In this article, we discuss the 10 stocks better than Walmart according to hedge funds.
Traditional retailers have taken a huge hit as internet-based stores explode in popularity across the globe. Walmart Inc. (NYSE: WMT), the Arkansas-based retailer with a market capitalization of over $380 billion, is one such company. Amid competition from the likes of Amazon.com, Inc. (NASDAQ:AMZN), Alibaba Group Holding Limited (NYSE:BABA), and Sea Limited (NYSE:SE), three popular ecommerce retailers based in the US, China, and Singapore, the company has suffered.
However, the company was quick to adapt and scaled up online operations to become the third-largest online retailer in the US.
However, Walmart Inc. still lags far behind the likes of Amazon.com, Inc. – the latter accounted for half of all online sales in the US in 2019. In the post-pandemic economy, the demand for goods is rising and retailers have been hiring additional staff to keep up. This is one area where the Arkansas-based firm has the upper hand over ecommerce companies. The firm employs over 2.3 million people worldwide, compared to ecommerce giant Amazon which employs 1.3 million.
Despite the challenges, Walmart has had a good year so far, beating market expectations on earnings per share and revenue in the second quarter and raising guidance for the next fiscal year. On August 17, the firm revealed that it expected global ecommerce sales to jump to $75 billion this year. It also unveiled plans to automate the online delivery process, hiring of supply chain associates, and hit a milestone of 32 million subscribers. These numbers still lag far behind the growth of ecommerce firms but are a step in the right direction.
Investors who are keen for an entry into the online retail universe should follow the smart money to understand the market. Some of the stocks that hedge presently prefer over Walmart Inc. include Amazon.com, Inc. (NASDAQ:AMZN), Alibaba Group Holding Limited (NYSE:BABA), and Sea Limited (NYSE:SE), among others discussed in detail below. The tech-led disruption that has led to increased competition for Walmart has also affected other sectors of the market, like the finance world.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Our Methodology
With this context in mind, here is our list of the 10 stocks better than Walmart according to hedge funds. These were picked from a database of hedge funds tracked by Insider Monkey. Only those companies that have more hedge funds with stakes in them, as compared to Walmart Inc., at the end of the second quarter of 2021 were selected for the list.
The list is ranked according to the number of hedge funds having stakes in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose.
Special importance was assigned to outlining the analyst ratings and business fundamentals for each firm to provide readers with some context so they can make more informed investment choices.
Stocks Better than Walmart According to Hedge Funds
10. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 74
MercadoLibre, Inc. (NASDAQ:MELI) is placed tenth on our list of 10 stocks better than Walmart Inc. according to hedge funds. The firm owns and operates an online ecommerce platform and is headquartered in Argentina.
On August 5, investment advisory Credit Suisse maintained an Outperform rating on MercadoLibre, Inc. stock and raised the price target to $2,100 from $2,050. Stephen Ju, an analyst at the advisory, issued the ratings update.
At the end of the second quarter of 2021, 74 hedge funds in the database of Insider Monkey held stakes worth $4 billion in MercadoLibre, Inc., up from 69 in the previous quarter worth $5 billion.
Baron Funds, in its Q1 2021 investor letter, mentioned MercadoLibre, Inc. (NASDAQ:MELI). Here is what the fund has to say in its letter:
“MercadoLibre, Inc., a Latin American e-commerce and FinTech platform, declined in the quarter despite reporting very strong fourth quarter results. MercadoLibre falls into a category of businesses that were net beneficiaries of last year’s lockdowns and reduced consumer gatherings that fell out of favor this quarter as investors looked toward economic reopening and normalization. We are confident in MercadoLibre’s ability to create substantial long-term value as it grows into a regional powerhouse across e-commerce and financial services.”
9. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders: 76
JD.com, Inc. (NASDAQ:JD) is ranked ninth on our list of 10 stocks better than Walmart Inc. according to hedge funds. The firm operates as an ecommerce firm and a retail infrastructure provider. It is run from China.
On September 15, investment advisory Stifel reiterated a Buy rating on JD.com, Inc. stock and raised the price target to $100 from $90, noting the firm was less exposed to regulatory risk in China than peers.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in JD.com, Inc. with 51.5 million shares worth more than $4.1 billion.
In addition to Amazon.com, Inc., Alibaba Group Holding Limited, and Sea Limited, JD.com, Inc. is one of the stocks that hedge funds prefer over Walmart.
In its Q1 2021 investor letter, Arisaig Partners, an asset management firm, highlighted a few stocks and JD.com, Inc. (NASDAQ: JD) was one of them. Here is what the fund said:
“Our largest holding as a firm, JD.com, we expect to grow earnings at an annualised rate of 30% over the next five years, implying it will trade on an EV / EBITDA of 7.5x at the end of this period. Is this a growth stock or a value stock? Does anyone care? Do these labels really matter?
For the Asia Fund, with a higher pre-existing allocation to our core FMCG holdings coming into the year, we took advantage of capital market volatility to further concentrate on our highest conviction names. JD.com has been the main destination for our limited reallocations as evidence continues to emerge supporting our thesis that the company has a strong right-to-win in the large and highly fragmented USD1.8th Chinese grocery market. We have also been encouraged by the fact that after years of persistence, the company is beginning to engage with us on ESG issues (we have specifically discussed data protection, climate change and the circular economy). ESG is now being considered at the board level, and specific sustainability reporting should follow in the coming months. Having long displayed a healthy obsession with customer service, we interpret these latest conversations as a sign that JD is beginning to develop a more sophisticated understanding of its impact on all stakeholders.”
8. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 85
Shopify Inc. (NYSE:SHOP) is a Canada-based firm that provides commerce services online. It is placed eighth on our list of 10 stocks better than Walmart Inc. according to hedge funds.
On July 29, investment advisory DA Davidson kept a Neutral rating on Shopify Inc. stock and raised the price target to $1,450 from $1,275. Tom Forte, an analyst at the advisory, issued the ratings update.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in Shopify Inc. with 1.6 million shares worth more than $2.3 billion.
Alongside Amazon.com, Inc., Alibaba Group Holding Limited, and Sea Limited, Shopify Inc. is one of the stocks on the radar of institutional investors.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Shopify Inc. (NYSE:SHOP) was one of them. Here is what the fund said:
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify, for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
7. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 87
Expedia Group, Inc. (NASDAQ:EXPE) is a Washington-based online travel company. It is ranked seventh on our list of 10 stocks better than Walmart Inc. according to hedge funds.
On September 13, investment advisory Goldman Sachs initiated coverage of Expedia Group, Inc. stock with a Buy rating and a price target of $185. Eric Sheridan, an analyst at the advisory, issued the ratings update.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $5.9 billion in Expedia Group, Inc., up from 86 in the previous quarter worth $6.1 billion.
Amazon.com, Inc., Alibaba Group Holding Limited, and Sea Limited are some of the top stocks to buy now, just like Expedia Group, Inc..
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Expedia Group, Inc. (NASDAQ:EXPE) was one of them. Here is what the fund said:
“Several of our better performers in the first quarter were purchased while their business models were under stress from COVID restrictions or the macro environment the pandemic created. What gave us confidence in purchasing Expedia were the actions the company took to extend out their balance sheets until travel resumed. It should benefit as a broader vaccination rollout prompts cruise lines to resume operations and consumers to start traveling again and are positioned to deliver better margins and gain pricing power as the economy normalizes due to the cost controls implemented during the downturn.”
6. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders: 100
Booking Holdings Inc. (NASDAQ:BKNG) is placed sixth on our list of 10 stocks better than Walmart Inc. according to hedge funds. The firm provides online services related to travel and is headquartered in Connecticut.
On August 5, investment advisory Credit Suisse maintained an Outperform rating on Booking Holdings Inc. stock and raised the price target to $3,100 from $2,675, appreciating the earnings beat of the firm in the second quarter.
At the end of the second quarter of 2021, 100 hedge funds in the database of Insider Monkey held stakes worth $6.9 billion in Booking Holdings Inc., down from 103 in the previous quarter worth $6.8 billion.
Amazon.com, Inc., Alibaba Group Holding Limited, and Sea Limited are some of the stocks elite investors are buying, alongside Booking Holdings Inc..
In its Q2 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Booking Holdings Inc. (NASDAQ:BKNG) was one of them. Here is what the fund said:
“In the consumer discretionary sector, we trimmed pandemic winners in favor of companies we believe will outperform in a recovery period. Pent-up travel demand is another investment theme we believe will flourish, prompting us to buy a position in Booking Holdings (tkr: BKNG, see Featured Equity).”
5. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 104
Sea Limited is ranked fifth on our list of 10 stocks better than Walmart Inc. according to hedge funds. The firm operates as a diversified technology firm with a large stake in the ecommerce business. It is headquartered in Singapore.
On September 15, investment advisory Stifel upgraded Sea Limited stock to Buy from Hold and raised the price target to $400 from $325. Scott Devitt, an analyst at the firm, issued the ratings update.
At the end of the second quarter of 2021, 104 hedge funds in the database of Insider Monkey held stakes worth $12.2 billion in Sea Limited, up from 98 the preceding quarter worth $10.4 billion.
In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)
I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that Shopee..”[read the entire letter here]
4. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 105
UnitedHealth Group Incorporated (NYSE:UNH) is a Minnesota-based diversified healthcare company. It is placed fourth on our list of 10 stocks better than Walmart Inc. according to hedge funds.
On September 27, investment advisory SVB Leerink initiated coverage of UnitedHealth Group Incorporated stock with an Outperform rating and a price target of $480. Whit Mayo, an analyst at the firm, issued the ratings update.
At the end of the second quarter of 2021, 105 hedge funds in the database of Insider Monkey held stakes worth $13 billion in UnitedHealth Group Incorporated, up from 89 in the preceding quarter worth $12 billion.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and UnitedHealth Group Incorporated (NYSE:UNH) was one of them. Here is what the fund said:
“A good way to conceptualize how we think about portfolio construction is to picture a pyramid. At the bottom of the pyramid are the durable compounding growth companies that form the strong foundation, resilience and consistency for the Strategy. We think these companies should comprise just under half of portfolio assets and feature annual revenue growth rates ranging from two times GDP up to 20% as well as healthy free cash flow generation.
UnitedHealth Group, a name we have owned in the Strategy since 1992, is a good example of a long-term compounder, having grown its revenue base from approximately $600 million to north of $260 billion over that time frame. It remains constantly focused on investing in new growth drivers such as telemedicine and health care analytics. Broadcom and Comcast have delivered similar long-term appreciation through a combination of organic growth, capital deployment into new and adjacent opportunities through merger and acquisition activity as well as returning capital to shareholders through buybacks and dividends.”
3. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 146
Alibaba Group Holding Limited is a China-based technology infrastructure provider. It is ranked third on our list of 10 stocks better than Walmart Inc. according to hedge funds.
On October 1, investment advisory KeyBanc kept an Overweight rating on Alibaba Group Holding Limited stock but lowered the price target to $200 from $250, noting macro trends that could slow the growth of the firm in the near-term.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Alibaba Group Holding Limited with 14 million shares worth more than $3.2 billion.
In its Q1 2021 investor letter, Polen Capital Management, an asset management firm, highlighted a few stocks and Alibaba Group Holding Limited (NYSE:BABA) was one of them. Here is what the fund said:
“Alibaba also detracted from performance as the company continues to remain under regulatory scrutiny from both the Chinese State Administration for Market Regulation on antitrust concerns and the U.S. Securities and Exchange Commission on ADR listing requirements. Despite the regulatory overhang, we believe that Alibaba’s competitive positioning and growth outlook remains intact, even if the company must pay fines or modify some business practices. We viewed the current valuation at <20x next twelve month’s earnings as a compelling opportunity to add to our position. Alibaba is the second largest position in the Portfolio.”
2. Facebook, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 266
Facebook, Inc. (NASDAQ:FB) is placed second on our list of 10 stocks better than Walmart Inc. according to hedge funds. The firm operates as a technology company and is headquartered in California.
On September 30, investment advisory RBC Capital initiated coverage of Facebook, Inc. stock with an Outperform rating and a price target of $425, underlining that there was no stock “quite like” it in the internet space.
At the end of the second quarter of 2021, 266 hedge funds in the database of Insider Monkey held stakes worth $42 billion in Facebook, Inc., up from 257 in the preceding quarter worth $40 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Facebook, Inc. (NASDAQ:FB) was one of them. Here is what the fund said:
“We continued to keep our learnings from 2020 in mind during the quarter as we sought to increase the up capture of the portfolio. We also made adjustments to the portfolio’s top 10 holdings to increase the participation of select stocks, including Facebook, while trimming our weighting to stable names, which now represent 47% of the portfolio. Our repositioning has been encouraging so far with the portfolio performing better on up days in the market while maintaining good down capture during more turbulent sessions.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 271
Amazon.com, Inc. is ranked first on our list of 10 stocks better than Walmart Inc. according to hedge funds. The firm operates as a technology firm with core interests in the ecommerce business. It is headquartered in Washington.
On October 5, investment advisory JPMorgan reiterated an Overweight rating on Amazon.com, Inc. stock with a price target of $4,100. Doug Anmuth, an analyst at the advisory, issued the ratings update.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. with 3.8 million shares worth more than $13 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN):We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
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This article is originally published at Insider Monkey.
