Hedge Funds Like These Wide-Moat Stocks

Wide moat stocks often pass the test of time. Because they have strong competitive advantages and good balance sheets, wide moat stocks can exist profitably for many decades and deliver solid returns to their shareholders year after year. Although Warren Buffett of Berkshire Hathaway is perhaps the most famous practitioner of investing in wide moat stocks, plenty of elite fund managers in Insider Monkey’s database of 766 top funds invest in wide moat stocks too. In this article, we examine some of the elite fund manager’s favorite wide moat stocks using 13-F data, including Exxon Mobil Corporation (NYSE:XOM), Time Warner Inc (NYSE:TWX), Alphabet Inc (NASDAQ:GOOGL), Procter & Gamble Co (NYSE:PG), and QUALCOMM, Inc. (NASDAQ:QCOM).

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

#5 Procter & Gamble Co (NYSE:PG)

– Number of Hedge Fund Holders (as of March 31): 59
– Total Value of Hedge Fund Holdings (as of March 31): $5.17 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 2.30%

Procter & Gamble Co (NYSE:PG) has numerous billion dollar brands including Tide laundry detergent, Crest toothpaste, Charmin bathroom tissue and others. Since PG’s products don’t cost very much, demand doesn’t fall very much during recessions. Because it has been around a long time, Procter and Gamble’s brands also command great consumer loyalty. In 2008, PG reported diluted net earnings per common share of $3.64, higher than 2007’s $3.04 per share. In 2009, the earnings number grew to $4.26 per share. Cliff Asness’ AQR Capital Management was one of the top shareholders of Procter & Gamble at the end of the first quarter.

#4 QUALCOMM, Inc. (NASDAQ:QCOM)

– Number of Hedge Fund Holders (as of March 31): 59
– Total Value of Hedge Fund Holdings (as of March 31): $4.42 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 5.80%

QUALCOMM, Inc. (NASDAQ:QCOM) has a strong balance sheet with $18 billion of net cash on its books and a wide moat given its patents and intellectual property. The company also reported better-than-expected second quarter results, with EPS of $1.04 on sales of $5.54 billion, beating estimates by $0.08 per share and $200 million, respectively. On the back of strong results, QUALCOMM raised its dividend to $0.53 per share from the previous $0.48. Billionaire Ken Fisher’s Fisher Asset Management owned more than 9.5 million shares at the end of March.

#3 Exxon Mobil Corporation (NYSE:XOM)

– Number of Hedge Fund Holders (as of March 31): 60
– Total Value of Hedge Fund Holdings (as of March 31): $2.5 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 0.70%

Exxon Mobil Corporation (NYSE:XOM) is the largest oil company in the world and is still profitable at a time when other oil companies are losing money due to the company’s scale and diversity. Although the S&P downgraded the company’s credit rating to ‘AA+’ from ‘AAA’, Exxon Mobil proved the critics wrong by raising its dividend even while peers cut their payouts. Helping the dividend payouts is Exxon Mobil’s large chemical division, which benefits from the low crude prices and can offset some of the weakness in the company’s other divisions. The company’s stock currently has an attractive 3.33% dividend yield.

#2 Time Warner Inc (NYSE:TWX)

– Number of Hedge Fund Holders (as of March 31): 68
– Total Value of Hedge Fund Holdings (as of March 31): $3.94 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 6.90%

Time Warner Inc (NYSE:TWX) is better positioned for the upcoming Internet TV revolution than most. Because the company has a portfolio of hit shows such as Game of Thrones, Silicon Valley, and various Warner Brothers movies, the company can ensure that the transition to internet/virtual reality won’t affect earnings per share as much as it will for other companies. Time Warner’s content is so compelling that Apple executive Eddy Cue reportedly broached Apple potentially acquiring Time Warner at one point. Although the talks never went past the preliminary stage, they indicate Time Warner’s enviable content position. David Einhorn’s Greenlight Capital owned almost 5.8 million shares at the end of March.

#1 Alphabet Inc (NASDAQ:GOOGL)

– Number of Hedge Fund Holders (as of March 31): 155
– Total Value of Hedge Fund Holdings (as of March 31): $14.98 billion
– Hedge Fund Holdings as Percent of Float (as of March 31): 2.90%

Alphabet Inc (NASDAQ:GOOGL) is so ubiquitous and dominant that even governments are afraid of its power. The European Union recently made life difficult for the company by launching an antitrust probe against the company for its anti competitive practices. If Google loses the lawsuit, it could potentially face billions of dollars in fines. Although Europe’s government can impose it with fines, Europe will still be a key profit driver for Alphabet given the company’s product’s stickiness. Alphabet will still be a profit machine and is a good bet to be one of the leading companies in Artificial intelligence and virtual reality.

Disclosure: none