AQR Capital’s Top 5 Stock Picks

In this article, we discuss AQR Capital’s top 5 stock picks. If you want to see AQR Capital’s performance and more stocks in this selection, check out AQR Capital’s Performance, AUM and Top Stock Picks. 

5. Pfizer Inc. (NYSE:PFE)

Number of Hedge Fund Holders: 77

AQR Capital’s Stake Value: $467,588,000

Pfizer Inc. (NYSE:PFE) is an American multinational pharmaceutical and biotechnology company that offers medicines and vaccines in various therapeutic areas, including cardiovascular, metabolic, and women’s health. AQR Capital has held a position in Pfizer Inc. (NYSE:PFE) since Q4 2010, apart from a few breaks over the years. AQR owns a stake worth $467.5 million in Pfizer Inc. (NYSE:PFE) as of Q3 2022. 

On November 1, Pfizer Inc. (NYSE:PFE) reported a Q3 non-GAAP EPS of $1.78 and a revenue of $22.6 billion, outperforming Wall Street consensus by $0.38 and $1.5 billion, respectively. For full-year 2022, the company raised its revenue guidance to a range of $99.5 billion to $102.0 billion from the prior outlook of $98 billion to $102 billion, versus a $99.64 billion consensus. 

Barclays analyst Carter Gould raised the price target on Pfizer Inc. (NYSE:PFE) on November 2 to $49 from $44 and reiterated an Equal Weight rating on the shares. Pfizer Inc. (NYSE:PFE)’s Q3 print was significant, as Comirnaty “delivered a solid beat and raise, into the face of questions on demand, delivery timing, and Fx headwinds,” the analyst wrote in a research note.

According to Insider Monkey’s data, 77 hedge funds were long Pfizer Inc. (NYSE:PFE) at the end of September 2022, compared to 70 funds in the preceding quarter. Ric Dillon’s Diamond Hill Capital held a prominent stake in the company, comprising approximately 8 million shares worth $350 million.  

Diamond Hill Capital made the following comment about Pfizer Inc. (NYSE:PFE) in its Q3 2022 investor letter:

“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer Inc. (NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”

4. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)

Number of Hedge Fund Holders: 87

AQR Capital’s Stake Value: $492,567,000

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the largest semiconductor firm in the world. Securities filings for the third quarter of 2022 reveal that AQR Capital owns 10.6 million shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) worth $492.5 million, representing 1.13% of the total 13F portfolio. 

On November 17, Taiwan proposed tax relief for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s research and development costs in an effort to maintain its leadership in the largely significant and competitive semiconductor industry. 

Goldman Sachs analyst Bruce Lu on October 13 downgraded Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to Buy from Conviction Buy with a price target of $89, down from $126. The analyst observed that the company’s management has turned “more conservative”, as it has acknowledged an impact from demand weakness, particularly for its N7 nodes. 

According to Insider Monkey’s Q3 data, 87 hedge funds were bullish on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), up from 72 funds in the earlier quarter. Warren Buffett’s Berkshire Hathaway added TSMC to its Q3 portfolio, buying more than 60 million shares worth $4 billion. Berkshire is the leading position holder in the company. 

Baron Funds made the following comment about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2022 investor letter:

“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) detracted from performance due to the global macroeconomic slowdown and softening demand for consumer electronics. We retain conviction that Taiwan Semi’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, and IoT, will allow the company to deliver strong revenue growth over the next several years.”

3. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holders: 156

AQR Capital’s Stake Value: $518,882,000

Alphabet Inc. (NASDAQ:GOOG) has featured on AQR Capital’s portfolio since the third quarter of 2015, and the fund sold off its stake in Q2 2017, only to buy it back in the next quarter. In Q3 2022, AQR boosted its Alphabet Inc. (NASDAQ:GOOG) stake by a whopping 1786%. The fund owns 5.4 million shares of the company worth $518.8 million, representing 1.26% of the total 13F securities. 

On November 15, activist investor Chris Hohn of TCI Fund Management urged Alphabet Inc. (NASDAQ:GOOG) to control costs and reduce its employee count, citing a “strong conviction” in Alphabet’s future. Hohn specified that the management needs to publicly announce a target for earnings before interest/taxes margin, “substantially” lower losses in its long-term “Other Bets” segment, and increase share repurchases.

Morgan Stanley analyst Brian Nowak on November 15 reiterated an Overweight rating on Alphabet Inc. (NASDAQ:GOOG) but trimmed the firm’s price target on the shares to $120 from $125, citing a weakening ad market which continued to grow through Q3 earnings season. 

According to Insider Monkey’s Q3 data, 156 hedge funds were long Alphabet Inc. (NASDAQ:GOOG), compared to 153 funds in the last quarter. Chris Hohn’s TCI Fund Management is the largest stakeholder of the company, with 52.4 million shares worth over $5 billion. 

Here is what Mayar Capital has to say about Alphabet Inc. (NASDAQ:GOOG) in its Q3 2022 investor letter:

“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?

“Google it!”

This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.

Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to’ something. Second, the reason Biden’s advice was met with such opprobrium was because Googling something has become almost second nature to us now.

These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.

Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate’ is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate’ as well as that from its other properties such as Mail, Maps, and so on, totaled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…” (Click here to see the full text)

2. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 269

AQR Capital’s Stake Value: $1,106,019,000

AQR Capital has been a long-term position holder in Microsoft Corporation (NASDAQ:MSFT). Its stake in the company goes back to the last quarter of 2010, apart from a few breaks over the years. In the third quarter of 2022, there were 4.7 million shares of Microsoft Corporation (NASDAQ:MSFT) in the AQR portfolio, worth $1.10 billion and representing 2.69% of the total holdings. 

On November 16, NVIDIA Corporation (NASDAQ:NVDA) announced a multi-year collaboration with Microsoft Corporation (NASDAQ:MSFT) to build a “massive” cloud AI computer, which is expected to be one of the most powerful AI supercomputers in the world. Nvidia will use Microsoft Azure’s scalable virtual machine capability to research and make advances in generative AI.

Macquarie analyst Sarah Hindlian-Bowler on November 2 assumed coverage of Microsoft Corporation (NASDAQ:MSFT) with a Neutral rating and a $234 price target. The analyst views short-term headwinds for Microsoft Corporation (NASDAQ:MSFT) from weakness in the macro environment, cloud pull-in from COVID, softer PC sales, accelerating energy costs, and low consumer purchasing power.

According to Insider Monkey’s Q3 data, 269 hedge funds were long Microsoft Corporation (NASDAQ:MSFT), compared to 259 funds in the preceding quarter. Bill & Melinda Gates Foundation Trust, the leading position holder in Microsoft, boosted its stake in the company 4057% in Q3 2022, holding 39.2 million shares worth $9.14 billion. 

Diamond Hill made the following comment about Microsoft Corporation (NASDAQ:MSFT) in its Q3 2022 investor letter:

“Also among our bottom contributors were media and technology giant Alphabet, software and IT services provider Microsoft Corporation (NASDAQ:MSFT) and insurance company American International Group (AIG). Microsoft shares declined in Q3, along with other tech companies, as rising interest rates impacted the near-term outlook. We expect the business to continue to generate strong revenue growth and benefit from operating leverage. Microsoft’s cloud computing services business, Azure, is generating robust growth, confirming its competitive positioning.”

1. Apple Inc. (NASDAQ:AAPL)

Number of Hedge Fund Holders: 140

AQR Capital’s Stake Value: $1,377,056,000

Apple Inc. (NASDAQ:AAPL) has featured on the AQR portfolio since Q4 2010, except for minor breaks over the years. In the third quarter of 2022, AQR Capital held approximately 10 million shares of Apple Inc. (NASDAQ:AAPL), worth $1.37 billion and representing 3.35% of the total portfolio. 

On November 14, JPMorgan analyst Samik Chatterjee said the impact of the latest supply chain challenges faced by Apple Inc. (NASDAQ:AAPL) in response to operations at the assembly facility in Zhengzhou, China are hard to quantify. However, the analyst sees a “limited impact on demand” for the iPhone 14 product cycle through fiscal 2023 and the opportunity to acknowledge the shortfall in the March quarter “might give long-term investors several attractive buying opportunities into the shares through to the year-end.” He maintained an Overweight rating on Apple Inc. (NASDAQ:AAPL) with a $200 price target.

According to Insider Monkey’s Q3 data, 140 hedge funds were bullish on Apple Inc. (NASDAQ:AAPL), compared to 128 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway held the biggest stake in the company, comprising 894.80 million shares worth $123.6 billion. 

Here is what Wedgewood Partners specifically said about Apple Inc. (NASDAQ:AAPL) in its Q3 2022 investor letter:

“Apple Inc. (NASDAQ:AAPL) grew revenues +5% (foreign exchange adjusted and excluding Russia) driven by record iPhone revenues that were up about +3% on an exceptional year ago comparison of +50%. Apple’s installed base is over 1.8 billion devices which helps drive a software and services business that has generated almost $80 billion of revenue over the past 4 quarters. As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially ICs) as well as software, continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”

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