10 Best Blue Chip Stocks to Buy According to Phill Gross and Robert Atchinson’s Adage Capital

Published on September 23, 2022 at 9:36 am by Umar Farooq in Hedge Funds, News

In this article, we discuss the 10 Best Blue Chip Stocks to Buy According to Phill Gross and Robert Atchinson’s Adage Capital.

Phill Gross, a former executive at the Harvard Endowment, is in charge of the Boston-based hedge fund Adage Capital Management. Together with Robert Atchinson, Gross co-founded the money management business in 2001. Since the fund’s founding, its assets under administration have increased from $3.8 billion to $58.165 billion as of March 25, 2022. The hedge fund invests across a range of sectors, including technology, healthcare, industrials, financials, utilities, consumer goods, and energy, and has a diverse portfolio. Phill Gross, who worked at Harvard Management Company for 18 years as a healthcare analyst, is currently in charge of Adage Capital’s healthcare division. Adage Capital Management specializes in managing S&P 500 assets for foundations and endowments.

Hedge fund Adage Capital Management has one client and $58.165 billion in discretionary assets under management. Their most recent 13F filing for the second quarter of 2022 shows $43.625 billion in managed 13F securities and a 21.41% concentration in the top 10 holdings. Apple Inc. (NASDAQ:AAPL) is Adage Capital’s largest investment, with 15.9 million shares. During Q2, 2022, the hedge fund has undertaken portfolio rebalance by selling 114 stocks and reducing stakes in 411 stocks. The fund added 109 new stocks to its 13F portfolio while increasing the purchase of 278 stocks.

Some of the notable holdings of Adage Capital Management as of the end of the second quarter include Meta Platforms, Inc. (NASDAQ:META), Mastercard Incorporated (NASDAQ:MA), and JPMorgan Chase & Co. (NYSE:JPM).

Phillip Gross of Adage Capital

10 Best Blue Chip Stocks to Buy According to Phill Gross and Robert Atchinson's Adage Capital

Robert Atchinson of Adage Capital Management

Methodology

We selected 10 stocks from Adage Capital Management’s 13F portfolio that we believe offer the ideal balance of sector leadership, solid fundamentals, and growth potential for our list. Based on the value of Adage Capital Management’s portfolio’s investment in those equities during the second quarter, we then ranked them from #10 to #1.

Best Blue Chip Stocks to Buy According to Phill Gross and Robert Atchinson’s Adage Capital

10. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)

Adage Capital Management’s Stake Value: $442.826 million

Percentage of Adage Capital Management’s Portfolio: 1.01%

Number of hedge fund holders: 58

Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) develops products for neurological and neuropsychiatric diseases, as well as rare disorders. The company’s market capitalization is close to $10.81 billion as of September 22, and its yearly revenue was $462.5 million for FY 2022. Adage Capital Management, with a $442.82 million holding in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), is the fund with the highest stake in the company as of September 22, 2022. Adage Capital increased its stake in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) by 1500% during Q2 increasing its number of shares from 190,000 in Q1 to 3.039 million at the end of Q2.

At the end of the second quarter of 2022, 58 hedge funds in the database of Insider Monkey held stakes worth $2.5 billion in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), compared to 41 in the preceding quarter worth $1.3 billion. Alongwith Meta Platforms, Inc. (NASDAQ:META), Mastercard Incorporated (NASDAQ:MA), and JPMorgan Chase & Co. (NYSE:JPM), Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is one of the best stocks to buy according to Adage Capital Management.

Christopher Raymond, a Piper Sandler analyst, lowered Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) stock’s rating on August 18 from Overweight to Neutral with a $149 price target, citing value as one of the main factors in the rating change.

09. Berkshire Hathaway Inc. (NYSE:BRK-A)

Adage Capital Management’s Stake Value: $491.533 million

Percentage of Adage Capital Management’s Portfolio: 1.12%

Number of hedge fund holders: 109

Berkshire Hathaway Inc. (NYSE:BRK-A), a multinational conglomerate holding corporation based in Omaha, Nebraska, was established in 1839 and has a market capitalization of $615.72 billion. Since the start of the year, Berkshire Hathaway Inc. (NYSE:BRK-A) fell 10%.

As of Q2, 2022, Adage Capital is holding 1.8 million shares of Berkshire Hathaway Inc. (NYSE:BRK-A), worth roughly $491.53 million. According to Insider Monkey’s Q2 data, Berkshire Hathaway Inc. (NYSE:BRK-A) was found in the public stock portfolios of 109 hedge funds, with collective stakes in the company worth $17.30 billion. Michael Larson’s Bill & Melinda Gates Foundation Trust is the largest shareholder of Berkshire Hathaway Inc. (NYSE:BRK-A), holding 34.68 million of its shares worth $9.47 billion.

In its Q1 2022 investor letter, Diamond Hill Large Cap Fund mentioned Berkshire Hathaway Inc. (NYSE:BRK-A) and explained its insights for the company. Here is what the fund said:

“Diversified holding company Berkshire Hathaway reported strong earnings during the quarter and benefited from continued share repurchases below intrinsic value. The company also announced significant deployments of excess cash during the quarter, including the acquisition of Alleghany and a large increase in its stake in Occidental Petroleum.”

08. UnitedHealth Group Incorporated (NYSE:UNH)

Adage Capital Management’s Stake Value: $501.511 million

Percentage of Adage Capital Management’s Portfolio: 1.14%

Number of hedge fund holders: 91

Founded in 1977, UnitedHealth Group Incorporated (NYSE:UNH) is a Minnetonka, Minnesota-based multinational managed healthcare and insurance company. Phill Gross and Robert Atchinson’s Adage Capital’s portfolio had 976,406 shares of UnitedHealth Group Incorporated (NYSE:UNH) at the end of June 2022, worth $501.511 million, representing 1.14% of the total holdings.

After the “solid” Q2 results, Mizuho analyst Ann Hynes increased the price target for UnitedHealth Group Incorporated (NYSE:UNH) to $600 from $550 on August 10. She also reiterated a Buy rating for the stock. Based on the optimistic financial outlook of UnitedHealth Group Incorporated (NYSE:UNH), the analyst increased estimations.

At the end of June 2022, 91 of the hedge funds monitored by Insider Monkey were bullish on UnitedHealth Group Incorporated (NYSE:UNH), down from 103 funds the previous quarter. The largest shareholder in the company is Rajiv Jain’s GQG Partners, which owns more than 3 million shares worth $1.60 billion.

In its Q2 2022 investor letter, Baron Durable Advantage Fund mentioned UnitedHealth Group Incorporated (NYSE:UNH) and explained its insights for the company. Here is what the fund said:

“UnitedHealth Group Incorporated is a leading diversified health and wellbeing company whose divisions include insurance arm, United Healthcare and health care services arm, Optum, which offers care delivery and other services. Shares increased 1.1% on strong first quarter results (revenues were up 14% year-over-year), and the company increased its annual guidance.

The performance was driven by Optum as a result of a growing adoption of value-based solutions. We believe UnitedHealth leads the health care industry in innovation and execution as evidenced by its strong value proposition leading to Medicare Advantage share gains, strong cost controls, and its leadership position in the shift to value-based care.”

07. Tesla, Inc. (NASDAQ:TSLA)

Adage Capital Management’s Stake Value: $569.646 million

Percentage of Adage Capital Management’s Portfolio: 1.3%

Number of hedge fund holders: 72

Tesla, Inc. (NASDAQ:TSLA) designs, develops, produces, and markets electric cars. Tesla, Inc. (NASDAQ:TSLA) was upgraded by Wolfe Research analyst Rod Lache on September 6 to Outperform from Peer Perform with a $360 price target, noting that the company would gain from the Inflation Reduction Act. 72 hedge funds in the Insider Monkey database had stakes in Tesla, Inc. (NASDAQ:TSLA) at the end of the second quarter of 2022, having a total worth of $7.16 billion, down from 80 the quarter before with stakes worth $11.2 billion. Adage Capital increased its stake in Tesla, Inc. (NASDAQ:TSLA) during Q2 by 16%, holding 845,900 of its shares, having a total worth of $569.646 million, comprising 1.3% of the fund’s 13F portfolio.

Just like Meta Platforms, Inc. (NASDAQ:META), Mastercard Incorporated (NASDAQ:MA), and JPMorgan Chase & Co. (NYSE:JPM), Tesla, Inc. (NASDAQ:TSLA) is one of the best stocks to buy, according to Adage Capital Management.

In its Q2 2022 investor letter, Baron Fund mentioned Tesla, Inc. (NASDAQ:TSLA) and explained its insights for the company. Here is what the fund said:

“In 2014, before we began to invest in Tesla (NASDAQ:TSLA), I called Roger to ask whether he thought Elon Musk’s electric car business would succeed. I did not believe that Roger, an owner of dealerships that sell cars powered by internal combustion engines (ICE) would likely have a favorable opinion of Tesla’s prospects. That was principally for two reasons:

First, automobile manufacturing and distribution is unusually complicated, capital intensive, and highly regulated, which makes profitability problematic;

second, cars with ICE motors require extensive annual maintenance, and dealer services revenues, not profits from automobile sales, are the most important contributor to profits of perpetual licensed ICE car dealerships.

Penske Automotive Group is principally an ICE car dealer. Since electric cars are powered by batteries and need little service, franchised dealerships are incented to sell ICE not EV automobiles. Further, Roger had been a long-term director of General Motors. General Motors’ ICE automobile business would be disrupted if Tesla were successful.

Regardless, I was right to have spoken with Roger. That was since he outlined numerous issues we needed to consider, study, and question before we determined whether we believed Tesla could be a successful business…before we ultimately chose whether to invest in that company.

When we completed our initial due diligence on Tesla, which diligence has been ongoing since 2014, we decided to invest $360 million in Tesla over the next two years. I then called Roger and outlined why I thought we could earn 20 times our capital over the next 10 years. Roger was so certain I was wrong that he offered to bet me $1 million that Tesla would fail. “Roger, I can’t bet you a million dollars. First, if you are right, I couldn’t afford to pay you. Second, if I’m right, you’re my friend, and I couldn’t take your money.” We settled on a dinner bet…”

06. Exxon Mobil Corporation (NYSE:XOM)

Adage Capital Management’s Stake Value: $587.423 million

Percentage of Adage Capital Management’s Portfolio: 1.34%

Number of hedge fund holders: 72

Exxon Mobil Corporation (NYSE:XOM), a natural gas company based in Irving, Texas, was established in 1999. On July 29, the company posted quarterly earnings per share figure of $4.14 and a revenue of $115.68 billion, both above the market consensus. On September 12, Piper Sandler analyst Ryan Todd kept the Exxon Mobil Corporation (NYSE:XOM) stock at an Overweight rating but dropped the price target to $108 from $109, adding that despite the risk of inflation, the strategic priority for the upstream coverage had not changed.

With 47.5 million shares valued at more than $4.1 billion, Florida-based investment company GQG Partners is one of the largest shareholders in Exxon Mobil Corporation (NYSE:XOM) among the hedge funds Insider Monkey is monitoring. As of Q2, Exxon Mobil Corporation (NYSE:XOM) comprises 1.34% of Adage Capital’s 13F portfolio. The fund reduced its stake in Exxon Mobil Corporation (NYSE:XOM) by 29% during Q2, holding 6.85 million of its shares valued at $587.423 million.

In its Q2 2022 investor letter, First Eagle Investments Global Fund mentioned Exxon Mobil Corporation (NYSE:XOM) and explained its insights for the company. Here is what the fund said:

“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”

05. Alphabet Inc. (NASDAQ:GOOG)

Adage Capital Management’s Stake Value: $682.261 million

Percentage of Adage Capital Management’s Portfolio: 1.56%

Number of hedge fund holders: 153

As per Insider Monkey’s database, 153 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the second quarter, down from 160 in the previous quarter. For Q2, Adage Capital holds 313,070 shares of Alphabet Inc. (NASDAQ:GOOG) worth roughly $682.261 million, comprising 1.56% of its portfolio.

On September 14, the Personal Information Protection Commission of South Korea announced in a statement that it had penalized Alphabet Inc. (NASDAQ:GOOG) $50 million for privacy infractions. The data watchdog asserts that Google did not adequately seek consent from users or fully disclose the reasons for data collection and usage, particularly with regard to the use of behavioral data to forecast consumer interests in marketing and advertising.

Merion Road Capital discussed Alphabet Inc. (NASDAQ:GOOG) in the second quarter investor letter. Here is what the fund specifically said about Alphabet Inc. (NASDAQ:GOOG):

“The Long Only portfolio was down a bit more than 20% during the quarter. Our largest holding, Alphabet Inc. (NASDAQ:GOOG), was unsurprisingly the largest detractor for the period. GOOG needs no introduction as it likely touches all of our lives multiple times a day. The biggest risk to GOOG is their exposure to advertising budgets, a historically cyclical category spend. While GOOG was able to grow their topline during the 2008-2009 period, they did so by taking share from traditional media. Today digital advertising already accounts for ~65% of total US ad spend; therefore, the potential benefits from further share gains are likely to be outweighed by a shrinking pie. Obviously, this is very short term oriented and will be a footnote 5 or 10 years down the road. But even looking at near-term operating performance, it is possible that advertising might prove to be less cyclical than prior periods. With the growing presence of ecommerce and direct to consumer offerings, the “advertising as the new rent” argument makes sense to me.

While their cash cow (search) is an excellent business that would be hard to displace, other assets like Google Cloud and YouTube are deserving of even higher multiples. Furthermore, the company owns several assets that are under-monetized like maps, Android, and Waymo. Equally as important is the increasingly shareholder friendly posture of the company as exemplified by their improved financial disclosure, increasing share repurchases, and pending share split. At 19x trailing earnings ex. cash on the balance sheet (but inclusive of losses incurred in the fast-growing cloud business as well as other “moon shots”), it is hard to think of a more attractive risk-adjusted return.”

04. Royalty Pharma plc (NASDAQ:RPRX)

Adage Capital Management’s Stake Value: $702.397 million

Percentage of Adage Capital Management’s Portfolio: 1.61%

Number of hedge fund holders: 19

Royalty Pharma plc (NASDAQ:RPRX) is a New York-based firm that operates in the pharma sector. Adage Capital Management, although reduced its stake in Royalty Pharma plc (NASDAQ:RPRX) by 33% during Q2, is still the largest shareholder of Royalty Pharma plc (NASDAQ:RPRX), holding 16.7 million shares worth roughly $702.397 million.

The stake comprises 1.61% of Adage Capital’s 13F portfolio.

Hedge fund sentiment around Royalty Pharma plc (NASDAQ:RPRX) has decreased in the second quarter of 2022, with 19 hedge funds long the stock, compared to 32 in Q1 2022. The company posted an EPS of $0.76 in Q2 2022, beating estimates of $0.6 by $0.16.

03. Amazon.com, Inc. (NASDAQ:AMZN)

Adage Capital Management’s Stake Value: $ 967.218 million

Percentage of Adage Capital Management’s Portfolio: 2.21%

Number of hedge fund holders: 252

Amazon.com, Inc. (NASDAQ:AMZN) was in 252 hedge fund portfolios as tracked by Insider Monkey at the end of the second quarter compared to 271 the previous quarter. Adage Capital upped its stake in Amazon.com, Inc. (NASDAQ:AMZN) by 1893% during Q2, holding 9.1 million of its shares having a worth of $967 million.

Baron Funds discussed Amazon.com, Inc. (NASDAQ:AMZN) in the second quarter investor letter. Here is what Baron Funds specifically said about Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2022 investor letter:

“Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest retailer and cloud services provider. Shares of Amazon declined 35% in the quarter due to weaker-than-expected profits resulting from an overcapacity of resources coming out of COVID. We expect Amazon to grow into its retail capacity in the quarters to come, which would enable it to improve profitability accordingly. Amazon remains one of our largest holdings due to its durable competitive advantages with a leading position in multiple trillion-dollar markets with a long runway for growth.

According to the U.S. Census Bureau, domestic e-commerce was only 14.3% of retail as of the first quarter of 2022. Internationally, the opportunity is even earlier as Amazon has still less than 2% market share of international retail spending. Its advertising share is roughly 3% and growing, underpinned by its structural closed loop, which enables accurate targeting and measurement.

Lastly, Amazon Web Services or AWS, remains the leading cloud provider, while cloud computing still represents only 9.5% out of the $4.3 trillion of global IT spending according to Gartner. Areas such as logistics and health care present additional optionality.”

02. Microsoft Corporation (NASDAQ:MSFT)

Adage Capital Management’s Stake Value: $2,037.649 million

Percentage of Adage Capital Management’s Portfolio: 4.67%

Number of hedge fund holders: 258

As of Q2, Microsoft Corporation (NASDAQ:MSFT) comprises 4.67% of Adage Capital’s 13F portfolio. It holds 7.9 million Microsoft Corporation (NASDAQ:MSFT) shares worth roughly $2.03 billion. For Q2, Ken Fisher’s Fisher Asset Management is the largest shareholder holding 28.69 million Microsoft Corporation (NASDAQ:MSFT) shares valued at $7.36 billion. At the end of the second quarter of 2022, 258 hedge funds in the database of Insider Monkey held stakes in Microsoft Corporation (NASDAQ:MSFT) worth roughly $56 billion, compared to 259 in the preceding quarter worth around $66 billion.

John DiFucci, an analyst with Guggenheim, began covering Microsoft Corporation (NASDAQ:MSFT) on August 11 with a Neutral rating and a $292 price target. While he sees potential for growth in Azure and Office Commercial 365 to sustain Microsoft Corporation’s (NASDAQ:MSFT) revenue and free cash flow, he also sees an ongoing decline in Windows users that is “not fully reflected in consensus estimates.”

In its Q2 2022 investor letter, Baron Durable Advantage Fund mentioned Microsoft Corporation (NASDAQ:MSFT) and explained its insights for the company. Here is what the fund said:

“Shares of Microsoft Corporation, a leading global provider of software solutions, declined 16.6% in the quarter along with the broader software group as well as due to growing concerns of a potential macro-driven slowdown. This is despite the company posting strong quarterly financial results and successfully absorbing headwinds from the war in Ukraine. The company had 21% revenue growth, 23% operating income growth, and 35% growth in Microsoft Cloud (all year-over-year in constant currency), which now represents 47% of total revenues.

As discussed above, we continue to believe Microsoft remains a durable and growing business as companies across all industries look to digitally transform, taking advantage of the continuously expanding solution set Microsoft has to offer.”

01. Apple Inc. (NASDAQ:AAPL)

Adage Capital Management’s Stake Value: $2,174.211 million

Percentage of Adage Capital Management’s Portfolio: 4.98%

Number of hedge fund holders: 128

According to Insider Monkey’s Q2 data, Apple Inc. (NASDAQ:AAPL) was found in the public stock portfolios of 128 hedge funds, with collective stakes in the company worth $143 billion. This is compared to 131 hedge funds holding a stake in Apple Inc. (NASDAQ:AAPL), worth roughly $182 billion in the previous quarter. Warren Buffett’s Berkshire Hathaway is the largest shareholder of Apple Inc. (NASDAQ:AAPL), holding 894 million of its shares worth $122 billion. As of Q2, 2022, Adage Capital holds 15.9 million shares of Apple Inc. (NASDAQ:AAPL), valued at $2.17 billion. The stake comprises 4.98% of its 13F portfolio.

On September 20, following the company’s study of around 4,000 people indicating their plans to purchase an iPhone, Evercore ISI analyst Amit Daryanani increased his price target on Apple to $190 from $185 and kept an Outperform rating on the shares. According to the poll, demand for high-end models is “notably higher” than it was in previous years, according to Daryanani, who is raising his iPhone revenue projections for the following four quarters in light of the survey’s findings of stronger than anticipated average selling prices. Although he anticipates “modest unit upside” in comparison to low-single digit Street predictions, Daryanani warned that average selling prices “could surprise materially.”

In the second quarter investor letter, Alger Capital discussed Apple Inc. (NASDAQ:AAPL). Here is what the fund said:

“Apple Inc. (NASDAQ:AAPL) 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 extremely tight engagement with consumers and enterprises. The engagement is fostering the growing purchase of high-margin services like music, apps, and apple pay. Apple’s shares detracted from performance as management lowered its guidance for the second quarter due to headwinds from the war in Ukraine, adverse foreign currency shifts, and dampened consumer demand associated with the coronavirus in China. Additionally, many investors were concerned that lockdowns implemented to curtail the spread of COVID-19 would impact the production of apple products, however, the manufacturing facilities have resumed activity.”

You can also take a look at 10 High-Yield Dividend Stocks for Stable Income and 10 Dividend Stocks to Buy According to Billionaire Cliff Asness.

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