In this piece, we will take a look at the 12 best Warren Buffett stocks to buy according to hedge funds. For more stocks, head on over to 5 Best Warren Buffett Stocks To Buy According to Hedge Funds.
For newcomers, and sometimes seasoned professionals too, investing often feels like a daunting task. Choosing the right set of securities, commodities, currencies, or other investment vehicles to put one’s money in, naturally carries the allure of profits. However, at the same time, the sword of losses is also always dangling, eager to strike at the slightest miscalculation.
The aftermath of the coronavirus and the generous stimulus spending by the American government changed stock market dynamics. Before the pandemic hit, most investing was done by professional investors, and the retail segment – namely ordinary people buying and selling shares – constituted a nearly negligible portion of total trading. The retail trader of today is quite different from the retail trader of the dotcom era where everyone bet on technology companies regardless of their fundamentals and ended up losing significant amounts of value as the market crashed.
Data from BNY Mellon shows that retail traders typically focus on individual stocks, and when they do, their attention often ends up disrupting the complex mathematical models deployed by hedge funds for trading. It adds that stocks such as GameStop Corp. (NYSE:GME) carry the potential of massive returns that can go as high as 3,500% but can also cause significant losses that range around 18%. At the same time, the relatively safer S&P 500 can provide 35% in returns and a maximum of 7.5% in losses. After inflation hurt the stock market again last year, retail traders were hesitant to put more of their money on the market. However, this does not mean that they are out of the picture for good. According to data from the investment bank JPMorgan, retail trading hit an all time high for 2023 by the close of January and as of data released in early February. A note from the bank outlined that between the final week of January and the start of the first week of February, the retail trade share of the total trading volume in America was a whopping 23%. This was an all time high record for the everyday trader since the last record was during the pandemic’s peak. This record was 22%, and inflation had cut down retail trading to 15% of the total volume in 2022.
So, if retail traders can enter or leave the market on a whim and the hedge fund industry remains shaky, who can you rely on for trading advice? Well, one name that no one should disagree with is the legendary Warren Buffett – or the Oracle of Omaha. Mr. Buffett’s journey on the stock market has made him worth a cool $110 billion as of March 2023 according to Forbes Magazine. This wealth is after Mr. Buffett’s donation, which currently sits at $49 billion. His fortune comes courtesy of Berkshire Hathaway Inc. (NYSE:BRK-A), an investment holding company that buys ownership stakes in a wide variety of different companies such as technology, retail, banking, energy, automotive manufacturing, and more. In fact, Berkshire is also the most expensive stock on the U.S. market, with a share price that currently trades at $481,661. Over the past five years, the shares have appreciated by 62% and since they started trading, the gains stand at a whopping 52,238%. And you only thought that meme stocks could give you returns in thousands of percent, huh?
Mr. Buffett regularly communicates with investees in his firm in the form of shareholder letters. His letter for 2022 was released earlier this month, and it contains pieces of wisdom from the Oracle himself. For instance, the sage believes that stocks often trade at silly prices, as he shares:
One advantage of our publicly-traded segment is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.
Another piece of wisdom from Mr. Buffett outlines that over the long term, you only have to make a couple of good decisions to ensure success on the stock market. Quoting his investment in The Coca-Cola Company (NYSE:KO), the Oracle outlines:
In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire.
The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.
American Express is much the same story. Berkshire’s purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. Those checks, too, seem highly likely to increase.
These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices. At yearend, our Coke investment was valued at $25 billion while Amex was recorded at $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago.
Assume, for a moment, I had made a similarly-sized investment mistake in the 1990s, one that flat-lined and simply retained its $1.3 billion value in 2022. (An example would be a high-grade 30-year bond.) That disappointing investment would now represent an insignificant 0.3% of Berkshire’s net worth and would be delivering to us an unchanged $80 million or so of annual income.
The lesson for investors: The weeds wither away in significance as the flowers bloom [EMPHASIS OURS]. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
With these details in mind, let’s take a look at the best of both worlds, namely Warren Buffett’s stock picks that are also popular with hedge funds. The top three are Apple Inc. (NASDAQ:AAPL), Mastercard Incorporated (NYSE:MA), and Amazon.com, Inc. (NASDAQ:AMZN).
Our Methodology
We first took a look at Buffett’s investments as of the fourth quarter of last year. Then, the number of hedge fund investors in each stock was determined through Insider Monkey’s Q4 2022 survey of 943 hedge funds. Out of the 46 stocks that Mr. Buffett had invested in, the top twelve picks of hedge funds are listed below.
Best Warren Buffett Stocks To Buy According to Hedge Funds
12. Charter Communications, Inc. (NASDAQ:CHTR)
Number of Hedge Fund Investors In Q4 2022: 74
Charter Communications, Inc. (NASDAQ:CHTR) is an American telecommunications company headquartered in Stanford, Connecticut. It provides broadband, cable, and other services.
Warren Buffett’s Berkshire Hathaway owned 3.8 million shares of Charter Communications, Inc. (NASDAQ:CHTR) that were worth $1.2 billion as of Q4 2022. During the same time period, 74 of the 943 hedge funds polled by Insider Monkey had held a stake in the company.
Charter Communications, Inc. (NASDAQ:CHTR)’s largest hedge fund investor is Natixis Global Asset Management’s Harris Associates which owns 3.9 million shares that are worth $1.3 billion.
Along with Apple Inc. (NASDAQ:AAPL), Mastercard Incorporated (NYSE:MA), and Amazon.com, Inc. (NASDAQ:AMZN), Charter Communications, Inc. (NASDAQ:CHTR) is a hot Warren Buffett stock also popular with hedge funds.
11. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Investors In Q4 2022: 75
Snowflake Inc. (NYSE:SNOW) is a cloud computing provider that operates private clouds and offers services to businesses. It is based in Bozeman, Montana.
As of Q4 2022, Mr. Buffett’s investment fund owned an $879 million dollar stake in Snowflake Inc. (NYSE:SNOW). 75 of the 943 hedge funds polled by Insider Monkey for their fourth quarter of 2022 shareholdings had bought invested in the firm.
Snowflake Inc. (NYSE:SNOW)’s largest investor is Brad Gerstner’s Altimeter Capital Management which owns 15.3 million shares that are worth $2.2 billion.
10. General Motors Company (NYSE:GM)
Number of Hedge Fund Investors In Q4 2022: 80
General Motors Company (NYSE:GM) is one of the oldest and largest car manufacturing companies in America. It is based in Detroit, Michigan.
By the end of last year’s fourth quarter, 80 of the 943 hedge funds part of Insider Monkey’s database had invested in the firm. During the same time period, Mr. Buffett owned a $1.6 billion stake in General Motors Company (NYSE:GM).
9. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Investors In Q4 2022: 84
Johnson & Johnson (NYSE:JNJ) is one of the biggest pharmaceutical firms in the U.S. It was set up in 1886 and is based in New Brunswick, New Jersey.
Berkshire Hathaway’s fourth quarter of 2022 stake in Johnson & Johnson (NYSE:JNJ) was worth $57 million, with 84 of the 943 hedge funds surveyed by Insider Monkey also having invested in the firm. Out of these, Ken Fisher’s Fisher Asset Management is Johnson & Johnson (NYSE:JNJ)’s largest shareholder since it owns six million shares that are worth $1 billion.
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Investors In Q4 2022: 86
The Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturer. It is based in Hsinchu, Taiwan.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) made big news earlier this year after Berkshire Hathaway cut its stake in the firm by 87% – after having acquired it only in the previous quarter. This made Ken Fisher’s Fisher Asset Management the company’s largest investor through a $1.8 billion stake, which came with 86 other hedge fund investors also having made Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) a part of their fourth quarter of 2022 portfolios.
7. T-Mobile US, Inc. (NASDAQ:TMUS)
Number of Hedge Fund Investors In Q4 2022: 94
T-Mobile US, Inc. (NASDAQ:TMUS) is an American telecommunications carrier. It is headquartered in Bellevue, Washington.
94 of the 943 hedge funds polled by Insider Monkey had bought T-Mobile US, Inc. (NASDAQ:TMUS)’s shares during last year’s fourth quarter. In the same time period, Mr. Buffett’s investment firm held a $733 million stake in the company, making it T-Mobile US, Inc. (NASDAQ:TMUS)’s largest investor.
6. SPDR S&P 500 ETF Trust (NYSEARCA:SPY)
Number of Hedge Fund Investors In Q4 2022: 100
SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is an exchange traded fund mirroring the S&P 500 index. It has $374 billion in assets, and Mr. Buffett owned a $15 million stake in the fund during Q4 2022. During the same time period, 100 of the 943 hedge funds part of Insider Monkey’s database had also invested in the fund.
Apple Inc. (NASDAQ:AAPL), SPDR S&P 500 ETF Trust (NYSEARCA:SPY), Mastercard Incorporated (NYSE:MA), and Amazon.com, Inc. (NASDAQ:AMZN) are some stocks that Warren Buffett and hedge funds are gushing over.
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Disclosure: None. 12 Best Warren Buffett Stocks To Buy According to Hedge Funds is originally published on Insider Monkey.