on the broader economy.
Just don't ask the analysts what they think. Wall Street's pros are notoriously tight-lipped about Warren Buffett's company. Only five cover the B Class shares and just three track the A Class shares.
- Market value: $426.8 billion
- Dividend yield: 0.6%
- Analysts' opinion: 20 Strong Buy, 9 Buy, 5 Hold, 1 Sell, 0 Strong Sell
Visa (V, $200.48), yet another Dow stock, is recovering nicely from the worst of the coronavirus crisis.
Wedbush maintains its Outperform (Buy) rating, as it sees "gradual improvements in card metrics trends, as well as travel spending."
Hedge funds like Visa because it's the world's largest payments network. As such, it is well-positioned to benefit from the growth of cashless transactions and digital mobile payments.
And although cross-border spending is down and doubts remain about how long consumer discretionary spending can hold up, analysts note there's an opportunity for Visa in technologies that allow consumers to avoid contact with one another.
Longer term, Visa's growth profile is simply too robust for hedge funds to ignore. Analysts polled by S&P Capital IQ expect Visa to expand its bottom line by an average of 13.3% annually over the next three to five years.
8. Procter & Gamble
- Market value: $295.2 billion
- Dividend yield: 2.7%
- Analysts' opinion: 9 Strong Buy, 4 Buy, 9 Hold, 1 Sell, 0 Strong Sell
As the largest consumer staples stock by market value and a Dow component, hedge funds are naturally drawn to Procter & Gamble (PG, $119.23) for its defensive characteristics and dividends.
Sales of products such as P&G's Charmin toilet paper, Head & Shoulders shampoo and Crest toothpaste are expected to hold up in both good times and bad. And PG certainly showed off its defensive capabilities in the depths of the lockdown.
Indeed, revenue in its most recent quarter benefited from "pull-forward of demand due to coronavirus-related buying," Stifel writes.
"Our Buy rating reflects upside risk to organic sales growth near-term reflecting coronavirus-related buying, particularly in Health Care, Fabric and Home Care, and Baby, Feminine and Family Care, categories accounting for 71% of sales," says Stifel, which rates the stock at Buy.
Very few stocks are completely recession-proof, and Procter & Gamble is no exception. But when it comes to blue-chip stocks to buy for portfolio ballast, PG is one of the best. That's in part because it has hiked its dividend annually for a whopping 63 years without interruption.
Analysts' Buy calls outnumber Hold calls by 13 to nine. PG also has a single Sell rating.
7. Walt Disney
- Market value: $220.7 billion
- Dividend yield: N/A
- Analysts' opinion: 10 Strong Buy, 5 Buy, 11 Hold, 0 Sell, 2 Strong Sell
As a mega-cap entertainment stock and Dow component, Walt Disney (DIS, $122.18) has the heft and girth to support a massive number of big investors.
Hedge funds with long enough horizons need not worry much, but in the more immediate future DIS has its hands full. After all, coronavirus took a big bite out of some of its most important businesses.
"Disney is clearly facing unprecedented headwinds in its Theme Parks and Studio businesses," says Deutsche Bank, which rates shares at Hold. "The timing for these businesses fully recovering to pre-COVID earnings power is a function of when people can congregate at high density in mass numbers without meaningful risk of potentially deadly infection."
Happily for DIS shareholders, the stock is starting to pick up steam ahead of an expected albeit slow recovery.
"Exiting stay-at-home has been a positive for sentiment, with news flow around Parks & Theaters' reopening dates, sports progressing towards resuming play, and forward bookings for leisure services, cruise ships in particular, showing surprising initial pent up demand in this pre-vaccine period," says Credit Suisse, which rates DIS at Neutral (Hold).
Even after being hobbled by the pandemic, analysts forecast Disney to deliver average annual earnings growth of 7.7% for the next three to five years, according to S&P Capital IQ.
6. JPMorgan Chase
- Market value: $323.2 billion
- Dividend yield: 3.3%
- Analysts' opinion: 5 Strong Buy, 6 Buy, 14 Hold, 0 Sell, 1 Strong Sell
As the nation's largest bank by assets – and a component of the Dow Jones Industrial Average – JPMorgan Chase (JPM, $106.06) exerts a strong pull on large institutional investors like hedge funds.
Be that as it may, all investors in JPM should brace themselves for a rough, recession-induced ride.
UBS Securities, which rates the stock at Hold, sees JPM facing a higher risk of having to cut or suspend its dividend as a result of increases in required capital. However, it would likely be a temporary setback thanks to the bank's history of high profit levels.
"(JPM) could rebuild capital quickly, especially once loan loss reserves peak," says UBS.
More generally, Zacks Investment Research says coronavirus-induced concerns will likely continue to hamper business activities. "Loan growth will likely be muted in the near term," Zacks says. "Challenges in expanding mortgage operations and significant dependence on capital market revenues will hurt fee income growth to an extent."
That uncertainty prompted Warren Buffett to cut his stake in the money-center bank by roughly 3%, or about 1.8 million shares, during the first quarter.
- Market value: $999.8 billion
- Dividend yield: N/A
- Analysts' opinion: 30 Strong Buy, 11 Buy, 5 Hold, 0 Sell, 0 Strong Sell
Google parent Alphabet (GOOGL, $1,464.70) is a hedge fund darling for obvious reasons. Its dominance in search, popularity of YouTube and ubiquity of Android on smartphones are just a few of the ways in which it has become an advertising powerhouse.
It's also the world's fourth-largest publicly traded stock, trailing only Amazon.com, Microsoft and Apple.
Although Alphabet, like Facebook, is taking a hit to revenue from the precipitous drop in spending on advertising, analysts aren't worried. Indeed, they see the damage as manageable and expect GOOGL to become even more formidable when the world definitively emerges from the crisis.
"While the timing of a broader recovery remains unknown, advertising revenue on the platform has historically recovered quickly following periods of economic volatility," says Stifel, which calls GOOGL a Buy. "We are confident in Alphabet's ability to continue capturing advertising market share once conditions normalize and are encouraged by the continued momentum in the company's Cloud segment."
GOOGL has one of the strongest ratings among Wall Street's blue-chip stocks, as analysts' Buy calls outnumber their Hold calls by 41-to-5. No one dares rate it a sell.
4. Johnson & Johnson
- Market value: $389.7 billion
- Dividend yield: 2.7%
- Analysts' opinion: 8 Strong Buy, 5 Buy, 7 Hold, 1 Sell, 0 Strong Sell
Johnson & Johnson (JNJ, $147.80) is a must-have holding in any large-cap health care fund.
J&J, a component of the Dow Jones Industrial Average, operates in several different areas of health care, including pharmaceutical products and medical devices. The company is best-known, however, for its over-the-counter consumer brands including Listerine mouthwash, Tylenol pain reliever and Johnson's Baby Shampoo.
Credit Suisse notes that better-than-expected growth in Stelara, Opsumit, Erleada and Invega Sustenna/Trinza are helping the company's U.S. pharmaceutical sales.
"We do not expect JNJ's pharma franchises to be significantly impacted by COVID-19 at this time," adds Credit Suisse, which rates the stock at Outperform (Buy).
JNJ has suspended share repurchases to support the dividend, which continues to grow. The company announced a dividend hike in April, to $1.01 per share from 95 cents. That marked Johnson & Johnson's 58th consecutive year of dividend increases.
Analysts' Buy calls outnumber their Hold calls by 13-to-7. One lone-wolf analyst rates JNJ at Sell.
- Market value: $1.32 trillion
- Dividend yield: N/A
- Analysts' opinion: 35 Strong Buy, 9 Buy, 4 Hold, 0 Sell, 0 Strong Sell
Amazon.com (AMZN, $2,647.45), with its massive market value and dominance in e-commerce, routinely ranks among hedge funds' most popular holdings.
Even Warren Buffett got in on the act, picking up some Amazon shares last year.
Investors in Amazon have enjoyed outsized gains over the short, medium and long term. Indeed, AMZN has beaten the broader market by anywhere from 22% to 33% over the last one-, three-, five-, 10- and 15-year periods. And in 2020, Amazon's shares have jumped by more than 40% to help boost the Nasdaq Composite to an all-time high.
Analysts are confident in Amazon will continue to clobber the broader market. "The surge in volume that started with the lockdowns hasn't abated," notes Deutsche Bank, which rates AMZN stock at Buy. "The volumes are so high, it feels like it's like Black Friday every day."
The Street is wildly bullish on this e-commerce stock. Of 48 analysts covering AMZN tracked by S&P Capital IQ, 35 rate it at Strong Buy, nine say Buy and four call it a Hold. Their medium-term profit outlook is robust, too – they expect Amazon will grow its earnings by an average of 39.1% annually.
- Market value: $1.53 trillion
- Dividend yield: 0.9%
- Analysts' opinion: 20 Strong Buy, 7 Buy, 9 Hold, 2 Sell, 2 Strong Sell
With its massive market value – for the moment it reigns as the world's largest publicly traded company – standing as a member of the Dow and cornerstone of the tech sector, it's only natural that hedge funds would be drawn to Apple (AAPL, $352.84).
After all, we're in the midst of a recession, and yet the blue-chip stock recently set a new all-time closing high and is up roughly 20% so far this year.
"Despite the trifecta of headwinds around a global COVID-19 pandemic, soft macro backdrop, and a supply chain continuing to normalize in Asia, (CEO Tim) Cook & Co. have weathered this Category 5 storm in a Jacques Cousteau-like fashion," says Wedbush, which rates the stock at Outperform (Buy).
Wedbush notes that Apple's "bedrocklike" services business has continued to outperform during the lockdown and is on pace to exceed $60 billion in annual revenue in fiscal 2021.
"At the same time, AirPod sales have remained relatively robust and should approach an eye popping 85 million units sold this year globally vs. 65 million last year, which speaks to the unrivaled momentum of this wearables product along with the continued success of Apple Watch," Wedbush adds.
Analysts are overwhelmingly bullish on Apple, and expect the company to produce average annual earnings growth of 11.5% over the next three to five years.
- Market value: $1.49 trillion
- Dividend yield: 1.0%
- Analysts' opinion: 22 Strong Buy, 10 Buy, 4 Hold, 0 Sell, 0 Strong Sell
Microsoft (MSFT, $196.84) isn't allowing its trillion-dollar tech rivals to just run away with the market this year. The software and cloud computing giant is up almost 25% year-to-date itself.
Analysts say the pandemic could be the event that prompts companies that have been reluctant to embrace cloud-based services to jump on the bandwagon. Wells Fargo thinks MSFT's market capitalization could grow to more than $2 trillion thanks to its Azure cloud-computing business.
"(The pandemic) has created a Zeitgeist moment for the cloud as a whole," says Wells Fargo, which rates MSFT at Outperform. Non-cloud holdouts are being driven to sign up for such services. As such, analysts expect "Microsoft Azure to disproportionately benefit as the 'enterprise cloud.'"
Indeed, workers and students sheltering at home have lifted demand for everything from Microsoft 365 productivity tools to Xbox games.
"Microsoft's unique mix of cloud-based productivity tools (Office 365), its tightly integrated set of hybrid cloud infrastructure solutions (Server + Azure) and broad-based portfolio of Work/Play From Home products (Windows, Surface & Xbox Live) enabled the company to effectively support its customers during this difficult time and continue to gain share," writes Stifel, which rates the stock at Buy.
Hedge funds looking for reliable income can take comfort in MSFT's dividend, which the company has lifted annually for 15 straight years.