In this article, we discuss the 10 growth stocks that hedge funds continue to load up on despite recession fears.
Investors in the United States have been steering clear of growth stocks in the past few months as inflation data and rate hikes create a value-friendly environment at the stock market. David Kelly, the chief global strategist of investment firm JPMorgan, recently advised his clients to focus on defensive plays and valuations rather than short-term direction in this macro uncertainty. Kelly dismissed the notion that investing in value stocks, long-duration bonds, and income-generating alternatives was a solid bet.
Instead, the strategist recommended that selling crypto while steering clear of large-cap tech stocks and bitcoin should help investors avoid the worst of the crisis. The words of Kelly carry weight when viewed in context of the performance of large-cap tech stocks over the past few months. The shares of famous firms like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG) are down 13%, 21%, and 23% year-to-date respectively and are sliding still.
Kelly also noted that recession fears seemed to be real, saying that the economy had one foot in a recession and the other on the banana peel. He added that the central bank was overestimating the health of the US economy. The doomsday warnings notwithstanding, elite investors are still taking advantage of the lowered valuations in the growth sector as a result of the economic crisis to buy shares in firms that were way too expensive in a normal marketplace. Even hedge funds are getting in on this act.
Our Methodology
The companies that operate in the growth sector and witnessed an increase of at least 10 in the number of hedge fund holders in the second quarter of 2022, compared to data for the first quarter of the year, were selected for the list. The business fundamentals of these firms and the latest updates related to them are also discussed to provide some additional context. Data from around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
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Hedge Funds Continue to Load Up on These Growth Stocks Despite Recession Fears
10. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders in Q2 2022: 68
Number of Hedge Fund Holders in Q1 2022: 47
Warner Bros. Discovery, Inc. (NASDAQ:WBD) operates as a media firm. The company has stepped up investments in the digital space in recent years, especially in the streaming and gaming sector. On August 4, the firm posted earnings for the second quarter of 2022, reporting a revenue of more than $9.8 billion, up over 221% compared to the revenue over the same period last year. The firm said it ended the second quarter with $3,896 million of cash on hand and a gross debt of $53 billion.
On August 23, UBS analyst John Hodulik maintained a Neutral rating on Warner Bros. Discovery, Inc. stock and lowered the price target to $15 from $27, noting the firm would benefit from content monetization and synergy realization in the coming months.
At the end of the second quarter of 2022, 68 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Warner Bros. Discovery, Inc., up from 47 in the previous quarter worth $790 million.
Just like Apple Inc., Microsoft Corporation, and Alphabet Inc., Warner Bros. Discovery, Inc. is one of the stocks on the radar of elite investors.
In its Q2 2022 investor letter, Smead Capital Management, an asset management firm, highlighted a few stocks and Warner Bros. Discovery, Inc. was one of them. Here is what the fund said:
“Leading the downside were stocks we own tied to any economic optimism. Warner Bros. Discovery, Inc. suffered selling from AT&T (T) shareholders disposing of it upon distribution of the shares in the merger. We have been too optimistic about how long it would take for these uninterested parties to sell. Macerich (MAC) suffered from fears of what a recession and higher interest rates would do to their business, disregarding the recovery in the Class “A” mall space since 2020.”
9. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP)
Number of Hedge Fund Holders in Q2 2022: 67
Number of Hedge Fund Holders in Q1 2022: 56
Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is a biotech firm that focuses on the development of medicines for the treatment of rare diseases. In late August, the company announced that it would be expanding development and manufacturing facilities in Waterford. The move is part of a larger plan to expand footprint in Ireland. Last year, the company had spent $65 million on the Waterford facility. The first medicines from the facility are expected to be released commercially in 2023.
On August 4, BMO Capital analyst Gary Nachman maintained an Outperform rating on Horizon Therapeutics Public Limited Company stock and lowered the price target to $117 from $145, noting that the growth remains compelling relative to valuation.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Paulson & Co is a leading shareholder in Horizon Therapeutics Public Limited Company, with 6.1 million shares worth more than $494 million.
8. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)
Number of Hedge Fund Holders in Q2 2022: 58
Number of Hedge Fund Holders in Q1 2022: 41
Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is a biopharmaceutical company based in Connecticut. On August 5, the firm posted earnings for the second quarter of 2022, reporting losses per share of $3.82, missing market estimates by $1.57. The revenue over the period was $194 million, up 108% compared to the revenue over the same period last year but missing estimates by $16 million. The firm said it was on track to meet sales guidance of $900 million this year.
On August 18, Piper Sandler analyst Christopher Raymond downgraded Pharmaceutical Holding Company Ltd. stock to Neutral from Overweight with a price target of $149, noting valuation as one of the primary reasons behind the ratings update.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Marshall Wace LLP is a leading shareholder in Biohaven Pharmaceutical Holding Company Ltd., with 1.9 million shares worth more than $281 million.
7. NXP Semiconductors N.V. (NASDAQ:NXPI)
Number of Hedge Fund Holders in Q2 2022: 55
Number of Hedge Fund Holders in Q1 2022: 43
NXP Semiconductors N.V. (NASDAQ:NXPI) makes and sells various products related to semiconductors. The stock has been given a major boost in the past few weeks after lawmakers in the US approved the CHIPS Act, a legislation that will bring hundreds of billions of dollars in government funding for the development of research and production facilities in the semiconductor space in the US. The CHIPS Act will largely benefit US-based chip firms like NXP to bring them on par with international competitors.
On July 27, Cowen analyst Matthew Ramsay maintained an Outperform rating on NXP Semiconductors N.V. stock and raised the price target to $200 from $190, noting that demand continues to outstrip supply for the firm.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in NXP Semiconductors N.V., with 925,679 shares worth more than $137 million.
In its Q1 2022 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and NXP Semiconductors N.V. was one of them. Here is what the fund said:
“Similarly, analog chip supplier NXP Semiconductors N.V. declined even though the company reported above consensus revenue growth. A leading chip maker for infrastructure and automotive applications, we view NXP Semiconductors N.V. as a “new industrial,” uniquely positioned to benefit from increased chip content per application/vehicle. This includes electric and autonomous vehicles and more broadly, connectivity and the internet of things. We added the stock to the portfolio during the volatile fourth quarter of 2018 at just 10 times earnings. Today, NXP is still valued at a very reasonable 14 times earnings.”
6. Roper Technologies, Inc. (NYSE:ROP)
Number of Hedge Fund Holders in Q2 2022: 48
Number of Hedge Fund Holders in Q1 2022: 38
Roper Technologies, Inc. (NYSE:ROP) provides software, engineered products, and solutions. On July 22, the firm posted earnings for the second quarter of 2022, reporting earnings per share of $3.95, beating market estimates by $0.10. The revenue over the period was $1.3 billion, up 10% compared to the revenue over the same period last year but missing estimates by $230 million. The firm said it was raising 2022 guidance for adjusted DEPS from continuing operations to $13.46 – $13.62 from prior guidance of $13.20-$13.45.
On August 16, Bernstein analyst Brendan Luecke resumed coverage of Roper Technologies, Inc. stock with a Market Perform rating and lowered the price target to $490 from $505, noting the firm needs to acquire $2.30 in EPS to backfill the industrials businesses.
At the end of the second quarter of 2022, 48 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Roper Technologies, Inc., up from 38 in the previous quarter worth $2 billion.
In addition to Apple Inc., Microsoft Corporation, and Alphabet Inc., Roper Technologies, Inc. is one of the stocks that hedge funds are buying.
In its Q2 2022 investor letter, Longleaf Partners Fund, an asset management firm, highlighted a few stocks and Roper Technologies, Inc. was one of them. Here is what the fund said:
“Consistent with that approach, portfolio activity among our long holdings tilted toward purchases. We added to almost half our holdings by varying degrees, and we were pleased to initiate new positions in Roper Technologies, Inc. at attractive prices. Originally an industrial equipment manufacturer, Roper has successfully evolved into a provider of software and technology services. (Investors can find an in-depth discussion of our Roper Technologies investment thesis in colleague Barton Hooper’s November 2021 “Analyst Corner” feature.) The business generate significant free cash flow, possess strong competitive positions, and have excellent management teams with demonstrated acquisition records.”
5. NCR Corporation (NYSE:NCR)
Number of Hedge Fund Holders in Q2 2022: 47
Number of Hedge Fund Holders in Q1 2022: 36
NCR Corporation (NYSE:NCR) provides software and related services. It has interests in sectors such as banking, retail, hospitality, telecommunications and technology. In March, the firm said that it had purchased intellectual property related to open banking from Spoke Technologies. The purchase is part of a larger plan by the firm to accelerate a push into digital banking and financing. The new tech will equip NCR with enhanced data integration capabilities geared towards personalization.
In early 2021, NCR Corporation had purchased Terafina, a solution provider for customer account opening and onboarding across digital. The purchase enhanced sales and marketing capabilities of the Digital First Banking platform of NCR.
Among the hedge funds being tracked by Insider Monkey, California-based investment firm Engaged Capital is a leading shareholder in NCR Corporation, with 4.4 million shares worth more than $138 million.
4. Lumen Technologies, Inc. (NYSE:LUMN)
Number of Hedge Fund Holders in Q2 2022: 42
Number of Hedge Fund Holders in Q1 2022: 30
Lumen Technologies, Inc. (NYSE:LUMN) operates as a technology and communications firm. The firm is one of the few growth stocks on the market with a reliable dividend history. For the last twenty-two years, the company has consistently paid a dividend to shareholders. The sector median in this regard is just seven years. On August 18, the company declared a quarterly dividend of $0.25 per share, in line with previous. The forward yield was 9.06%. The dividend is payable to shareholders by early September.
On August 5, JPMorgan analyst Philip Cusick reinstated coverage of Lumen Technologies, Inc. stock with an Underweight rating and a price target of $10, noting the business of the firm would remain fundamentally challenged in the near term.
At the end of the second quarter of 2022, 42 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Lumen Technologies, Inc., compared to 30 in the preceding quarter worth $904 million.
In its Q1 2022 investor letter, Longleaf Partners Fund, an asset management firm, highlighted a few stocks and Lumen Technologies, Inc. was one of them. Here is what the fund said:
“Lumen – Lumen Technologies, Inc. reported weak organic revenue growth and guided more weakness for 2022. We expect revenue growth to kick back in towards the end of 2022, and the huge FCF coupon helped offset value decline from the weaker guidance. The other factor weighing on the stock price was largest shareholder Temasek’s partial sale of its 10% position in the quarter, creating uncertainty and a share price overhang. We have a 13D filed and continue to urge the company to take steps to address the significant price-to-value gap, including continued share buybacks.”
3. QuidelOrtho Corporation (NASDAQ:QDEL)
Number of Hedge Fund Holders in Q2 2022: 37
Number of Hedge Fund Holders in Q1 2022: 26
QuidelOrtho Corporation (NASDAQ:QDEL) engages in the development and manufacturing of diagnostic testing products. On August 4, the firm posted earnings for the second quarter of 2022, reporting earnings per share of $2.34, missing market estimates by $0.51. The revenue over the period was $613 million, up 247% compared to the revenue over the same period last year but missing estimates by $27 million. The firm said that supplemental combined revenue was $898 million during the period, an increase of 37.5% in constant currency.
On July 20, UBS analyst Elizabeth Garcia initiated coverage of QuidelOrtho Corporation stock with a Sell rating and a price target of $86, lauding the recently completed merger of the firm with Ortho.
At the end of the second quarter of 2022, 37 hedge funds in the database of Insider Monkey held stakes worth $631 million in QuidelOrtho Corporation, compared to 26 in the preceding quarter worth $550 million.
2. CONMED Corporation (NYSE:CNMD)
Number of Hedge Fund Holders in Q2 2022: 34
Number of Hedge Fund Holders in Q1 2022: 22
CONMED Corporation (NYSE:CNMD) operates as a medical technology firm. In early August, the company announced that it would be purchasing privately-held medical device start-up Biorez. The deal was made for a cash consideration of $85 million at closing and up to an additional $165 million in growth-based earn-out payments over a four-year period. The former said the purchase would add $1 million in revenues for the firm and also add around $0.15 per share to the adjusted earnings.
On August 2, Piper Sandler analyst Matt O’Brien maintained an Overweight rating on CONMED Corporation stock with a price target of $118, noting the firm was more on the risky end of the spectrum.
At the end of the second quarter of 2022, 34 hedge funds in the database of Insider Monkey held stakes worth $143 million in CONMED Corporation, compared to 22 in the preceding quarter worth $224 million.
1. Switch, Inc. (NYSE:SWCH)
Number of Hedge Fund Holders in Q2 2022: 31
Number of Hedge Fund Holders in Q1 2022: 14
Switch, Inc. (NYSE:SWCH) provides internet services and related infrastructure. The firm has a reliable dividend profile. Over the past three years, it has consistently paid a dividend to shareholders. These payouts have also registered consistent growth during this time. The sector median in this regard is just two years. On August 18, the firm declared a quarterly dividend of $0.0525 per share, in line with previous. The forward yield was 0.62%. The dividend if payable to shareholders by early September.
Switch, Inc. is based in Las Vegas and provides tech solutions to network and telecommunications providers. These include cloud, information technology, and software products, among other solutions.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Pentwater Capital Management is a leading shareholder in Switch, Inc., with 6.5 million shares worth more than $218 million.
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This article is originally published at Insider Monkey.
