In this article, we will take a look at the 10 stocks hedge funds are talking about.
Hedge funds represent the ultimate asset class for ultra-wealthy investors, serving the financial needs of high and ultra-high-net-worth individuals. Globally, there is a total of 30,077 hedge funds as reported by the Financial Times. Among this extensive array of investment managers, the majority, comprising 65%, are located in the United States. During the second quarter of 2023 alone, there were 133 new introductions of hedge funds, indicating a significant rise in fixed income-based relative value arbitrage, particularly in the form of credit multi-strategy funds. In the first half of 2023, the hedge fund landscape witnessed a notable upswing, with 226 new launches taking the forefront, particularly dominated by multi-strategy funds poised to navigate the challenges of rising rates and generational inflation, as highlighted by HFR, a prominent global authority in hedge fund industry analysis. Performance metrics have been encouraging, showcasing a 4.5% year-to-date increase in the HFRI fund-weighted composite index through August. This positive momentum was mainly driven by equity hedge and event-driven strategies, with a noteworthy contribution from relative value arbitrage.
Hedge funds have different strategies as to how they base their investment decisions. One of the most notable hedge funds with a very rare strategy is Renaissance Technologies. The hedge fund firm is led by mathematicians and scientists rather than market professionals. Renaissance CEO, Peter Brown, explained that this intentional approach stems from the belief that it’s simpler to instruct mathematicians about markets than the other way around. The firm heavily relies on its models for trading, with human judgment playing a minimal role. Renaissance has gained a near-legendary status in the hedge-fund sphere, primarily attributed to the remarkable performance of its exclusive Medallion fund, available only to employees. From over a 30-year period from 1988 to 2018, the Medallion fund achieved an impressive 66% gross annual return.
“We know how to build large mathematical models and that is all we know. We don’t know economics, we don’t interfere with our trading systems. We will cut back if we think the model doesn’t appreciate the risk…But those are rare.” said Peter Brown, CEO of Renaissance, a hedge-fund firm led by mathematicians and scientists rather than market professionals.
Also check: 12 Hot Stocks to Buy According to Hedge Funds
In the second quarter of 2023, global hedge funds accumulated a total fund amounting to $3.6 billion, contributing to a positive net inflow of $12.64 billion in the first half of the year, as reported by data provider HFR. As of June 2023, hedge funds managed assets worth $3.95 trillion, showing a 1.8% increase from March 2023. This growth was primarily propelled by hedge funds’ performance in the second quarter, with an average rise of 2.15%, contributing to a 3.4% increase in the first half of the year. Additionally, In the first half of 2023, hedge fund fees experienced an uptick, attributable not only to robust performance and increased capital but also to constrained capacities in established firms and heightened costs associated with expanding inflation portfolio teams. While the industry’s average management fee held steady at 1.36%, there was a notable surge in the incentive fee, reaching 16.19%.
A common practice among investors is to emulate the stock selections of well-known hedge funds, with some of the frequently held stocks being Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:META), and Visa Inc. (NYSE:V). For additional insights, you can also explore the 15 Best Blue Chip Stocks To Buy According to Hedge Funds and 25 Most Owned Stocks by Hedge Funds.
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Our Methodology
In order to compile our list of the 10 stocks hedge funds are talking about, we selected companies that stood out in the investor letters of various hedge funds during the third quarter of 2023. Subsequently, we determined the prominence of these companies based on the frequency with which they were highlighted or mentioned in the Q3 letters. Employing this approach allowed us to identify the top 10 companies that were most frequently discussed. From there, we rank these companies based on the number of hedge fund holders to eventually compile our list of the 10 stocks hedge funds are talking about.
10 Stocks Hedge Funds Are Talking About
10. Expedia Group Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 57
Expedia Group Inc. (NASDAQ:EXPE) ranks 10th in our list of the 10 stocks hedge funds are talking about. The online travel company revealed a 13% growth in adjusted EBITDA, reaching $1.22 billion compared to the consensus estimate of $1.15 billion. Earnings per share were reported at $5.41, surpassing both the consensus of $5 and the previous year’s figure of $4.05.
In its Q3 2023 earnings call, CEO Peter Kern highlighted the robust third-quarter results, emphasizing that the record revenue and profitability exceeded expectations. He attributed these positive outcomes to the enduring strength of travel demand and ongoing improvements resulting from the company’s strategic execution.
“As we unify stacks, this will also further enhance the capabilities on offer for our B2B partners. But as pleased as I am with the continued growth of our B2B business, I’m even happier to see our B2C business picking up momentum with year-over-year revenue growth in Q3, accelerating over 400 basis points sequentially. This is what we’ve all been working so hard for us. So it’s very gratifying to see these results beginning to improve.
Our B2B business continues to demonstrate strong year-over-year revenue growth, while more importantly, our B2C revenue growth accelerated over 400 basis points sequentially. Our new unified loyalty program, One Key, is showing good early results following its July launch in the US. In addition, we have just completed the final leg of the Vrbo migration to our single front-end stack… With the last of our major migrations behind us, we are now well positioned to further accelerate our business and drive stronger shareholder returns.”
Patient Capital Management made the following comment about Expedia Group, Inc. (NASDAQ:EXPE) in its Q3 2023 investor letter:
“At Expedia Group, Inc. (NASDAQ:EXPE), we believe the market is underappreciating the company’s transformation. Over the past few years, the company has prioritized its top three brands (expedia.com, hotels.com, vrbo.com), successfully implemented a single technology stack, and officially rolled out OneKey their combined loyalty program, across all brands. With strong free cash flow generation, the company continues to buy back their stock, creating a positive flywheel of shareholder return.”
9. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 74
Shopify Inc. (NYSE:SHOP) is one of the 10 stocks hedge funds are talking about. In its third quarter earnings report, Shopify Inc. (NYSE:SHOP)’s total revenue surged by 25% to reach $1.7 billion compared to the previous year. Monthly recurring revenue experienced a robust 32% increase, reaching $141 million, propelled by sustained growth in all of Shopify Inc. (NYSE:SHOP)’s subscription plans. Additionally, Shopify Inc. (NYSE:SHOP) disclosed an operating income of $122 million, a notable improvement from the $346 million loss reported a year ago.
Shopify Inc. (NYSE:SHOP)’s CFO made the following remarks in its Q3 earnings report:
“Our results showcased the durability of our business model as we delivered a compelling combination of both top line growth and profitability, with revenue growing 25% year over year and free cash flow margin reaching 16%. We will continue to operate with discipline, thoughtfully investing in the huge opportunities ahead across regions, products, and channels to help merchants capture every opportunity every step of the way.”
Here is what Baron Global Advantage Fund has to say about Shopify Inc. (NYSE:SHOP) in its Q3 2023 investor letter:
“Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares gave back some of their strong performance from the first half of 2023, declining 15.5% on the back of rising concerns related to the health of the consumer and the expansion of TikTok and Temu into the U.S. While we are cognizant of these near-term risks, we believe that Shopify will continue to benefit from its position as the commerce operating system for its merchants. Rather than replacing Shopify, various selling channels, including TikTok, are managed within the platform, which should enable Shopify to maintain its competitive advantage over the long term. During the quarter, Shopify announced an agreement with Amazon that will allow merchants to offer Buy with Prime within the Shopify ecosystem, enabling Shopify to act as the payments provider for these transactions and alleviating a key concern. Lastly, the company also reported strong financial results, including 17% year-over-year gross merchandise volume growth, 31% revenue growth, and consensus-beating non-GAAP operating income that outpaced estimates by over $90 million. We remain shareholders due to Shopify’s strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.”
8. Oracle Corporation (NASDAQ:ORCL)
Number of Hedge Fund Holders: 84
Ranking 8th on our list of the 10 stocks hedge funds are talking about is Oracle Corporation (NYSE:ORCL). The revenue of Oracle Corporation (NYSE:ORCL) for the latest reported quarter reached a record $12.45 billion but fell short of estimates, displaying minimal growth over the past few quarters.
According to Insider Monkey’s database of 943 hedge funds, Oracle Corporation (NYSE:ORCL) was held in 84 hedge fund portfolios at the close of the second quarter, compared to 67 in the previous quarter. Ken Fisher’s Fisher Asset Management stands out as the leading hedge fund holding Oracle Corporation (NYSE: ORCL), owning 18.7 million shares valued at over $1.98 billion.
Oakmark Global Fund made the following comment about Oracle Corporation (NYSE:ORCL) in its Q3 2023 investor letter:
“Oracle Corporation (NYSE:ORCL) (U.S.), a global software company, was the Fund’s top contributor for the fiscal year, with its share price rising primarily after reporting its fiscal fourth-quarter results. More recently, Oracle announced fiscal first-quarter results, which were in line with consensus expectations. The drivers of the core business are performing well, in our view, and management expressed confidence that annual revenue growth will accelerate as planned based on demand trajectory and its strong bookings trends. For the quarter, total revenue increased 8% in constant currency (9% reported), and operating income grew 12% with margins showing improvement. Cloud and support revenue grew 11% in constant currency, powered by Fusion +20% and Netsuite +21%. The “strategic back office cloud” is now up to $6.9 billion in run-rate revenue. Infrastructure cloud and support revenue grew 14% in constant currency, powered by infrastructure cloud services +72% ex-legacy hosting services to $5.6 billion in run-rate revenue. Momentum is continuing to build as Oracle signed several deals for its cloud business greater than $1 billion in total value during the quarter and booked an additional $1.5 billion in the first week of the second quarter. We continue to believe Oracle is an attractive holding and undervalued due to our perception of its intrinsic value.”
7. Paypal Holdings Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 86
PayPal Holdings, Inc. (NASDAQ:PYPL) secured the 7th spot on our list of the 10 stocks hedge funds are talking about. During the third quarter of 2023, PayPal Holdings, Inc. (NASDAQ:PYPL)’s adjusted EPS was $1.30, surpassing the $1.23 consensus, showing an increase from $1.16 in the second quarter and $1 in the third quarter of 2022. Moreover, PayPal Holdings, Inc. (NASDAQ:PYPL)’s Q3 revenue reached $7.42 billion, surpassing the $7.38 billion consensus, marking an increase from $7.29 billion in the previous quarter.
Wedgewood Partners made the following comment about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2023 investor letter:
“PayPal Holdings, Inc. (NASDAQ:PYPL) was a detractor from performance during the quarter. Total payment volume grew +11% while revenues grew +8% – both FX-neutral. Adjusted operating earnings grew +20%. E-commerce industry sales trends have normalized back to their pre-pandemic trend of growth, with high-margin branded payments keeping track with the industry. Despite this, investors continue to be concerned that PayPal’s fast-growing private-label payments solutions will dilute Company returns. However, payments is a very scalable business, and the Company will be able to manage both private label and branded for attractive returns and double-digit growth. While multiples in the payment industry have significantly compressed, especially after the multi-year process of being added to the index @inancial sector, PayPal’s businesses are substantially different enough from traditional spread-based businesses; in addition to possessing much more compelling growth drivers, PayPal’s well below market multiple should revert to its higher, historical average.”
6. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 87
Eli Lilly and Company (NYSE:LLY) is one of the 10 stocks hedge funds are talking about. In the third quarter of 2023, Eli Lilly and Company (NYSE:LLY) showcased a revenue of $9.49 billion with a significant 37% increase, surpassing expectations by $500 million. This was driven by substantial growth in its key pharmaceuticals, including Mounjaro, Verzenio, and Jardiance, along with a noteworthy $1.42 billion from the strategic sale of rights for the olanzapine portfolio (Zyprexa).
RiverPark Advisors made the following comment about Eli Lilly and Company (NYSE:LLY) in its Q3 2023 investor letter:
“Eli Lilly and Company (NYSE:LLY): LLY discovers, develops, manufactures, and markets pharmaceuticals. The company manufactures and distributes products through facilities in the United States and seven other countries and sells into 110 countries. The company has a broad and deep portfolio of products including a focus on diabetes, oncology, immunology, and neuroscience. More recently, LLY’s obesity drug Mounjaro, has delivered revenue growth acceleration, and investors are optimistic that the company’s Alzheimer drug, currently in trials, will add to that growth in the future. LLY has a stable portfolio of franchise products that enables it to invest heavily in its product pipeline. We believe that this combination of franchise and growth products will drive high teens revenue growth and a four-fold increase in free cash flow in the next five years. We initiated a small position in August.”
5. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 88
Ranking 5th in our list of the 10 stocks hedge funds are talking about is Johnson & Johnson (NYSE:JNJ). Johnson & Johnson (NYSE:JNJ)’s management revised its full-year 2023 adjusted-diluted EPS outlook, raising it from the initial range of $10-$10.1 to $10.07-$10.13, and concurrently elevated its operating sales forecast from $83.6 billion-$84.4 billion to $84.4 billion-$84.8 billion, due to stronger sales of products from Johnson & Johnson (NYSE:JNJ)’s Innovative Medicine business segment.
According to Insider Monkey’s database of 943 hedge funds, 88 hedge fund portfolios held Johnson & Johnson (NYSE:JNJ) at the end of the second quarter, compared to 86 funds in the previous quarter. One of the most prominent hedge fund holders of Johnson & Johnson (NYSE:JNJ) is Bridgewater Associates, owning 7.48 million shares amounting to $424.3 million.
ClearBridge Large Cap Value Strategy made the following comment about Johnson & Johnson (NYSE:JNJ) in its Q3 2023 investor letter:
“The health care space provided some opportunities in the quarter, as we increased our exposure to medical device company Becton, Dickinson as well as large cap pharmaceutical company Johnson & Johnson (NYSE:JNJ). Johnson & Johnson recently spun out its consumer health care business, becoming a more focused yet broadly diversified pharmaceutical and medtech company.”
4. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 92
Burbank, California-based The Walt Disney Company (NYSE:DIS) is among the top 10 stocks hedge funds are talking about. The Walt Disney Company (NYSE:DIS)’s revenue increased by 5% to $21.24 billion, slightly below the consensus of $21.4 billion, primarily influenced by the robust performance of the company’s Parks unit. With an annualized cost savings target of $7.5 billion, The Walt Disney Company (NYSE:DIS) achieved an adjusted earnings per share of $0.82, a significant improvement from the year-ago figure of $0.30 and surpassing the anticipated $0.71 per share.
The Walt Disney Company (NYSE:DIS)’s CEO, Robert Iger is optimistic that the company will achieve profitability in Q4 of fiscal 2024 as he made the following remarks in their Q4 2023 earnings call:
“The fourth quarter adjusted earnings per share nearly tripled over the prior year. And all three of our businesses, Entertainment, Experiences, and Sports saw significant increases in fourth quarter operating income compared to Q4 of fiscal 2022. The thorough restructuring of our company has enabled tremendous efficiencies and we’re on track to achieve roughly $7.5 billion in cost reductions, which is approximately $2 billion more than we targeted earlier this year. Our new structure also enabled us to greatly enhance our effectiveness, particularly in streaming, where we’ve created a more unified, cohesive and highly coordinated approach to marketing, pricing and programing. This has helped us to improve operating results of our combined streaming businesses by approximately $1.4 billion from fiscal 2022 to fiscal 2023. And we remain confident that we will achieve profitability in Q4 of fiscal 2024.”
Madison Sustainable Equity Fund made the following comment about The Walt Disney Company (NYSE:DIS) in its Q3 2023 investor letter:
“During the quarter, we sold our positions in Bristol-Myers Squibb and The Walt Disney Company (NYSE:DIS). The Walt Disney Company is facing a difficult and uncertain transition in its core media business assets including the ESPN business and other linear media assets. These media assets are cash generative but face secular decline as consumers are cutting their expensive cable subscriptions and moving to alternative streaming options. This has resulted in a decline in operating profits for the media division. The media business has long-term fixed costs related to its sports broadcasting agreement with multiple sports leagues which will further pressure profits during this transition.”
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 135
Ranking 3rd on our list of the 10 stocks hedge funds are talking about is Apple Inc. (NASDAQ:AAPL). In the third quarter of 2023, Apple Inc. (NASDAQ:AAPL) reported earnings of $1.46 per share, with a 1% year-over-year decline in revenue to $89.5 billion. The performance was supported by an all-time high in services revenue and steady iPhone sales. Additionally, iPhone-related revenue reached $43.8 billion, reflecting a 3% year-over-year increase and aligning with expectations.
Polen Focus Growth Strategy made the following comment about Apple Inc. (NASDAQ:AAPL) in its Q3 2023 investor letter:
“Apple Inc. (NASDAQ:AAPL) has been a meaningful detractor to relative performance in recent quarters as the company has seen moderate earnings growth but substantial P/E multiple expansion. In our view, Apple is a great business but one with more risk factors related to China than we would prefer: relatively low EPS growth, which is being heavily aided by share buybacks (slower EPS growth than every single company in our Portfolio); and a high P/E ratio for this level of growth. This combination rarely leads to excellent long-term share price performance in our experience.
Last quarter, Apple’s new iPhone introduction failed to generate much excitement, with iPhone units declining year over year. There was also news that the Chinese government was blocking its employees from using iPhones. Apple is exposed to the rising geopolitical tensions between the U.S. and China. The latter is responsible for much of the company’s incremental iPhone growth, and nearly all of Apple’s supply chain is China-based. The relatively small action by the Chinese government was a reminder to investors that Apple is not immune from geopolitics or other risks.”
2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 152
Alphabet Inc. (NASDAQ:GOOG) showcased a substantial 11.1% increase in revenue in its third quarter earnings report. Alphabet Inc. (NASDAQ:GOOG)’s operating income surged from $17.14 billion in Q3 2022 to $21.34 billion, propelled not only by heightened revenue but also by a 300 basis points expansion in operating margin. Reporting a GAAP EPS of $1.55, Alphabet Inc. (NASDAQ:GOOG) exceeded analysts’ estimates by $0.10 and exhibited a remarkable 46.2% growth compared to the previous year.
The London Company Large Cap Strategy made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q3 2023 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) – GOOG outperformed in Q3, reflecting better than expected Search revenue and sustainable momentum in Cloud. Search ad revenue accelerated sequentially and remains the largest contributor to topline growth. Slower expense growth helped margins as management continued to focus on long-term profitable growth. GOOG’s capital allocation priorities have been favorable as the company continues to invest in the business and return capital to shareholders via its buyback program. GOOG has a solid balance sheet, significant market share, and generates strong returns.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 300
Topping our list of the 10 stocks hedge funds are talking about is Microsoft Corporation (NASDAQ:MSFT). Microsoft Corporation (NASDAQ:MSFT) delivered a 54.22% return since the beginning of the year, achieving a new record high of $376.17 on November 16, 2023. With shares surging over 11% in the past month, Microsoft Corporation (NASDAQ:MSFT) now boasts a market cap of $2.74 trillion. Investor confidence has been bolstered by the company’s recent quarterly results, indicating better-than-expected growth in its Azure cloud unit and a decrease in interest rates.
Alger Spectra Fund made the following comment about Microsoft Corporation (NASDAQ:MSFT) in its Q3 2023 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. Microsoft’s CEO expects technology spending as a percent of Gross Domestic Product (GDP) to jump from about 5% now to 10% in 10 years and that Microsoft will continue to capture market share within the technology sector. The t company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the period, the company reported fiscal fourth quarter results that were slightly below expectations. This was largely because anticipations were high due to the company’s robust year-to-date share price performance, which was buoyed by enthusiasm surrounding Al. Although quarterly revenues and earnings beat consensus estimates, management pointed out that they would be ramping up capital expenditures to support Al-driven operational growth. Notably, the company witnessed significant growth in its Intelligent Cloud segment as Azure continues to expand its market share. Despite the encouraging results, demand challenges stemming from companies looking to optimize their cloud spending led to a deceleration in cloud growth when compared to the previous quarter. Acknowledging that cloud optimization may curb the company’s growth in the short term: we remain confident about the company’s prospects going forward, particularly in the realm of Al adoption. Further, CEO Satya Nadella has recently indicated that substantial revenue contributions from Al will begin to materialize around the first half of 2024.”
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Disclosure: None. 10 Stocks Hedge Funds Are Talking About is originally published on Insider Monkey.
