In this article, we discuss the 5 best US stocks to buy now. If you want to read our detailed analysis of these companies, go directly to the 10 Best US Stocks to Buy Now.
5. Uber Technologies, Inc. (NYSE: UBER)
Number of Hedge Fund Holders: 130
Uber Technologies, Inc. (NYSE: UBER) is a California-based technology firm founded in 2009. It is ranked fifth on our list of 10 best US stocks to buy now. Uber stock has returned more than 40% to investors in the past year. Uber has stakes in a wide array of businesses, including ride-hailing, food delivery, autonomous driving vehicles, and others. The firm operates in tens of countries around the world. The ride hailing segment of the firm registered a huge slump in revenue in 2020 because of the COVID-19 pandemic.
In earnings results for the first quarter of 2021, posted earlier in May, Uber Technologies, Inc. (NYSE: UBER) reported earnings per share of -$0.06, beating market predictions by $0.49. The revenue for the period was $2.9 billion.
4. Costco Wholesale Corporation (NASDAQ: COST)
Number of Hedge Fund Holders: 56
Costco Wholesale Corporation (NASDAQ: COST) is a Washington-based firm that operates membership-only retail stores around the world. It was founded in 1983 and is placed fourth on our list of 10 best US stocks to buy now. Costco stock has returned more than 25% to investors over the course of the past twelve months. The firm is one of the largest retail companies in the world with a market cap of over $168 billion. Costco is also one of the largest retailers of beef, organic foods, and rotisserie chicken.
On May 13, investment advisory Argus increased its price target of Costco Wholesale Corporation (NASDAQ: COST) stock to $420 ahead of the announcement of the earnings results of the retailer. Costco shares jumped over 2% following the update.
Just like Amazon.com, Inc. (NASDAQ: AMZN), Tesla, Inc. (NASDAQ: TSLA), and Caterpillar Inc. (NYSE: CAT), Costco Wholesale Corporation (NASDAQ: COST) is one of the best US stocks to buy now.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation (NASDAQ: COST) was one of them. Here is what the fund said:
“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.
Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”
3. Caterpillar Inc. (NYSE: CAT)
Number of Hedge Fund Holders: 53
Caterpillar Inc. (NYSE: CAT) is an Illinois-based firm that markets machinery, engines, financial products, and insurance. It was founded in 1925 and is ranked third on our list of 10 best US stocks to buy now. The firm is one of the world’s largest industrial equipment makers and posted more than $41 billion in annual revenue in 2020. Some of the equipment the company makes and sells include asphalt pavers, compactors, cold planers, motor graders, pipelayers, road reclaimers, telehandlers, and utility vehicles, among others.
On April 29, Caterpillar Inc. (NYSE: CAT) posted earnings results for the first quarter of 2021, reporting earnings per share of $2.87, beating market estimates by $0.93. The revenue over the period was over $11 billion, up close to 12% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, Washington-based firm Bill & Melinda Gates Foundation Trust is a leading shareholder in Caterpillar Inc. (NYSE: CAT) with 10 million shares worth more than $2.3 billion.
Just like Amazon.com, Inc. (NASDAQ: AMZN) and Tesla, Inc. (NASDAQ: TSLA), Caterpillar Inc. (NYSE: CAT) is one of the best US stocks to buy now.
2. Tesla, Inc. (NASDAQ: TSLA)
Number of Hedge Fund Holders: 62
Tesla, Inc. (NASDAQ: TSLA) is a California-based firm in the electric vehicle and clean energy businesses. It is placed second on our list of 10 best US stocks to buy now and was founded in 2003. Tesla stock has registered a remarkable rally in the past twelve months, rising over 700% in value before falling amid supply worries and demand shortages. Tesla is owned by billionaire Elon Musk. The company stock has returned more than 255% to investors over the course of the past twelve months. The firm is the largest EV manufacturer in the world in terms of delivery numbers and market capitalization.
On May 21, media reports indicated that Tesla, Inc. (NASDAQ: TSLA) had won approval from the German authorities for setting up a factory in Berlin. Tesla already has manufacturing facilities in the United States and China.
Here is what Baron Partners Fund has to say about Tesla, Inc. in its Q1 2021 investor letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
1. Amazon.com, Inc. (NASDAQ: AMZN)
Number of Hedge Fund Holders: 243
Amazon.com, Inc. (NASDAQ: AMZN) is a Washington-based technology company founded in 1994. It is ranked first on our list of 10 best US stocks to buy now. Amazon stock has returned more than 31% to investors over the past year. The company has stakes in several businesses, including e-commerce, cloud computing, digital streaming, and artificial intelligence, among others. It is one of the largest technology firms in the world and has plans to expand in the food delivery and medical segments, with reports indicating that the company is set to purchase promising companies in this regard soon.
On May 21, Amazon.com, Inc. (NASDAQ: AMZN) announced that it would be retiring its ultrafast-shipping brand Prime Now, absorbing the app and website into the company. A statement by the firm outlined that the Prime Now app and site would be retired by year-end.
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 in a much different place than when we initially invested. Back in 2014, investors were starting to question whether Amazon’s promise of future earnings potential would actually come to fruition.
Operating income had declined from ~$1.4BN in 2010, to ~$676M in 2012, to just ~$178M by the end of 2014. Expenses were outpacing revenue growth, and investors were questioning whether Amazon’s expenses were truly “investments” as they claimed, or whether it was a structural necessity of the business and thus would never flow to investor’s bottom line.
The critical question was ‘what portion of expenses are truly growth investments vs. structural expenses, and as a result, will Amazon ever be capable of generating significant profits?’
Our analysis indicated that these expenditures truly were the former, and led to the belief that the business’ structural margins would inevitably increase over time. This was our differentiated insight / investment edge.
Fast-forward to today, and our thesis proved correct with operating margins having increased from ~0.2% to ~6%. However due to this success and proving this facet out to investors, Amazon investors have much higher confidence and a better understanding of the company today. I’m not sure we have the same level of differentiated insights, as we did back then.
In addition, I believe the departure of Jeff Bezos and his long-time lieutenants signal a regime change. Perhaps it’s now “Day 1.5” instead of the Day 1 mentality that made Amazon so successful (LINK)… The departures within the past couple years include:
- Jeff Bezos – Founder, CEO, Visionary. Started Amazon in 1994.
- Jeff Blackburn – Joined Amazon in 1998. Oversaw Amazon Marketplace, Advertising, Amazon Studios, Prime Video, Prime Music, M&A.
- Jeff Wilke – Joined Amazon in 1999. Oversaw Amazon Consumer (ecommerce) business.
- Steve Kessel – Joined Amazon in 1999. Oversaw Physical Stores, Kindle, and Whole Foods.
Blackburn, Wilke, and Kessel have each arguably created hundreds of billions of shareholder value. On top of this, Bezos is the visionary and culture-setter behind Amazon. When he and his long-time lieutenants take their hands off the wheel, it is probably time for us to as well.
We sold our remaining shares at an average price of ~$3,240. Based on our initial investment, we made a ~10x return in a little over six years, for a ~45% IRR7. We reinvested the proceeds into our existing portfolio, taking advantage of the prices offered by this latest market draw-down.”
You can also take a peek at Billionaire Izzy Englander’s Top 10 Stock Picks and Billionaire David Abrams’ Top Stock Picks.
