In this article, we discuss 10 best Vanguard ETFs to invest in.
The Vanguard Group is a Pennsylvania-based investment advisor that is the one of the largest global providers of mutual funds and exchange-traded funds, in addition to specializing in brokerage services, asset management, and sub-advisory services. The Vanguard Group manages the long-term investment goals of its clients, helping individuals, institutions, and financial advisors navigate retirement and personal investments.
According to Bloomberg, The Vanguard Group was leading the ETF space that is valued at $6.8 trillion, and Vanguard exchange traded funds have already absorbed approximately $58 billion in 2022, which surpasses 2,817 competing funds combined. BlackRock has been the largest ETF provider since 2003, but with Vanguard’s record $328 billion haul in 2021, it is set to surpass BlackRock as the leading ETF manager over the course of the next two years.
Investing in exchange traded funds allows investors sufficient exposure, especially when they cannot afford individual stocks for a diversified portfolio. Some of the most notable companies that prominent Vanguard ETFs hold in their portfolios include Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and Visa Inc. (NYSE:V).
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Our Methodology
We selected prominent Vanguard ETFs, ensuring to select diversified underlying benchmarks, to provide potential investors with a well rounded outlook of different ETFs. We also made sure that the chosen exchange traded funds held quality stocks that are popular with elite hedge funds.
Best Vanguard ETFs to Invest In
10. Vanguard Total Stock Market Index Fund ETF Shares (NYSE:VTI)
Vanguard Total Stock Market Index Fund ETF Shares (NYSE:VTI) is an exchange traded fund that tracks the performance of the CRSP US Total Market Index. Following a passively managed strategy, the ETF invests in large, mid, and small-cap securities that include a diversified mix of growth and value stocks.
Vanguard Total Stock Market Index Fund ETF Shares (NYSE:VTI) holds a total of 4,136 stocks as of January 31, 2022, and the net assets of the fund are $1.3 trillion. With a top ten holdings concentration of 25.1%, the biggest holding of Vanguard Total Stock Market Index Fund ETF Shares (NYSE:VTI) is Apple Inc. (NASDAQ:AAPL), a multinational American tech firm that manufactures and markets smartphones, personal computers, tablets, wearables, and accessories worldwide.
Apple Inc. (NASDAQ:AAPL)’s move to ban the sales of its products in Russia is expected to only push the tech boycott tide even further. The stock gained almost 37% over the last 12 months.
Elite hedge funds are exceedingly bullish on Apple Inc. (NASDAQ:AAPL). According to the fourth quarter database of Insider Monkey, 134 hedge funds were bullish on Apple Inc. (NASDAQ:AAPL), up from 120 funds in the prior quarter. The total stakes held in Q4 amounted to $186 billion. Warren Buffett’s Berkshire Hathaway is the biggest shareholder of the company, with more than 887 million shares worth $157.5 billion.
In addition to Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and Visa Inc. (NYSE:V), elite investors are piling into Apple Inc. (NASDAQ:AAPL).
Here is what Alger Spectra Fund has to say about Apple Inc. (NASDAQ:AAPL) in its Q4 2021 investor letter:
“Apple is a leading technology provider in telecommunications, computing and services. Apple’s iOS operating system is the company’s unique intellectual property and competitive strength. This software drives tight engagement with consumers and enterprises, fostering the growing purchases of high-margin services like music, apps and Apple Pay. Apple’s quarterly earnings exceeded street estimates on strong margin realization driven by a sales mix of more profitable services. The margin strength was even more impressive given significantly higher freight costs and supply constraints that prevented approximately $6 billion in revenue realization.”
9. Vanguard S&P 500 ETF (NYSE:VOO)
Vanguard S&P 500 ETF (NYSE:VOO) invests in S&P 500 constituents, closely mirroring the returns of the S&P 500 Index, allowing investors exposure to the biggest U.S. companies. Large-cap benchmark ETFs attracted the greatest investor inflows for February. On March 1, Vanguard S&P 500 ETF (NYSE:VOO), with $237.34 billion in assets under management, attracted $15.28 billion of new money, leading all ETFs.
Vanguard S&P 500 ETF (NYSE:VOO) holds 507 stocks in its portfolio, and the total net assets amounted to $816.6 billion. With the top ten holdings comprising 30.1% of the total investments, Microsoft Corporation (NASDAQ:MSFT) is a notable stock held by Vanguard S&P 500 ETF (NYSE:VOO).
Microsoft Corporation (NASDAQ:MSFT) on March 2 announced that it has received clearance from the U.K.’s Competition and Markets Authority over its Nuance Communications, Inc. (NASDAQ:NUAN) deal, marking the last approval the tech giant needed. Microsoft Corporation (NASDAQ:MSFT) shares were higher in premarket, gaining slightly more than 0.5% to $296.73, while Nuance rose to $55.97 after the announcement.
In the fourth quarter of 2021, 262 hedge funds were bullish on Microsoft Corporation (NASDAQ:MSFT), with combined stakes amounting to $75.6 billion, compared to 250 funds in the preceding quarter, holding total stakes worth $65.8 billion. Fisher Asset Management held the leading stake in Microsoft Corporation (NASDAQ:MSFT), with 26.8 million shares worth over $9 billion.
Here is what Alger Spectra Fund has to say about Microsoft Corporation (NASDAQ:MSFT) in its Q4 2021 investor letter:
“Class A shares of the Alger Spectra Fund underperformed the Russell 3000 Growth Index during the fourth quarter of 2021. Microsoft Corp. was among the top contributors to performance. Microsoft is a Positive Dynamic Change beneficiary of corporate America’s transformative digitization. Microsoft’s CEO believes technology spending as a percent of GDP is likely to jump from about 5% today to 10% in a few years and that Microsoft will continue to take market share Microsoft Corporation (NASDAQ:MSFT)’s enterprise cloud product, Azure, is rapidly growing and accruing market share. Microsoft Corporation (NASDAQ:MSFT) reported that Azure grew 50% in the past quarter. This high unit volume growth is a primary driver of the company’s higher share price, but strong operating execution has enabled margin expansion that has also helped to increase forward earnings estimates. We believe Microsoft Corporation (NASDAQ:MSFT)’s subscription-based software offerings and cloud computing services have a durable growth profile because they enhance customers’ growth initiatives and help them to diminish costs. Additionally, investors appreciate Microsoft’s strong free cash flow generation and its return of cash to shareholders in the form of dividends and share repurchases.”
8. Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO)
Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) mirrors the performance of the Russell 2000 Index, which consists of small-cap U.S. companies. As of December 31, 2021, Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO)’s 1-year returns came in at 14.81%, compared to the Russell 2000 Index, which returned 14.82% over the same period.
On December 15, Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) declared a quarterly distribution of $0.4745, which was paid on December 21. As of January 31, Vanguard Russell 2000 Index Fund ETF Shares (NASDAQ:VTWO) holds 2081 stocks in its portfolio, with total net assets amounting to $6.9 billion.
A major underlying holding of the ETF is Ovintiv Inc. (NYSE:OVV), a Colorado-based company that explores and markets natural gas, oil, and natural gas liquids, with the company’s primary reserves based in Texas, Oklahoma, British Columbia, and Alberta. Ovintiv Inc. (NYSE:OVV)’s revenue for the fourth quarter jumped 118.52% year-over-year to $3.34 billion, topping market consensus by $1.38 billion.
Among the hedge funds tracked by Insider Monkey, 44 hedge funds held long positions in Ovintiv Inc. (NYSE:OVV) at the end of December 2021, owning combined stakes of more than $1 billion. Marshall Wace LLP held the biggest position in the company, with shares worth $132.75 million.
Here is what Miller Value Partners Opportunity Equity has to say about Ovintiv Inc. (NYSE:OVV) in its Q4 2021 investor letter:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
7. Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT)
Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT) is an exchange traded fund that invests in foreign and U.S. stocks, with a primary focus on emerging markets, Europe, Pacific, the Middle East, and North America. Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT) declared on December 20 a quarterly distribution of $0.7850, which was paid to shareholders on December 23.
Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT) tracks the performance of the FTSE Global All Cap Index, and the ETF has high potential for growth, but also exposes investors to high risk. As of January 31, 2022, the ETF holds 9,350 stocks in its portfolio, and the net assets equal $34.1 billion.
A major underlying security in Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT)’s portfolio is Alphabet Inc. (NASDAQ:GOOG). The tech company agreed to buy cybersecurity firm Mandiant, Inc. (NASDAQ:MNDT) on March 8 for $23 per share in cash. The total value of the all-cash deal is $5.4 billion, and Alphabet Inc. (NASDAQ:GOOG) was competing with Microsoft Corporation (NASDAQ:MSFT) for the cybersecurity firm, though it reportedly walked away from the deal.
TCI Fund Management is the largest shareholder of Alphabet Inc. (NASDAQ:GOOG), with almost 3 million shares worth $8.5 billion. Overall, the fourth quarter database of Insider Monkey suggested that 158 hedge funds were long Alphabet Inc. (NASDAQ:GOOG), up from 156 funds in the quarter earlier.
Here is what Harding Loevner Global Equity Fund has to say about Alphabet Inc. (NASDAQ:GOOG) in its Q4 2021 investor letter:
“In a quarter that saw Alphabet’s Al-driven protein modeler win Science magazine’s “Breakthrough of the Year,” we also focused on a pair of companies putting somewhat less cutting-edge healthcare technology to lucrative use.
The one region where the style headwinds didn’t slow us at all was the US, where the portfolio’s holdings outperformed a very strong market. Good relative performance within the US was amplified by our hefty allocation there, which for most of the year remained close to the 65% ceiling of our risk guidelines, despite our trimming exposure to several US holdings as their valuations climbed. The positive contributors included Google parent Alphabet, up strongly on the year, thanks to a solid recovery in its core advertising business and ongoing progress on its cloud computing offerings.”
6. Vanguard Mid-Cap Index Fund ETF Shares (NYSE:VO)
Vanguard Mid-Cap Index Fund ETF Shares (NYSE:VO) is an exchange traded fund that mirrors the performance of the CRSP US Mid Cap Index, a benchmark that measures the investment return of mid-cap stocks, following a passively managed, full-replication approach. On December 23, Vanguard Mid-Cap Index Fund ETF Shares (NYSE:VO) declared a quarterly distribution of $0.9203, which was paid on December 30.
As of January 31, the ETF owns 371 stocks in its portfolio, with total net assets amounting to $155.7 billion. The largest holding in the portfolio of Vanguard Mid-Cap Index Fund ETF Shares (NYSE:VO) is Pioneer Natural Resources Company (NYSE:PXD), a Texas-based company that operates as an independent oil and gas company in the United States, producing oil, natural gas liquids, and gas.
Piper Sandler analyst Mark Lear raised the price target on Pioneer Natural Resources Company (NYSE:PXD) to $274 from $256 and kept an Overweight rating on the shares. According to the analyst, the exploration and production group is “passing the initial test on promised capital discipline” through price cycles and is broadly not accelerating activity levels in the current price environment.
Elite hedge funds hold large stakes in Pioneer Natural Resources Company (NYSE:PXD). In Q4 2021, 43 hedge funds were bullish on the stock, with collective stakes amounting to over $1 billion. Adage Capital Management held the biggest stake in the company, with 1.6 million shares worth $298.2 million.
Just like Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and Visa Inc. (NYSE:V), Pioneer Natural Resources Company (NYSE:PXD) is a notable pick of institutional investors heading into 2022.
Here is what ClearBridge Investments Dividend Strategy has to say about Pioneer Natural Resources Company (NYSE:PXD) in its Q3 2021 investor letter:
“Over the last year we have also added a position in Pioneer Natural Resources, a best-in-class producer in the Permian Basin. We added Pioneer as we anticipated rising commodity prices and sought more direct leverage to that trend. Our overweight to energy has benefited our performance this year, in particular through the first half of the year, and we believe the sector, still less than 3% of the S&P 500, remains underinvested and attractive going forward.”
5. Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE:VWO)
Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE:VWO) closely tracks the returns of the FTSE Emerging Markets All Cap China A Inclusion Index, investing in companies located in emerging markets around the world, such as China, Brazil, Taiwan, and South Africa. The exchange traded fund owns 5,293 stocks in its portfolio, with total net assets equalling $112.0 billion, and a top ten holdings concentration of 21.4%.
A prominent holding of Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE:VWO) is Alibaba Group Holding Limited (NYSE:BABA), a Chinese company providing e-commerce, technology infrastructure, and marketing reach to merchants and customers in China and internationally.
On March 3, Baird analyst Colin Sebastian lowered the price target on Alibaba Group Holding Limited (NYSE:BABA) to $160 from $180 and kept an Outperform rating on the shares. The analyst stated that the biggest takeaway from the quarter is that Alibaba Group Holding Limited (NYSE:BABA) remains focused on long-term growth despite the near-term macro and competitive headwinds, and he continues to see significant value in the company’s technology oriented e-commerce and cloud services platform.
In Q4 2021, 96 hedge funds were bullish on Alibaba Group Holding Limited (NYSE:BABA), compared to 115 funds in the prior quarter. Fisher Asset Management held the biggest stake in the company, with 14.1 million shares worth $1.68 billion.
Here is what Longleaf Partners International Fund has to say about Alibaba Group Holding Limited (NYSE:BABA) in its Q4 2021 investor letter:
“Alibaba (-50%, -2.26%; -22%, -0.82%), the largest online retail platform in China, was another top detractor for the year and in the fourth quarter. Alibaba reported weak quarterly results and downgraded its sales outlook for the current fiscal year to 20- 23% growth, down from original guidance of 29-32% growth. Macro headwinds, weak consumer sentiment, regulatory scrutiny and competitive forces are having a larger than expected impact on overall retail sales and Alibaba’s market share. Notably, overall retail sales in China slowed down to a meager 5% growth in the September quarter. Slowing consumption, combined with stiff competition from new entrants in livestreaming ecommerce, have resulted in transitory deceleration in Alibaba’s core ecommerce growth trajectory. Additionally, the company is accelerating strategic investments in new initiatives, including Community Group Buying (Taocaicai), Taobao Deals, Local Consumer Services and International Ecommerce. These are future growth drivers but are depressing the company’s earnings today. In December, we exited our full position in Alibaba. This was more of a tactical move than a change in investment conviction. We initiated the position early in 2021, and the continued challenges in the second half of the year resulted in a loss that was material enough to be helpful from a tax distribution management point of view. We are sensitive to taxable gains and try to minimize where sensible, so we took advantage of the opportunity to reduce that liability and plan on revisiting the Alibaba opportunity in 2022. We continue to own Alibaba in our Asia Pacific strategy.”
4. Vanguard Health Care Index Fund ETF Shares (NYSE:VHT)
Vanguard Health Care Index Fund ETF Shares (NYSE:VHT) is a passively managed exchange traded fund that uses a full-replication strategy and tracks the performance of a benchmark index that measures the investment return of stocks in the healthcare sector. The investments are focused in the biotechnology, healthcare equipment, healthcare services, managed healthcare, pharmaceuticals, and the life sciences industries.
A major holding of Vanguard Health Care Index Fund ETF Shares (NYSE:VHT) is Pfizer Inc. (NYSE:PFE), a healthcare company that develops and manufactures biopharmaceutical products and vaccines worldwide. On March 3, Pfizer Inc. (NYSE:PFE) announced that it will provide about 10 million courses of its COVID-19 therapy Paxlovid to low and middle-income nations in 2022.
Elite hedge funds hold an exceedingly bullish stance on Pfizer Inc. (NYSE:PFE). The Q4 database of Insider Monkey reported that 83 hedge funds were bullish on Pfizer Inc. (NYSE:PFE), up from 74 funds in the prior quarter. Philippe Laffont’s Coatue Management held 10.3 million shares of Pfizer Inc. (NYSE:PFE), worth approximately $609 million. Coatue Management is a leading shareholder of the company.
Here is what Saturna Capital Amana Funds has to say about Pfizer Inc. (NYSE:PFE) in its Q3 2021 investor letter:
“The Fund’s strongest performer during the quarter was pharmaceutical manufacturer Pfizer. The company submitted trial data to the FDA for use of its COVID-19 vaccine for younger children, and it is widely expected that the FDA will approve it. Health authorities also began recommending booster shots of the Pfizer vaccine for select populations, further increasing demand for vaccinations.”
3. Vanguard Information Technology Index Fund ETF Shares (NYSE:VGT)
Vanguard Information Technology Index Fund ETF Shares (NYSE:VGT) tracks the performance of a benchmark index that holds stocks from the information technology sector. As of January 31, 2022, the ETF owns 360 stocks, with the top ten stocks comprising 60.50% of the total investments. The total net assets held by Vanguard Information Technology Index Fund ETF Shares (NYSE:VGT) equal $58.5 billion.
Visa Inc. (NYSE:V) is one of the prominent underlying stocks in Vanguard Information Technology Index Fund ETF Shares (NYSE:VGT)’s portfolio, which is a financial technology firm that provides payments solutions worldwide. Of the 142 hedge funds that were bullish on Visa Inc. (NYSE:V) in Q4 2021, TCI Fund Management is the biggest shareholder of the company, with a stake exceeding $5 billion.
Here is what Artisan Value Fund has to say about Visa Inc. (NYSE:V) in its Q4 2021 investor letter:
“We initiated two new positions in Q4, adding Visa. Visa is a global payments company and is one of the four major US credit card networks (along with Mastercard, American Express and Discover). Visa is accepted at over 80 million merchant locations in 200 countries, interacts with 15 thousand financial institutions and processed 165 billion transactions with $13 trillion of payments and cash volume in the 12-month period ending September 2021. We have always admired Visa’s business, but its valuation prevented it from getting over the hurdle and into the portfolio. As of late, the stock has been caught up in indiscriminate selling as part of a larger unwind trade in a richly valued fintech space. Concerns also exist about Visa’s slowdown in cross-border transactions due to COVID and its net-revenue sharing arrangements with Amazon. This created an opportunity to purchase a very high quality business that benefits from substantial barriers to entry, network effects and several structural growth drivers, including consumer spending growth, the shift from cash to card, increasing ecommerce penetration, market share growth and global expansion. We believe Visa has a long runway for revenue growth as cash and checks continue to lose share. Consumers can’t use cash and checks online, after all. From a “safer” perspective, the company has a rocksolid balance sheet and has a high conversion of net income to free cash flow, which it uses for share repurchases, dividend growth and tuck-in acquisitions.”
2. Vanguard Value Index Fund ETF Shares (NYSE:VTV)
Vanguard Value Index Fund ETF Shares (NYSE:VTV) is a passively managed exchange traded fund that fully replicates the performance of the CRSP US Large Cap Value Index, which measures the investment return of large-cap value stocks. The ETF’s portfolio holds 351 securities as of January 31, with a top ten holdings concentration of 20.4%. The net assets of the exchange traded fund amounted to $141.4 billion.
A notable underlying security in Vanguard Value Index Fund ETF Shares (NYSE:VTV)’s portfolio is JPMorgan Chase & Co. (NYSE:JPM), which operates as a financial services company worldwide, offering consumer and community banking, corporate and investment banking, and asset management.
JPMorgan Chase & Co. (NYSE:JPM) announced on March 8 that it will exclude Russian sovereign and corporate debt from its closely watched fixed-income indexes, including the Emerging Market Bond Index and the Corporate Emerging Market Bond Index, as of March 31. At the same time, the company will exclude Belarus’s sovereign debt from its environmental, social, and governance-linked indexes.
Institutional investors hold large stakes in JPMorgan Chase & Co. (NYSE:JPM), and according to the fourth quarter database of Insider Monkey, 107 elite funds were bullish on the stock, up from 101 funds in the prior quarter. GQG Partners is a prominent shareholder of JPMorgan Chase & Co. (NYSE:JPM), with more than 5 million shares worth $806.7 million.
Here is what Miller Value Partners Opportunity Equity has to say about JPMorgan Chase & Co. (NYSE:JPM) in its Q4 2021 investor letter:
“I remember writing about the attractiveness of JP Morgan (JPM) right before it lost about a third of its value in the third quarter of 2011 (which didn’t please some of my colleagues!). I believed JPM was a high-quality bank whose prospects were undervalued due to the overhang on the space. It made money every year through the financial crisis.
In the decade-plus since then, JPM has beaten the market nicely (+417% versus SPX +345%) despite significant headwinds for banks (S&P Financial Sector +286%) and value stocks. Low market expectations are a key ingredient to attractive long-term returns!
An earthquake after-shock metaphor helps to explain the situation. Earthquakes relieve tension in physical systems, but aftershocks are common. These aftershocks aren’t as serious as the original event because stresses have been relieved. The financial crisis alleviated tensions in the financial system as weaker players either perished or were shored up with capital. Lessons learned impacted behavior (lower risk-taking behavior and higher propensity for monetary authorities to intervene supportively), which reduced future risk.
Those realities didn’t matter in the short term, but they sure did in the long term.”
1. Vanguard Consumer Discretionary Index Fund ETF Shares (NYSE:VCR)
Vanguard Consumer Discretionary Index Fund ETF Shares (NYSE:VCR) uses a full-replication strategy to track a benchmark index measuring the investment return of stocks in the consumer discretionary sector. The fund holds 304 stocks in total, with net assets amounting to $7 billion as of January 31. The top ten holdings of Vanguard Consumer Discretionary Index Fund ETF Shares (NYSE:VCR) comprise 59.6% of the overall investments.
The largest stock in the portfolio of Vanguard Consumer Discretionary Index Fund ETF Shares (NYSE:VCR) is Amazon.com, Inc. (NASDAQ:AMZN), a multinational US tech firm. Amazon.com, Inc. (NASDAQ:AMZN) on March 3 announced that it is making moves to press the Federal Trade Commission’s decision on its multibillion-dollar deal to acquire MGM Studios (OTC:MGMB), an American media company that produces and distributes feature films and television programs, setting up a mid-March deadline for action.
A total of 279 hedge funds held long positions in Amazon.com, Inc. (NASDAQ:AMZN) at the end of December 2021, up from 242 funds in the prior quarter. Eagle Capital Management, a significant shareholder of the company, holds 677,828 shares of Amazon.com, Inc. (NASDAQ:AMZN), worth $2.2 billion.
Here is what Third Point Management has to say about Amazon.com, Inc. (NASDAQ:AMZN) in its Q4 2021 investor letter:
“We have long admired Amazon as investors (and appreciated its myriad benefits as consumers) and have owned shares several times in the past. We acquired a sizable position during the early innings of the pandemic ahead of what we believed would be a structural acceleration in revenue for the group. After lagging tech peers for most of last year, we significantly increased the size of our investment, reflecting our conviction that Amazon is at an important crossroads as new management considers its long-term strategic plan to move the company forward, which may include several bold initiatives that are the subject of wide market speculation at the proverbial investor water cooler.
Amazon’s most recent quarterly results bolstered our view that the company is now at an inflection point that should usher in an improvement in various metrics, as well as an upturn in the company’s share price. The long-term secular growth drivers for the company—cloud adoption and eCommerce penetration—remain firmly intact. Sales growth ought to reaccelerate as revenue comps ease. Fixed cost leverage should improve after a large investment cycle that effectively doubled the fulfillment capacity of the company over the past two years. Excess costs associated with the Covid pandemic, labor shortages, and supply chain disruption should start to disappear as the external environment normalizes. And, shares are still trading at the lower end of the company’s historical multiple range. It’s not often that you get to buy shares in a high-quality company at the low end of its valuation range ahead of a meaningful reacceleration in growth at a 30%-40% discount to its present intrinsic value with an almost unlimited runway of potential to compound in value.
While the fundamental outlook for shares looks bright, we were encouraged by two additional developments this quarter. First, we noted the Board repurchased shares in January 2022 for the first time in a decade. It is not hard to imagine that Amazon, like some of its peers, may start returning more capital to shareholders, especially as the balance sheet approaches a net cash position and free cash flow improves. Second, we noted the introduction of additional disclosure from management, specifically breaking out advertising revenue and detailing capital expenditures by category. Amazon is a large and complex company and greater financial disclosure will no doubt help investors better understand the various parts of the business and significant sum-of-the-parts value. We expect these shareholder-friendly moves may be just the tip of the iceberg as Amazon’s talented and focused new CEO Andy Jassy sets out his plan for the Company’s future.”
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Disclosure: None. 10 Best Vanguard ETFs to Invest In is originally published on Insider Monkey.
