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Finance

5 Stocks Hedge Funds Won’t Stop Buying

High demand for advanced technology products and solutions and an accelerated pace of digital transformation across almost every industry have helped well-established tech companies to generate rising sales and earnings since the onset of the COVID-19 pandemic. As a result, hedge funds have invested heavily in the shares of these companies and gained significantly. In 2020, global hedge funds gained roughly 12%, their most substantial full-year returns since 2009.

Even as concerns over rising inflation and the resurgence of COVID-19 cases have been leading to significant market volatility lately, hedge funds are expected to continue  betting on winning tech stocks that are relatively safer investment propositions considering the increasing  demand for advanced tech products.

Hence, we think the shares of top hedge fund picks Apple Inc. (AAPL), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), Facebook, Inc. (FB), and Adobe Inc. (ADBE) should continue soaring in price with their continued uptake by hedge fund managers.

Apple Inc. (AAPL)

With a $2.41 trillion market cap, AAPL focuses on designing, manufacturing, and selling smartphones, personal computers, tablets, wearables, and accessories worldwide. The company serves consumers, small- and mid-sized businesses, education, enterprise, and government markets. It sells and delivers third-party applications for its products through the App Store. Approximately 14.7% of hedge funds have long positions in AAPL.

On June 8, 2021, AAPL unveiled new tools and technologies in its Xcode Cloud, designed to help developers create more compelling and higher-quality apps and then promote and connect with their users through the App Store. This, combined with continuous innovation in the Swift programming language and a wide range of new APIs, should enable more developers to engage in AAPL’s platforms.

Also in June,  AAPL previewed macOS Monterey, the latest version of the world’s most advanced desktop operating system. macOS Monterey offers new ways for users to connect and work more productively and  fluidly across its Apple devices. AAPL expects  to see high demand for this OS in the coming months.

AAPL’s total net sales for its fiscal third quarter, ended June 26, 2021, increased 36.4% year-over-year to $81.43 billion. The company’s gross profit came in at $35.26 billion, up 55.4% from the prior-year period. Its operating income has been reported at $24.13 billion for the quarter, representing an 84.3% rise from the prior-year period. AAPL’s net income increased 93.2% year-over-year to $21.74 billion. Its EPS increased 101.5% year-over-year to $1.31. And the company had $34.05 billion in cash and cash equivalents as of June 26, 2021.

A $1.21 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 66.1% improvement year-over-year. AAPL surpassed consensus EPS estimates in each of the trailing four quarters. The $84.16 billion consensus revenue estimate  for the current quarter represents a 30.1% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 17.9% rate per annum over the next five years.

The stock has gained 12.2% over the past three months and closed yesterday’s trading session at $145.60. 

AAPL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

The stock has an A grade for Sentiment, and a B grade for Quality. Click here to see the additional ratings for AAPL (Growth, Value, Momentum, and Stability). 

AAPL is ranked #19 of 45 stocks in the B-rated Technology – Hardware industry. 

Microsoft Corporation (MSFT)

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MSFT develops, supports, licenses, and sells various software products, services and solutions worldwide. The company also manufactures and sells PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories through OEMs, distributors, resellers, digital marketplaces, and retail stores. It has a $2.15 trillion market capitalization. Roughly 29% of hedge funds have long positions in MSFT.

On July 14, 2021, MSFT unveiled Windows 365, a cloud service that introduces a new way to experience Windows 10 or Windows 11 to businesses of all sizes. Secure by design and built with the principles of Zero Trust, Windows 365 secures and stores information in the cloud, not on the device, providing a secure, productive experience for its users. MSFT expects to generate  high demand for this cloud service as organizations continue to adopt hybrid work models.

On July 13, MSFT and NEC Corporation (NEC), a Japanese information technology and electronics corporation, expanded their collaboration to leverage MSFT’s Microsoft Azure and Microsoft 365, and NEC’s network and IT expertise to help enterprise customers and the public sector further accelerate their cloud adoption and digital transformation initiatives. Combining AI and IoT technologies and the expertise of both companies should enable them to provide greater speed and lower-latency data connections and provide high-performance network experiences to their customers.

For the fiscal fourth quarter, ended June 30, 2021, MSFT’s total revenue increased 21.3% year-over-year to $46.15 billion. The company’s gross profit has been reported at $32.16 billion, up 25.2% from the prior-year period. Its operating income came in at $19.10 billion, representing a 42.4% year-over-year improvement. MSFT’s net income has been reported at $16.46 billion, up 46.9% from the prior-year period. Its EPS increased 48.6% year-over-year to $2.17. As of June 30, 2021, the company had $14.22 billion in cash and cash equivalents.

Analysts expect MSFT’s EPS to improve 13.8% in the current quarter, ending September 30, 2021, to $2.07. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect its revenue to be $44 billion for the current quarter, representing an 18.4% rise year-over-year. Its EPS is expected to grow at a 17.2% rate per annum over the next five years.

The stock has gained 18.3% over the past six months and 3.7% over the past month. It ended yesterday’s trading session at $286.44. 

It’s no surprise that MSFT has an overall B rating, which equates to Buy in our POWR Ratings system.

The stock has an A grade for Sentiment, and a B grade for Stability and Quality. Click here to see the additional ratings for MSFT’s Growth, Value, and Momentum.

MSFT is ranked #11 of 143 stocks in the Software – Application industry. 

Click here to check out our Software Industry Report for 2021 

Alphabet Inc. (GOOGL)

With a $1.83 trillion market capitalization,  GOOGL operates through three segments: Google Services; Google Cloud; and Other Bets. It also provides performance and brand advertising services. Approximately 21.4% of hedge funds have long positions in GOOGL.

Google Nest, GOOGL’s line of smart home products, announced its next-generation Nest Cams and Doorbell on August 5, 2021. As the demand for connected home products and home security increases, the company expects to see good sales of its latest battery-powered Google Nest products that offer enhanced privacy and security, smarter alerts, and wire-free options for installation flexibility.

On August 2, GOOGL announced the debut of Pixel 6 and Pixel 6 Pro this fall. GOOGL has strived to build a technology platform built for mobile that enables the company to bring its most innovative AI and machine learning (ML) to Pixel users. GOOGL has produced its System on a Chip (SoC) to power Pixel 6. These upgrades should enable GOOGL to achieve  widespread recognition across the industry with  the product launch.

GOOGL’s revenues for its fiscal fourth quarter, ended June 30, 2021, increased 61.6% year-over-year to $61.88 billion. The company’s income from operations has been reported at $19.36 billion, representing a 203.3% year-over-year improvement. GOOGL’s net income came in at $18.53 billion, up 166.2% from the prior-year period. Its EPS increased 169.1% year-over-year to $27.26. As of June 30, 2021, the company had $23.63 billion in cash and cash equivalents.

For the current quarter, ending September 30, 2021, analysts expect GOOGL’s EPS to be $22.79, up 39% from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to be $63.01 billion for the current quarter, representing a 36.5% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 21% rate per annum over the next five years.

GOOGL has gained 31.1% over the past six months and 9% over the past month. It closed yesterday’s trading session at $2736.14. 

GOOGL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. 

The stock has an A grade for Sentiment, and a B grade for Quality. We have also graded GOOGL for Growth, Value, Momentum, and Stability. Click here to access all GOOGL’s ratings. 

Of the 73 stocks in the Internet industry, GOOGL is ranked #3.

Facebook, Inc. (FB)

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FB, which has a $1.02 trillion market capitalization, develops social media applications for people to connect through mobile devices, personal computers, virtual reality headsets, and in-home devices worldwide. The company’s products include Facebook, Instagram, Messenger, WhatsApp, and Oculus. Some  29.7% of hedge funds have long positions in FB.

On August 11, 2021, FB announced new features to help protect people from abuse on Instagram, one of FB’s photo and video-sharing social networking platforms, by introducing Limits. This feature will automatically hide comments and DM requests from people and deliver stronger warnings when posting potentially offensive comments. This should provide a better and safe experience for its users and keep more people engaged in the platform.

FB’s revenue for its fiscal second quarter, ended June 30, 2021, increased 55.6% year-over-year to $29.08 billion. The company’s income from operations came in at $12.37 billion, up 107.4% from the prior-year period. While its net income increased 100.7% year-over-year to $10.39 billion, its EPS increased 100.6% year-over-year to $3.61. The company had $16.51 billion in cash and cash equivalents  as of June 30, 2021.

Analysts expect FB’s EPS to be $3.13 for the current quarter, ending September 30, 2021, representing a 30.6% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $29.36 billion consensus revenue estimate for the current quarter represents a 36.7% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 23.7% rate  per annum over the next five years.

FB has gained 32.8% over the past six months and 3.1% over the past month. It closed yesterday’s trading session at $361.13. 

FB’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary rating system. 

FB has an A grade for Quality and Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see FB’s ratings for Growth, Value, Momentum, and Stability here

FB is ranked #5 in the Internet industry. 

Adobe Inc. (ADBE)

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ADBE is a  diversified software company that provides digital marketing and media solutions worldwide. The company offers its products and services directly to enterprise customers through its sales force, local field offices, and end-users through app stores and its website. It has a $296.20 billion market capitalization. Roughly 12.4% of hedge funds have long positions in ADBE.

On April 27, 2021, ADBE announced the next generation of its Real-time Customer Data Platform (CDP) that helps brands activate known and unknown customer data to manage the entire customer profile and journey seamlessly in one system, absent the need for third-party cookies. As third-party cookies will no longer be supported in browsers, adopting a first-party data strategy allows companies to provide customers with the most relevant, personalized experience by only using the information that customers choose to share. ADBE hopes this industry’s first CDP will generate high demand.

With the integration of ShopRunner, a FedEx Corporation (FDX) subsidiary and a leading e-commerce platform, with ADBE’s Adobe Commerce, ADBE and FDX announced a new, multi-year collaboration. The integration will give ADBE merchants access to FDX post-purchase logistics intelligence, which will help them better manage their shipping and logistics, thus driving demand, reducing cost, and gaining customer insights to capitalize on e-commerce growth.

ADBE’s net sales for its fiscal second quarter, ended June 4, 2021, increased 22.6% year-over-year to $3.84 billion. The company’s gross profit came in at $3.39 billion, up 25% from the prior-year period. Its non-GAAP operating income has been reported at $1.76 billion for the quarter, representing a 32% rise year-over-year. ADBE’s non-GAAP net income increased 22.7% year-over-year to $1.46 billion. Its non-GAAP EPS increased 23.7% year-over-year to $3.03. The company had 4.25 billion in cash and cash equivalents as of June 4, 2021.

A  $3.02 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 17.3% improvement year-over-year. ADBE surpassed consensus EPS estimates in each of the trailing four quarters. The consensus $3.90 billion revenue estimate for the current quarter represents a 20.8% gain from the prior-year period. Analysts expect the stock’s EPS to grow at an 18.5% rate per annum over the next five years.

The stock has gained 29.7% over the past three months and 2.9% over the past month. It ended yesterday’s trading session at $621.74. 

ADBE’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. 

The stock has an A grade for Quality, and a B grade for Stability and Sentiment. Click here to see the additional ratings for ADBE (Growth, Value, and Momentum). 

ADBE is ranked #21 in the Software – Application industry. 

Click here to check out our Software Industry Report for 2021


AAPL shares were trading at $145.79 per share on Wednesday morning, up $0.19 (+0.13%). Year-to-date, AAPL has gained 10.39%, versus a 19.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…

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