In this article, we discuss 10 best stocks to buy according to Terry Smith’s Fundsmith LLP.
Terry Smith is a British hedge fund manager who founded Fundsmith LLP in 2010, which is a London-based investment management company, with a Q3 13F portfolio worth over $36 billion, and discretionary assets under management of $45.6 billion.
Fundsmith LLP has two primary funds, namely the Fundsmith Equity Fund and Fundsmith Emerging Equities Trust. Terry Smith aims for high returns on capital, which is why he invests mainly in the communications, information technology, healthcare, finance, consumer staples, and consumer discretionary sectors, where similar events and everyday transactions offer stability and growth. Smith steers clear of unpredictability, avoiding investments in cyclical industries and highly leveraged businesses.
Smith, the Fundsmith CEO, founded the firm to mainly cater to his personal investments, but he also manages wealth on behalf of private banks, family offices, institutional investors, charities, and endowments.
The most notable stocks from Terry Smith’s Q3 portfolio include Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:FB), and Amazon.com, Inc. (NASDAQ:AMZN).
Technology share chart
Our Methodology
We used the third quarter portfolio of Fundsmith LLP to select the top 10 stock picks of the firm, ranking our list according to Fundsmith LLP’s stake value in each holding.
Best Stocks To Buy According To Terry Smith’s Fundsmith LLP
10. PepsiCo, Inc. (NYSE:PEP)
Fundsmith LLP’s Stake Value: $1,518,036 ,000
Percentage of Fundsmith LLP’s 13F Portfolio: 4.19%
Number of Hedge Fund Holders: 61
Terry Smith’s Fundsmith LLP owns over 10 million PepsiCo, Inc. (NYSE:PEP) shares as of Q3 2021, worth $1.51 billion, representing 4.19% of the firm’s total 13F securities.
Barclays analyst Lauren Lieberman on October 10 raised the price target on PepsiCo, Inc. (NYSE:PEP) to $168 from $165 and kept an Overweight rating on the shares, citing “another solid beat” in Q3.
Among the 867 hedge funds tracked by Insider Monkey in Q3 2021, 61 funds were bullish on PepsiCo, Inc. (NYSE:PEP), holding stakes totaling $4.43 billion. One of the leading PepsiCo, Inc. (NYSE:PEP) stakeholders is Yacktman Asset Management, with 4.46 million shares worth $672.1 million.
In addition to Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:FB), and Amazon.com, Inc. (NASDAQ:AMZN), PepsiCo, Inc. (NYSE:PEP) is a notable stock from Terry Smith’s Q3 portfolio.
9. Waters Corporation (NYSE:WAT)
Fundsmith LLP’s Stake Value: $1,611,850,000
Percentage of Fundsmith LLP’s 13F Portfolio: 4.45%
Number of Hedge Fund Holders: 40
Waters Corporation (NYSE:WAT), a laboratory equipment and software manufacturer based in Massachusetts, is one of the top stocks to buy according to Terry Smith’s Fundsmith LLP. During Q3 2021, the hedge fund increased its position in Waters Corporation (NYSE:WAT) by 3%, holding a total of 4.5 million shares worth $1.61 billion. The stock accounts for 4.45% of Smith’s 13F portfolio.
Waters Corporation (NYSE:WAT) published its Q3 financial results on November 2, announcing earnings per share of $2.66, beating estimates by $0.30. Revenue over the quarter totaled $659.23 million, outperforming estimates by $4.16 million.
On October 14, Cowen transferred coverage of Waters Corporation (NYSE:WAT) to analyst Dan Brennan, who maintained a Market Perform rating and a $360 price target on the stock.
In the third quarter database of Insider Monkey, 40 hedge funds reported owning stakes in Waters Corporation (NYSE:WAT), worth $2.67 billion. One of the leading Waters Corporation (NYSE:WAT) shareholders, Arrowstreet Capital, increased its stake in the company by 17%, owning 928,808 shares valued at $331.8 million.
Here is what Palm Capital has to say about Waters Corporation (NYSE:WAT) in its Q2 2021 investor letter:
“We also don’t invest in pharmaceutical companies. While revenue and profits are protected by patents, their future revenue depends on how quickly their drugs are copied once they fall off patent and the success of their R&D. Both are unpredictable.
Instead, we prefer to invest in companies that sell testing equipment and related consumables to the industry. Waters, for example, is a share that we have watched for years and would like to invest in at the right price. The company’s instruments are critical to the production and development of drugs and are the gold standard in the industry. Furthermore, they are often included in the patent applications of customers. This trust and reputation take years to build, resulting in high profit margins. At the same time, it also means that even when a drug of their customer falls off patent, the manufacturers of the generic version are likely to continue using the same instruments as these were already approved in the original application. So, the company’s revenues and profits are less dependent on patent cliffs or the success of R&D than those of pharmaceutical companies.”
8. Philip Morris International Inc. (NYSE:PM)
Fundsmith LLP’s Stake Value: $1,834,530,000
Percentage of Fundsmith LLP’s 13F Portfolio: 5.07%
Number of Hedge Fund Holders: 48
Philip Morris International Inc. (NYSE:PM) is a Swiss-American multinational tobacco corporation that is leading the transformative initiative of a smoke-free future in the global tobacco industry. Fundsmith LLP owns 19.35 million Philip Morris International Inc. (NYSE:PM) shares as of September 2021, worth $1.83 billion, representing 5.07% of the Q3 investments at the firm.
Barclays analyst Gaurav Jain on November 29 lowered the price target on Philip Morris International Inc. (NYSE:PM) to $113 from $116 and kept an Overweight rating on the shares, stating that the company’s take on cigarette pricing is “very aggressive”.
On December 9, Philip Morris International Inc. (NYSE:PM) declared a quarterly dividend of $1.25 per share, payable on January 10, 2022, to shareholders of record on December 23, 2021.
Publishing its Q3 results on October 19, Philip Morris International Inc. (NYSE:PM) announced earnings per share of $1.58, outperforming estimates by $0.02.
Among the hedge funds tracked by Insider Monkey in Q3, 48 funds reported owning stakes in Philip Morris International Inc. (NYSE:PM), up from 46 funds in the preceding quarter.
One of the largest Philip Morris International Inc. (NYSE:PM) stakeholders is GQG Partners, a $36.5 billion hedge fund managed by American business magnate Rajiv Jain. Jain’s fund boosted its position in Philip Morris International Inc. (NYSE:PM) by 22% in the third quarter, holding 14.2 million shares valued at $1.34 billion.
Here is what Broyhill Asset Management has to say about Philip Morris International Inc. (NYSE:PM) in its Q2 2021 investor letter:
“Philip Morris (PM) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 23%. We shared our thoughts on these regulations during the quarter, which are available here.
‘PM Valuation. PM is up ~ 15% YTD and would have the most to gain under a nicotine cap. A cap would likely accelerate conversion to iQOS, which is 100% incremental for PM (PM also has zero exposure to combustible cigarettes in the U.S. and licenses its IQOS product for MO to distribute domestically). As such, the decline in PM was much more muted, with the stock hitting new 52 week highs a day after the Biden headline, driven by yesterday’s earnings release. It didn’t take long for investors to shift their attention back to fundamentals and the fundamentals here are best in class. In short, results beat estimates across the board (a recurring theme here), and management raised guidance for the full year (another recurring theme). IQOS continued to deliver impressive growth, recording continued market share gains on the heels of continued user acquisition growth, up 1.5M to 19.1M total users. Importantly, IQOS now represents nearly 30% of PM net revenues (management expects “smoke-free” products to represent more than half of their business by 2025, which should make the ESG folks happy), which is driving top-line growth and margin expansion. Hard to believe that they have created a product with higher margins than combustible cigarettes!! We expect PM operating margins to increase by 100bps – 200bps annually as IQOS continues to gain share. The stock trades at ~ 15x today or 2/3 of the market’s multiple for a business likely to generate $35B in cash flow – or 25% of the market cap – in just the next three years. Over the last decade, shares have traded at an average multiple of 18x and within a range of ~ 14x – 22x (+/-1 standard deviation). The stock yields 5.1% at the current price, and we expect management to resume share purchases in the back half of this year.’”
7. Stryker Corporation (NYSE:SYK)
Fundsmith LLP’s Stake Value: $1,850,126,000
Percentage of Fundsmith LLP’s 13F Portfolio: 5.11%
Number of Hedge Fund Holders: 46
Stryker Corporation (NYSE:SYK) is an American multinational company offering medical technology and equipment to doctors, hospitals, and healthcare facilities across the United States. Terry Smith’s fund owns over 7 million Stryker Corporation (NYSE:SYK) shares, worth $1.85 billion, representing 5.11% of the total Q3 13F portfolio.
In the third quarter of 2021, 46 hedge funds reported owning stakes worth $3.36 billion in Stryker Corporation (NYSE:SYK). Fisher Asset Management is one of the largest stakeholders of the company, with a $784.7 million position.
Stryker Corporation (NYSE:SYK) declared a quarterly dividend of $0.695 per share on December 9, which reflects an increase of 10.3% as compared to the prior-quarter dividend of $0.63. The dividend will be payable on January 31, 2022.
The company reported on December 21 that it had secured a $491.84 million 5-year contract to supply cardiovascular supplies and care equipment to the United States defense troops and federal civilian agencies.
Citi analyst Joanne Wuensch lowered the price target on Stryker Corporation (NYSE:SYK) to $300 from $307 and kept a Buy rating on the shares on December 15. Heading into 2022, the analyst expects the ongoing COVID-19 variants to drive revenue growth for medical supply companies, in addition to governments offering subsidies to the medical industry.
Here is what Nelson Capital Management has to say about Stryker Corporation (NYSE:SYK) in its Q2 2021 investor letter:
“We bought a position in Stryker (tkr: SYK), a medical device company that acts as a one-stop shop for hospitals and ambulatory surgery centers. Stryker is positioned to outperform due to higher anticipated demand for elective procedures.”
6. The Estée Lauder Companies Inc. (NYSE:EL)
Fundsmith LLP’s Stake Value: $2,049,047,000
Percentage of Fundsmith LLP’s 13F Portfolio: 5.66%
Number of Hedge Fund Holders: 49
The Estée Lauder Companies Inc. (NYSE:EL) is a multinational American makeup and skincare corporation, headquartered in New York City. The Estée Lauder Companies Inc. (NYSE:EL) is a notable stock pick of Terry Smith, with his hedge fund owning a $2.04 billion stake in the company during the third quarter of 2021, which accounts for 5.66% of his total 13F securities.
The Estée Lauder Companies Inc. (NYSE:EL), on November 2, announced a $0.60 per share quarterly dividend, which reflects a 13.2% increase from the $0.53 per share dividend in the preceding quarter. The dividend was paid to shareholders on December 15, 2021.
Publishing its Q3 results on November 2, The Estée Lauder Companies Inc. (NYSE:EL) announced an EPS of $1.89, beating estimates by $0.19. The quarterly revenue of $4.39 billion also outperformed analysts’ consensus estimates.
Oppenheimer analyst Rupesh Parikh on January 4 raised the price target on The Estée Lauder Companies Inc. (NYSE:EL) to $410 from $355 while maintaining an Outperform rating on the stock. The analyst kept The Estée Lauder Companies Inc. (NYSE:EL) as his top pick for 2022, stating that the stock is well-positioned to continue navigating the dynamic beauty sector.
Nicolai Tangen’s Ako Capital is one of the leading stakeholders of The Estée Lauder Companies Inc. (NYSE:EL), out of the 49 hedge funds that were bullish on the stock as of Q3 2021.
In addition to Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:FB), and Amazon.com, Inc. (NASDAQ:AMZN), The Estée Lauder Companies Inc. (NYSE:EL) is a notable stock pick of Terry Smith’s Fundsmith LLP during the third quarter.
Here is what Harding Loevner Global Equity Fund has to say about The Estée Lauder Companies Inc. (NYSE:EL) in its Q3 2021 investor letter:
“We sold cosmetic producer Estée Lauder, which we bought last March. At the time, the market reflected a dire outlook for retail demand, especially tourist-related; however, we found its Chinese business attractive and admired its agility across social media and other digital channels. As the stock has appreciated, the resulting valuation now leaves no room for error, such as a potential shift of Chinese consumers’ tastes away from US brands.”
5. Meta Platforms, Inc. (NASDAQ:FB)
Fundsmith LLP’s Stake Value: $2,185,718,000
Percentage of Fundsmith LLP’s 13F Portfolio: 6.04%
Number of Hedge Fund Holders: 248
Meta Platforms, Inc. (NASDAQ:FB) is aiming for “deep compatibility” with blockchain and cryptocurrency, and the company is looking for early adoption of these technologies as they are an essential part in building the metaverse. Heading into 2022, Meta Platforms, Inc. (NASDAQ:FB) is a top internet stock pick at major investment advisory firms like Baird, Crespi, Evercore ISI, and JPMorgan.
Smith’s Fundsmith LLP is one of the leading Meta Platforms, Inc. (NASDAQ:FB) stakeholders, with a $2.18 billion position in the company during the third quarter of 2021, representing 6.04% of the firm’s investments for the period. Meta Platforms, Inc. (NASDAQ:FB) reported on October 25 its Q3 results, posting an EPS of $3.22, exceeding estimates by $0.04.
Loop Capital analyst Alan Gould on December 3 lowered the price target on Meta Platforms, Inc. (NASDAQ:FB) to $380 from $420 but kept a Buy rating on the shares, citing the company’s excessive expenditure on the metaverse, which is reported to exceed $10 billion and might be a cause of concern for some investors.
Among the hedge funds tracked by Insider Monkey as of September 2021, 248 funds were long Meta Platforms, Inc. (NASDAQ:FB), down from 266 funds in the prior quarter.
Here is what Canterbury Tollgate has to say about Meta Platforms, Inc. (NASDAQ:FB) in its Q3 2021 investor letter:
“To say traditional media is anti-Facebook would not be an overstatement. An already intense and multi-year critique of (or attack on) Facebook has ratcheted up in recent weeks. Facebook’s research efforts have been reported on, if often derided, for nearly a decade. Going back to 2014, Slate.com called their research practices “unethical” when FB tried to study the impact social posts had on users. Now those efforts have been turned against them for the kill shot.
My job is to observe, assess, and allocate. Not to commentate on all the whims and wishes of media narrative. However, in the case of Facebook I cannot avoid going into some detail re: the onslaught against them, which I find to be most unwarranted and insincere.
Last month the Wall Street Journal ran a five-piece series titled “The Facebook Files” which allegedly shows how toxic Instagram is for teens. The foundation of their argument was a single slide from an internal presentation claiming, based on FB’s own research, that of teens who had a negative self-image, one-third said Instagram “made them feel worse.”iii Somehow the implication here is that this is not an inescapable aspect of either the human psyche and/or society-at large, but that it is of Facebook’s doing…” (Click here to see the full text)
4. Intuit Inc. (NASDAQ:INTU)
Fundsmith LLP’s Stake Value: $2,472,326,000
Percentage of Fundsmith LLP’s 13F Portfolio: 6.83%
Number of Hedge Fund Holders: 64
Intuit Inc. (NASDAQ:INTU) is one of the top stock picks of Terry Smith’s Fundsmith LLP, with the hedge fund owning 4.58 million shares of Intuit Inc. (NASDAQ:INTU) in the third quarter, worth $2.47 billion, representing 6.83% of the total Q3 investments. Intuit Inc. (NASDAQ:INTU) is an American financial software company, headquartered in California.
Publishing its Q3 results on November 18, Intuit Inc. (NASDAQ:INTU) reported earnings per share of $1.53, exceeding estimates by $0.56. The $2.01 billion revenue was up 51.70% year-over-year, surpassing estimates by $193.42 million. The company raised its revenue guidance for 2021 by more than $1 billion, crediting the $12 billion acquisition of MailChimp on November 1. Credit Karma was acquired by Intuit Inc. (NASDAQ:INTU) in 2020, which also added $418 million to the quarterly revenue.
On November 19, Evercore ISI analyst Kirk Materne raised the price target on Intuit Inc. (NASDAQ:INTU) to $720 from $650 and kept an Outperform rating on the shares, citing the company’s Q3 financial results. The analyst stated that investors should feel confident about Intuit Inc. (NASDAQ:INTU)’s anticipated mid-to-high teens percentage revenue growth over the next several years.
Dan Loeb’s hedge fund, Third Point, is one of the largest Intuit Inc. (NASDAQ:INTU) stakeholders at the end of September 2021, with 1.10 million shares worth $593.4 million. Overall, 64 hedge funds tracked by Insider Monkey’s Q3 database were bullish on the stock.
Here is what Cooper Investors has to say about Intuit Inc. (NASDAQ:INTU) in its Q3 2021 investor letter:
“The other meaningful deal during the quarter was Intuit’s acquisition of Mailchimp for $12bn. Intuit has reinvented itself over the last decade and thrived with a leadership position in QuickBooks Online, the financial accounting software for small businesses (effectively the ‘Xero of the US’). We originally invested in Intuit in February 2020, excited by the QuickBooks prospects.
Management has executed exceptionally well on the opportunity set which has seen the shares double since our initial purchase. However, the company has now conducted two meaningful deals in Mailchimp and Credit Karma worth a combined US$20bn over the last 12 months. The investment proposition has shifted from a focus on QuickBooks to now being a financial and small business software conglomerate. We continue to very much admire the company, but with Intuit now trading on 50x forward earnings we no longer see such attractive latency on offer, nor the rewards for the level of execution risk and thus we have exited the position.”
3. IDEXX Laboratories, Inc. (NASDAQ:IDXX)
Fundsmith LLP’s Stake Value: $2,638,225,000
Percentage of Fundsmith LLP’s 13F Portfolio: 7.29%
Number of Hedge Fund Holders: 43
IDEXX Laboratories, Inc. (NASDAQ:IDXX) stock represents 7.29% of Terry Smith’s Q3 investments, with his hedge fund owning 4.2 million shares of the company, worth $2.6 billion. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is a multinational American company specializing in healthcare diagnostic products and services for the animal veterinary, livestock, poultry, water testing, and dairy markets.
Morgan Stanley analyst Erin Wright initiated coverage of IDEXX Laboratories, Inc. (NASDAQ:IDXX) with an Overweight rating and a $732 price target on November 19. The analyst observed that the company should benefit from a robust diagnostics market backdrop as the world’s largest provider of pet diagnostics. IDEXX Laboratories, Inc. (NASDAQ:IDXX) also has several incremental growth drivers.
Posting its earnings for the quarter ending September 2021, IDEXX Laboratories, Inc. (NASDAQ:IDXX) reported a $2.03 EPS, exceeding estimates by $0.12. Revenue over the period jumped 12.28% year-over-year to $810.42 million, beating estimates by $12.74 million.
A total of 43 hedge funds reported owning stakes in IDEXX Laboratories, Inc. (NASDAQ:IDXX) during Q3, up from 39 funds in the prior quarter. Arrowstreet Capital is one of the leading company stakeholders, with 474,054 shares worth $294.8 million.
Here is what Carillon Tower Advisers has to say about IDEXX Laboratories, Inc. (NASDAQ:IDXX) in its Q2 2021 investor letter:
“IDEXX Laboratories develops, manufactures, and distributes products and provides services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing markets. The firm has been an impressive contributor, as it continues to benefit from its market-leading position, as well as from a steady pace of new product introductions. It also is benefitting from the uptick in pet adoptions and overall level of pet-related spending induced by the pandemic.”
2. PayPal Holdings, Inc. (NASDAQ:PYPL)
Fundsmith LLP’s Stake Value: $3,197,674,000
Percentage of Fundsmith LLP’s 13F Portfolio: 8.84%
Number of Hedge Fund Holders: 123
PayPal Holdings, Inc. (NASDAQ:PYPL), an American multinational financial technology corporation, is one of the top stock picks of Terry Smith’s Fundsmith LLP as of September 2021. Smith’s hedge fund owns a $3.19 billion position in PayPal Holdings, Inc. (NASDAQ:PYPL), which accounts for 8.84% of the total 13F portfolio. PayPal Holdings, Inc. (NASDAQ:PYPL) is one of the fintech companies that can potentially replace traditional credit card payment transactions.
BMO Capital analyst James Fotheringham on January 2 upgraded PayPal Holdings, Inc. (NASDAQ:PYPL) to Outperform from Market Perform with a price target of $224, down from $278, crediting improved stock valuation for the upgrade.
On November 18, PayPal Holdings, Inc. (NASDAQ:PYPL) posted its Q3 results. The company announced earnings per share of $1.11, exceeding estimates by $0.03.
Fisher Asset Management is one of the biggest PayPal Holdings, Inc. (NASDAQ:PYPL) stakeholders from the third quarter, with a $3.12 billion position in the company. Overall, 123 hedge funds were long PayPal Holdings, Inc. (NASDAQ:PYPL) in Q3.
Here is what Baron Opportunity Fund has to say about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2021 investor letter:
“PayPal Holdings, Inc. – PayPal first caught consumers’ attention as a peer-to-peer digital payment application, particularly as a convenient and trustworthy way for eBay buyers to pay eBay sellers in the early days of online shopping. Over the years it expanded to become a near ubiquitous online retail payments platform, while also offering other shopping tools and digital services, such as digital wallet, bill pay, Buy Now-Pay Later, crypto-currency, in-store retail, and more. According to PayPal’s CEO, these new acts enabled the company to increase the TAM it “play[s] in” by “over six times in the last three years.” PayPal has 403 million active accounts today and is on its way towards its 750 million target by 2025 and 1 billion longer term, for a total TAM sized at over $1 trillion.”
1. Microsoft Corporation (NASDAQ:MSFT)
Fundsmith LLP’s Stake Value: $3,392,728,000
Percentage of Fundsmith LLP’s 13F Portfolio: 9.37%
Number of Hedge Fund Holders: 250
Microsoft Corporation (NASDAQ:MSFT) is the largest holding in Fundsmith LLP’s Q3 portfolio, with the firm owning more than 12 million Microsoft Corporation (NASDAQ:MSFT) shares, worth $3.39 billion, representing 9.37% of the total investments.
The EU approved Microsoft Corporation (NASDAQ:MSFT)’s $16 billion bid to acquire Nuance Communications, Inc. (NASDAQ:NUAN), a speech recognition and AI software company, which will be Microsoft Corporation (NASDAQ:MSFT)’s biggest acquisition after the tech giant purchased LinkedIn for $26.2 billion. The deal will help Microsoft Corporation (NASDAQ:MSFT) subsidiaries to expand their competencies into cloud services and the healthcare sector.
SMBC Nikko analyst Steve Koenig initiated coverage of Microsoft Corporation (NASDAQ:MSFT) with an Outperform rating and a $410 price target on December 21, which represents a 28% upside from existing levels. The analyst stated that Microsoft Corporation (NASDAQ:MSFT)’s cloud services are expanding, which will be a solid growth catalyst for the firm.
Microsoft Corporation (NASDAQ:MSFT) is a popular stock among the elite hedge funds tracked by Insider Monkey in Q3 2021, with 250 funds holding a bullish sentiment on the stock.
Here is what ClearBridge Sustainability Leaders Strategy has to say about Microsoft Corporation (NASDAQ:MSFT) in its Q3 2021 investor letter:
“The Strategy modestly outperformed the benchmark; consistent with our fundamental approach that seeks balanced exposure to industries and the growth and value spectrum, performance was driven by companies from diverse sectors. Microsoft, which develops software including the Windows family of products, the Microsoft Office system and the Azure cloud platform, and is a leader in data protection and customer privacy as well as human rights and diversity, contributed strongly as earnings maintained positive sentiment. Microsoft is seeing a number of businesses reach a new, higher level of engagement, adoption and momentum.”
You can also take a look at 10 Value Stocks to Buy According to Billionaire Paul Tudor Jones and 10 Tech Stocks to Buy According to Billionaire Philippe Laffont.
Follow Insider Monkey on Twitter
Suggested articles:
- Billionaire Israel Englander is Buying These 10 Stocks
- 10 Stocks to Buy and Hold According to Bill Gates
- Top 10 Stock Picks of Barry Rosenstein’s JANA Partners
Disclosure: None. 10 Best Stocks To Buy According To Terry Smith’s Fundsmith LLP is originally published on Insider Monkey.
