3 Stocks That Billionaire Hedge Funds Like To Own

| May 24, 2017

Hedge funds have found plenty of places to invest their billions in the last quarter, even with the market breaking through previous all-time highs. And, you can follow along with their investments in the stocks and sectors featured in this article.

We’ve talked about major billionaire investments in the past, highlighting what hedge funds have been buying and selling.

FacebookThis includes laying out the top 3 hedge fund buys just over a year ago. Among them were Facebook (NASDAQ: FB), which has seen its stock soar 20% since then. In that same article, we highlighted the most sold stocks, with Pfizer (NYSE: PFE) being tops on the list — the drug company’s stock has tumbled 8% since then.

Hedge funds have billion-dollar research budgets and despite the media’s portrayal, they generally have unique insights. Earlier this year we laid out the major hedge fund theme of investing in airlines. Notably, Warren Buffett took a major interest in dividend paying airline operators and in response, Southwest Airlines’ (NYSE: LUV) shares are up 15% in 2017.

We’ve taken a different approach as we head into the summer. Instead of profiling the stocks that most hedge funds were buying, we’ve highlighted notable themes that stood out last quarter. With that in mind, here are the top three takeaways from what billionaire hedge funds are buying and how to profit:

Major Hedge Fund Theme No. 1: Conflicted

AppleThe biggest name in the market might also be the most polarizing for hedge funds. Apple (NASDAQ: AAPL) has some of the biggest names in the hedge fund space as bulls, but there’s also a number of bears.

Shares of Apple were up 25% during the first quarter. Daniel Loeb’s Third Point and David Einhorn’s Greenlight Capital both took the opportunity last quarter to sell some of their Apple shares. Of note, Einhorn had been a major Apple advocate for years.

But on the bull side, there’s one of the best investors of all time — Warren Buffett. His Berkshire Hathaway (NYSE: BRK.B) doubled its stake in Apple last quarter. This puts Berkshire as one of the top five Apple shareholders.

The key about Buffett is that he is a long-term investor. He’s not concerned with short-term price movements. It is tough to bet against Buffett, as the tech giant will get a boost from the Apple Worldwide Developers Conference in just a couple weeks.

The WWDC should get the market excited about Apple’s new hardware, which will likely include the Siri Home. With Siri Home, Apple will be able to capitalize on the voice command space, leveraging its ecosystem to take market share from Amazon’s (NASDAQ: AMZN) Alexa.

Then in September, we’ll get the iPhone 8 unveiling. Meanwhile, AirPod and Apple Watch sales are doing well. Shares of Apple still trade at under 15 times next year’s earnings estimates, which Buffett likely sees as a steal for a company that’s expected to keep growing earnings by double-digits over the next half decade.

Major Hedge Fund Theme No. 2: Underfollowed Opportunity

Hewlett-Packard EnterprisesDespite the worry that the market is too expensive and that opportunities are limited, some of the biggest names in the hedge fund space have found a cheap tech stock that’s still growing. Hewlett-Packard Enterprises (NYSE: HPE) is no small company, with a $30 billion market cap, but it only trades at 10 times earnings.

A couple of major activist hedge funds took notice. During the first quarter, Third Point and JANA Partners both took new stakes in Hewlett-Packard Enterprises — combined owning over 10 million shares. George Soros — the infamous billionaire known for breaking the Bank of London — more than tripled his stake, while Paul Tudor Jones of Tudor Investment increased his stake eightfold.

Hewlett-Packard Enterprise broke off from its personal computer and printer business a couple years ago to focus on higher-margin software and services. Just last month, Hewlett-Packard Enterprise went through another transformation, spinning off its enterprise businesses.

It also plans to spin off its software business in the fourth quarter, which will make it a pure-play on servers, storage, technology services, and networking. The spinoffs give Hewlett-Packard Enterprise a chance to get hyper-focused on the faster-growing cloud computing and data center networking markets.

Major Hedge Fund Theme No. 3: IPOs Are Still Hot

Last quarter, hedge funds were buying up the biggest IPO since 2014 — Snap Inc (NYSE: SNAP). Notable buyers include Dan Loeb’s Third Point, which owns 2.25 million shares, and fellow activist investor JANA Partners, which owns 500,000 shares. A number of other funds also revealed stakes — David Tepper’s Appaloosa Management, D.E. Shaw, George Soros and Ken Griffin’s Citadel Advisors. All these funds are inherently betting that the hype over competition and slowing growth at Snap is overplayed.

Snap took it on the chin when its daily active user growth for last quarter was slower than expected. After nearly hitting $30 a share during its IPO debut, shares have since fallen over 30%. Given the fallout, investors have the chance to buy at a discount to where many hedge funds got in. Despite the seemingly weak earnings, the expectations for revenue growth remains impressive.

Anheuser-BuschAt the end of the day, Snap is still the fastest growing social media company around and could be for a few more years. It’s rolling out a self-serve ad platform to bring in more ad revenues. In terms of getting more people on the platform, the idea is that a search feature and greater adoption by major brands like Anheuser-Busch (NYSE: BUD) will persuade people to give the social network a chance.

Ad deals with Hollister and L’Oreal will also help keep revenues growing. Beyond that, there’s still growth opportunities in international expansion. Hedge funds buying Snap aren’t interested in a cheap stock, rather, they’re buying into a growth company that they hope is a young Facebook.

In the end, following hedge funds can be tricky business, much like investing in them. However, they can be great places to find ideas and trends. The trends above suggest that tech is still in favor in a big way and that there are still undervalued opportunities if you know where to look.

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Category: Stocks

About the Author ()

Marshall Hargrave is a contributor to Investors Alley. He is also the managing partner of Bridgewater Investments LLC, a boutique equity research company. Bridgewater provides specialized research for deep value securities and certain special situations.

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