In this article we will share our list of the 15 best innovative stocks to buy now. Click to skip ahead and see the 5 Best Innovative Stocks To Buy Now.
We are on the cusp of huge transformational changes that will fundamentally change the way we work, the way we live and take care of our health, the way we shop and spend our free time, and the way we eat. These changes are exponential in nature. This means every single year we make bigger progress than the year before. You may not see many changes from this year to the next, but in about 5 to 10 years our lives will change dramatically.
The number one change that’s happening is in the genomic space. A year ago we heard about an obscure coronavirus that was rampant in a Chinese region, but we didn’t pay much attention to it. It was spreading exponentially. Exponential growth sneaks up on us. We don’t notice any changes to our lives from one day to the other. Things start to change very very slowly, and then speed up. Within a couple of months of its “known” emergence in China, the coronavirus started spreading in our communities. At the beginning of March of 2020, we had our first few cases. By the middle of March, we had a few dozen COVID-19 deaths. By the middle of April we had more than 33000 deaths.
A decade ago, it would have been unthinkable to produce a vaccine to fight a coronavirus in less than a year. Pfizer and Moderna were testing their vaccine candidates in less than 6 months; their vaccines received emergency authorization in less than a year thanks to the progress we have achieved in the genomic space. This is just the beginning.
There are multiple companies within the United States as well as all around the world that are working on cutting edge gene editing technologies to develop treatments for cancer, chronic diseases, and antibiotic resistant infections. Gene editing technologies will also speed up innovation in the agriculture space.
MSCI’s Global Transformational Changes Index tracks the performance of “a set of companies that are expected to derive significant revenue from one or more of four themes: Future of Work, Digital Consumer, Genomics & Telehealth and Food Revolution.” This Index of innovative stocks returned 38.7% in 2020 and outperformed the S&P 500 Index by more than 20 percentage points. Broad market index funds give investors only a small exposure to technologically innovative stocks. That’s why MSCI’s Global Transformational Changes Index was able to beat the market by a very large margin last year.
ProShares MSCI Transformational Changes ETF (ANEW) tracks the performance of MSCI’s Index by investing in the same companies using the same weights utilized by MSCI’s index. As of January 27th ANEW had more than 150 stocks among its holdings and its two biggest holdings were Alnylam Pharmaceuticals, Inc. (ALNY) and Apple Inc (AAPL). Both of these stocks had a weight of 2.15% in the ETF. The top 50 holdings of ANEW accounted for 74% of the ETF.
In this article we will rank the top 50 holdings of ProShares MSCI Transformational Changes ETF (ANEW) using Insider Monkey’s hedge fund sentiment data and identify the 15 best innovative stocks to buy according to hedge funds. Since our hedge fund sentiment data excludes the foreign stocks, our list will be excluding some potentially very innovative and transformational foreign companies. For example ANEW’s third and fourth biggest holdings are Chinese tech giant Tencent and Meituan with portfolio weights of 2.14% and 2.07%. These two stocks won’t be included in our list because of lack of hedge fund sentiment data.
You have to keep in mind that our rankings represent hedge funds’ list of 15 best innovative stocks to buy. Our premium newsletters might have a different opinion on these stocks. You already know that ProShares have a different opinion than the hedge funds tracked by Insider Monkey.
Let’s now take a look at the best innovative stocks to buy now.
15. NVIDIA Corporation (NVDA)
Number of HFs: 82
Value of HF Holdings: $7.7 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 30
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.33%
NVIDIA’s chips powered nearly every major AI breakthrough (see our article). Artificial Intelligence will be a more significant technology than the internet. NVDA is a stock that investors should buy and hold forever. One hedge fund manager doesn’t agree with this assessment. Here is what Vulcan Value Partners said in its 2020 Q3 investor letter:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. During the first quarter of 2019, its stock price declined considerably due to the combination of three factors. A capital spending hiatus by cloud providers, the collapse in demand for cryptocurrency mining, along with the end of the product cycle in its most recent gaming chip caused NVIDIA to miss its quarterly earnings estimates. As a result, we were given the opportunity to purchase NVIDIA with a significant margin of safety in March of 2019. NVIDIA’s value grew substantially while we owned it, and we continued to follow our discipline by trimming and adding to the company as its price fluctuated. We exited NVIDIA when its stock price rose close to our estimate of fair value. The combination of its value growth and the closing of the price to value gap provided substantial returns over our investment period.”
14. Activision Blizzard, Inc. (ATVI)
Number of HFs: 93
Value of HF Holdings: $4.2 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 7
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.98%
Activision Blizzard Inc. (NASDAQ:ATVI) is a video game holding company founded in 2008 as a result of a merger between Activision Inc. and Vivendi Games. It owns some of the very famous gaming titles such as Call of Duty, Candy Crush Saga, Diablo, and Warcraft. It develops games for all key platforms including mobile, game consoles, and PCs. Moreover, it also conducts eSports leagues and tournaments to generate revenue, besides making money from ads and in-game content.
The Santa Monica, California-based game publisher has enjoyed tremendous growth over the past year as the global video game industry thrived during 2020 due to the Covid-19 outbreak. Stuck-at-home gamers spent more time playing video games during the pandemic that drove revenue for gaming stocks including ATVI. The company’s revenue in the previous quarter climbed 38 percent on a year-over-year basis to $1.28 billion. Moreover, it also raised its revenue outlook for the full year from $7.25 billion to $7.67 billion.
CEO Bobby Kotick said in an interview last year that the company plans to hire at least 2,000 people to meet production demands. Meanwhile, Activision plans to launch more games for mobile devices to capitalize on the massive mobile user base. Its chief operating officer Daniel Alegre said in a statement that ATVI will gradually bring all its games to mobile.
Activision’s games performed exceptionally well in 2020. The company announced last month that its “Call of Duty” franchise hit a record $3 billion in total bookings over the past 12 months. Looking forward, it plans to launch the highly anticipated “Overwatch 2” and “Diablo 4” for PC and “Diablo Immortal” for mobile.
13. Netflix, Inc. (NFLX)
Number of HFs: 104
Value of HF Holdings: $13.9 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 6
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.98%
Netflix Inc. (NASDAQ:NFLX), founded in 1997, is a video streaming giant based in Scotts Valley, California. With the aggressive international expansion in recent years, it has become the world’s biggest subscription streaming service. The company went public in May 2002 by selling 5.5 million shares at $15. It has come a long way since then, overcoming many challenges in its decades-long journey.
Ruane, Cunniff & Goldfarb talked about Netflix, Inc. in its 2020 Q4 investor letter:
“Netflix is on the global trend toward subscription-based streaming video consumption, which we think is still in its early innings. As people increasingly watch their TV and movies via apps instead of cable bundles, we expect a relatively egalitarian media ecosystem that historically supported many winners to become much more elitist. The streaming model heavily favors scaled early movers, who benefit from a virtuous cycle in which massive content investment attracts incremental subscribers and revenues, which enable further content investment, which yields still more subscriber growth.
Netflix is investing heavily to drive this virtuous cycle, which is depressing their current profits, but people can only watch so much TV and wrap their arms around so much selection, which means that the growth of programming spend will eventually have to slow. If the world’s most compelling collections of streamed video content continue to attract incremental subscribers amidst a moderating pace of investment, then content cost per subscriber will begin to fall, widening competitive gaps that are already very substantial by layering a cost advantage on top of a product quality advantage. As a result of this dynamic– which we think competitors will struggle to replicate– we believe that the leaders of the video entertainment industry’s streaming era will be far larger and more profitable than those of the cable era. While this possibility is by no means lost on the stock market, we invested in Netflix because we believed their prices still failed to discount the degree to which we expect a small handful of victors to take most of the streaming era’s significantly greater spoils.”
12. Adobe Inc. (ADBE)
Number of HFs: 106
Value of HF Holdings: $10.5 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 19
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.82%
ADBE ranks 12th in our list of the best innovative stocks to buy. California-based Adobe has become a household name because of its multimedia and design products, such as Photoshop, Adobe Illustrator and Adobe After Effects. In fiscal fourth quarter, Adobe’s revenue jumped 14% on a year-over-year basis to reach $3.42 billion. Creative segment revenue came in at $2.08 billion, while Document Cloud sales totaled $411 million. For fiscal 2021, the company expects $15.15 billion in revenue, compared to the Wall Street estimate of $12.8 billion.
Adobe is also one of the top 3 stock picks of Qualivian’s Aamer Khan. Here is what he told Insider Monkey about ADBE:
A document, media and commerce software company which is at the forefront of the digital revolution. Its products are, by a long way, leaders in their respective segments, and are steadily increasing share. The company’s successful migration from a software license sale to a subscription model in the 2012-2014 time frame has resulted in a visible, recurring and highly profitable revenue model.
11. Salesforce.com Inc. (CRM)
Number of HFs: 106
Value of HF Holdings: $11.1 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 45
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 0.85%
Salesforce.com, Inc.(NYSE: CRM) is a cloud-based software company that brings customers and companies together. Through their One Integrated Customer Relationship Management Platform, they are able to provide customer relationship management solutions that give all the departments whether it be sales, marketing, commerce or service, a single distributed view of every customer. Here is what Alger Spectra Fund said about CRM recently:
“Salesforce.com is a leading software-as-a-service company with turnkey salesforce productivity and customer relationship management applications as well as a cloud-based development environment. Increased spending on technology by corporations digitizing their business models supported the performance of salesforce.com shares. We believe the return on investment (ROI) from deploying salesforce.com technology is compelling because the company’s products make enterprises more productive and profitable while fostering growth. This attractive ROI has resulted in the company’s continuing high unit volume growth.”
10. Bristol-Myers Squibb (BMY)
Number of HFs: 124
Value of HF Holdings: $7.6 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 32
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.27%
Wedgewood Partners summarized its BMY investment thesis in its latest investor letter:
“Bristol-Myers Squibb recently reported accelerating sales as much of the medical services industry returned to work. The Company continues to expect double-digit earnings growth over the next few years, driven by existing drugs, in addition to a broad pipeline of new drugs and indications. While the market remains fixated on a couple of patent expirations that could occur over the next several years, we think this is well-known at this point, yet the market still undervalues a couple of key acquisitions the Company has made in the past few years, particularly Celgene, which was acquired for a song.”
9. Mastercard (MA)
Number of HFs: 133
Value of HF Holdings: $15.6 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 36
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.17%
Del Principe O’Brien Financial Advisors’ comments on Mastercard explains how a large number of fund managers see Mastercard. Here is what they said:
“The market pullback in the spring gave us a chance to become owners of Mastercard, one of the biggest players in the global payments industry. In fiscal year 2019, the company processed almost $5 trillion in purchase transactions and holds 29% of the global market share for credit cards and 24% of the global market for debit cards.
In June, Mastercard entered into an agreement to acquire Finicity, a financial data and insight provider, for a purchase price of $825 million. The move is meant to strengthen Mastercard’s existing open banking platform. Open banking is a system that gives third parties, including other banks and tech start-ups that provide financial services (think budgeting apps), digital access to financial data. A user-focused innovation in the banking industry, open banking is thought to be the future of banking. We see an active investment in its open banking platform as a good move for Mastercard toward maintaining its leadership in the global market.”
8. Apple Inc. (AAPL)
Number of HFs: 134
Value of HF Holdings: $127 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 2
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 2.15%
Apple ranks 8th in our list of the best innovative stocks to buy now. In its 2020 Q3 investor letter RiverPark summarized why Apple is a great long-term investment:
We believe that Apple remains one of the most innovative, best positioned and most profitable companies in what are still the early innings of the mobile technology revolution. Additionally, a fall 5G launch should benefit the company, COVID has highlighted the opportunity for the Apple Watch to be an essential health monitoring device, and the company has rapidly diversified into new high growth and high margin products. AirPods, which were launched only three years ago, are on track to generate $15-$20 billion in revenue this year, 5%-8% of total company revenue. iPhones continue to represent a progressively smaller portion of total revenue (44% of the company’s third quarter revenue, down from 48% a year ago), which should help to lessen the impact of year-to-year iPhone refresh cycles.
At the same time, Services provides robust growth for the company ($13 billion, up 15% yearover-year, and 22% of revenue in the June quarter, and more than $39 billion so far in Apple’s fiscal 2020, is accretive to the company’s margins (Services gross profit grew 20% for the quarter and accounts for 39% of total company gross profit) and adds a large, recurring revenue segment to the company’s business mix. The company maintains a fortress balance sheet with $193 billion of cash, $80 billion net of debt. We expect excess cash flow of more than $60 billion per year, which has been increasingly returned to shareholders through both a growing dividend and increased share repurchases. The company also recently completed a 4 for 1 stock split that was well received by investors.”
7. PayPal Inc. (PYPL)
Number of HFs: 150
Value of HF Holdings: $11.5 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 37
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.07%
PYPL ranks 7th in our list of the best innovative stocks to buy now. PayPal revolutionized digital payments and it is not done yet.
“The really important thing is to take a step back and see that there is a tremendous rise in all forms of digital payment right now”. The CEO of PayPal (PYPL), Dan Schulman said, 40%-70% of consumers want to use a ‘cashless’ method in all their transactions not only in malls, restaurants but also in Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. PayPal is known for operating an online payment system that supports money transfers in majority of countries around the world. There are 26 million Paypal merchants up to date.
“Not only would we allow people to buy, sell, and hold cryptocurrencies but very importantly, they could use those as a funding source… to buy any of our 28 million merchants,”. According to Schulman, PayPal is beginning to add more functionality to cryptocurrencies. “The promise is to use a modern technology to enhance the utility of payments,” said Schulman in an interview with CNBC.
“What we’re most excited about is enabling people to take that cryptocurrency and effectively turn it into a currency to be able to use it in any of our 28 million merchants,” said Dan Schulman while also stating that they’ll do these things without any volatility. “We’ll take that crypto, and convert it to fiat currency so they can immediately accept it”.
6. Alphabet Inc. (GOOG)
Number of HFs: 106
Value of HF Holdings: $10.5 billion
Rank in ProShares MSCI Transformational Changes ETF (ANEW): 25
Weight in ProShares MSCI Transformational Changes ETF (ANEW): 1.68%
Alphabet is really a portfolio of tech companies. Its main business is search, but it is also in streaming business. It is among the biggest cloud companies in the world. We featured Alphabet in our article about the 12 best autonomous vehicle stocks to buy. It is investing in quantum computing. It is one of the top artificial intelligence stocks to buy. Despite all of these investments, it is still wildly profitable. Here is what Wedgewood Partners said about Alphabet’s core search business in its 2020 Q4 investor letter:
“Alphabet’s core Google revenues grew +9% during the quarter, a meaningful acceleration from the -8% decline during the COVID-19-impacted second quarter. The Google unit also unexpectedly showed some modest expense leverage after several quarters of heavy reinvestment, driving double-digit earnings growth at Alphabet. We would not be surprised if that leverage is short-lived. However, Alphabet continues to meaningfully under-earn relative to its potential, and we welcome any effort that brings forward, or at least highlights, the Company’s pent-up earnings power. On the latter score, Alphabet announced it will be providing more detailed operating segment profit data in the coming year.”
Click to continue reading and see the 5 Best Innovative Stocks To Buy.
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Disclosure: None. 15 Best Innovative Stocks To Buy is originally published at Insider Monkey.