In this article, we discuss the 9 tech stocks that hedge funds prefer over Netflix.
Streaming giant Netflix, Inc. (NASDAQ:NFLX) has announced a series of measures aimed at shoring up business in recent months as competitors eat away at the subscription growth story of the firm. These measures include expansion into gaming services and limits to password sharing. The revenues of the company have taken a hit as subscription growth stalls and competitors pour billions into their content production. According to a report by The Information, Netflix, Inc. (NASDAQ:NFLX) executives have been told to limit spending and hiring as well.
At the end of the fourth quarter of 2021, 113 hedge funds in the database of Insider Monkey held stakes worth $14.5 billion in Apple Inc. (NASDAQ:AAPL), up from 106 in the previous quarter worth $14.8 billion. Among the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in Netflix, Inc. with 5.4 million shares worth more than $3.2 billion.
However, there are many technology stocks that hedge funds prefer over Netflix, Inc.. These include Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), among others discussed in detail below.
Our Methodology
The companies that operate in the technology sector and had a greater number of hedge funds with stakes in them compared to Netflix, Inc. at the end of the fourth quarter of 2021 were selected for the list. The analyst ratings, business fundamentals, and growth catalysts of the stocks are also discussed to provide some additional context to readers.
Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Copyright: lculig / 123RF Stock Photo
Hedge Funds Prefer These Tech Stocks Over Netflix
9. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 134
Apple Inc. makes and sells consumer electronics. News platform Bloomberg reports that the company has started working on a long-term plan to reduce reliance on third parties for financial payments and related infrastructure. It is also looking to China for supplies of memory chips, a key component in the manufacture of the best-selling iPhones, as it tackles supply chain disruptions. The moves come as interest rates rise and result in a mass exodus from growth stocks towards value plays.
On March 30, Bank of America analyst Wamsi Mohan maintained a Buy rating on Apple Inc. stock with a price target of $215, underlining that the demand for iPhones remained high based on trade-in prices despite concerns around the sales due to the war in Ukraine.
At the end of the fourth quarter of 2021, 134 hedge funds in the database of Insider Monkey held stakes worth $186 billion in Apple Inc., up from 120 in the previous quarter worth $146 billion.
Just like Amazon.com, Inc., Microsoft Corporation, and Meta Platforms, Inc., Apple Inc. is one of the stocks that hedge funds are buying.
In its Q4 2021 investor letter, Berkshire Hathaway highlighted a few stocks and Apple Inc. was one of them. Here is what the fund said:
“Apple Inc. – our runner-up Giant as measured by its yearend market value – is a different sort of holding. Here, our ownership is a mere 5.55%, up from 5.39% a year earlier. That increase sounds like small potatoes. But consider that each 0.1% of Apple’s 2021 earnings amounted to $100 million. We spent no Berkshire funds to gain our accretion. Apple’s repurchases did the job. It’s important to understand that only dividends from Apple are counted in the GAAP earnings Berkshire reports – and last year, Apple paid us $785 million of those. Yet our “share” of Apple’s earnings amounted to a staggering $5.6 billion. Much of what the company retained was used to repurchase Apple Inc. shares, an act we applaud. Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple Inc. products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well.”
8. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 142
Visa Inc. (NYSE:V) is a payments technology firm. As part of a larger plan to diversify in the crypto business, the company recently announced that it would be launching a program to help entrepreneurs grow their business through non-fungible tokens. Back in August, the company had purchased an NFT for $150,000 worth of Ethereum. The initiative aims to support creators working in art, music, fashion and film. It also helps the payment giant test alternative digital payment mechanics on the blockchain.
On February 9, Erste Group analyst Hans Engel upgraded Visa Inc. stock to Buy from Hold, noting that cross-border should see a robust recovery this year and help companies like Visa with their transaction volumes.
At the end of the fourth quarter of 2021, 142 hedge funds in the database of Insider Monkey held stakes worth $29 billion in Visa Inc., compared to 143 in the preceding quarter worth $26 billion.
In its Q4 2021 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Visa Inc. was one of them. Here is what the fund said:
“We initiated two new positions in Q4, adding Visa. Visa Inc. is a global payments company and is one of the four major US credit card networks (along with Mastercard, American Express and Discover). Visa is accepted at over 80 million merchant locations in 200 countries, interacts with 15 thousand financial institutions and processed 165 billion transactions with $13 trillion of payments and cash volume in the 12-month period ending September 2021. We have always admired Visa’s business, but its valuation prevented it from getting over the hurdle and into the portfolio. As of late, the stock has been caught up in indiscriminate selling as part of a larger unwind trade in a richly valued fintech space. Concerns also exist about Visa’s slowdown in cross-border transactions due to COVID and its net-revenue sharing arrangements with Amazon. This created an opportunity to purchase a very highquality business that benefits from substantial barriers to entry, network effects and several structural growth drivers, including consumer spending growth, the shift from cash to card, increasing ecommerce penetration, market share growth and global expansion. We believe Visa Inc. has a long runway for revenue growth as cash and checks continue to lose share. Consumers can’t use cash and checks online, after all. From a “safer” perspective, the company has a rocksolid balance sheet and has a high conversion of net income to free cash flow, which it uses for share repurchases, dividend growth and tuck-in acquisitions.”
7. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 144
Mastercard Incorporated (NYSE:MA) is a technology company that provides transaction processing services. As competitors push into the crypto economy, Mastercard has launched plans of its own for the future of finance. On March 7, the firm announced that it would be signing a long-term partnership with Zeta, a fintech startup, for the launch of a new type of payments mechanism that will provide card processing services to banks and other financial institutions. It relies on a cloud-native and fully API-ready credit processing stack.
On March 4, Tigress Financial analyst Ivan Feinseth kept a Strong Buy rating on Mastercard Incorporated stock and raised the price target to $472 from $460, noting the firm was one of the “best ways to play the ongoing secular shift to electronic and other new payment technologies”.
Among the hedge funds being tracked by Insider Monkey, Virginia-based investment firm Akre Capital Management is a leading shareholder in Mastercard Incorporated with 5.8 million shares worth more than $2.1 billion.
In its Q4 2021 investor letter, Saturna Capital, an asset management firm, highlighted a few stocks and Mastercard Incorporated was one of them. Here is what the fund said:
“Given the likelihood of rising inflation and interest rates ahead, we anticipate adjustments to the portfolio to reduce exposure to highly valued stocks dependent on low interest rates to support terminal year valuations, while seeking investments in companies more correlated with a return to economic normalcy. We sold our position in Mastercard. Although Mastercard Incorporated does not charge or collect interest, its association with credit activities was problematic.”
6. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 153
Uber Technologies, Inc. (NYSE:UBER) develops and operates proprietary technology applications. The firm has recently stepped up accusations of local taxi firms in large metropolitan areas in the US, giving the stock a major boost in the past few weeks. Reports indicate that the company is close to a deal with a large taxi company in San Francisco under the terms of which a fleet of vehicles will be added to the Uber platform in the area. Earlier in March, Uber had entered into a similar agreement with taxi firms in New York.
On March 24, MKM Partners analyst Rohit Kulkarni reiterated a Buy rating on Uber Technologies, Inc. stock with a price target of $65, highlighting that deals with local taxi firms in New York was a “sentiment driver” for the stock.
Among the hedge funds being tracked by Insider Monkey, Boston-based Altimeter Capital Management is a leading shareholder in Uber Technologies, Inc. with 1.5 million shares worth more than $482 million.
Along with Amazon.com, Inc., Microsoft Corporation, and Meta Platforms, Inc., Uber Technologies, Inc. is one of the stocks that institutional investors have their eye on.
ClearBridge Investments, in its Q3 2021 investor letter, mentioned Uber Technologies, Inc.. Here is what the fund has to say in its letter:
“We have also been looking for multiyear secular trends outside of the IT and Internet sectors to help us maintain a portfolio that can perform well in markets with varied sector or factor leadership. In particular, electrification of the global economy and the transition to electric vehicles (EVs) are areas where we continue to add exposure. We are investing in the brains behind EVs through NXP in the control center and Aptiv for safety features. Global rideshare leader Uber Technologies, Inc. will also be a key player in the transition from internal combustion engines to EVs.”
5. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 158
The ticker, Alphabet Inc. (NASDAQ:GOOG), represents the Class C shares of tech firm Alphabet. The firm owns and runs various products and platforms related to the tech world. It was recently named among the 100 most influential companies in the world by the Time magazine. The company has recently started rolling out a new feature that will allow applications owners on the Play Store to directly charge consumers for bills rather than having to go through the Store. The testing for the feature has already begun via the Spotify app.
On March 10, Deutsche Bank analyst Ben Black initiated coverage of Alphabet Inc. stock with a Buy rating and a price target of $3,150, underlining that the firm was a “structural winner” from the secular trend of commerce and services shifting to digital platforms.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in Alphabet Inc. with 2.9 million shares worth more than $8.5 billion.
In its Q4 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and Alphabet Inc. was one of them. Here is what the fund said:
“In contrast, we made a different kind of mistake about a decade ago. Google, now Alphabet Inc., performed very well for us while we owned it. The company kept outperforming our assumptions and we kept lowering them to be conservative. “Trees do not grow to the sky.” The stock kept going up and our value grew but did not keep pace with the stock. It hit our estimate of fair value and we sold it with a nice gain, patting ourselves on the back. We kept following Alphabet Inc. and what they actually did over the next several years was roughly double the assumptions we used to value it. Therefore, our value was too conservative, and we sold it too cheaply, missing many years of compounding. Fortunately, we experienced some volatility several years ago that allowed us to purchase Alphabet Inc. (Google) again with a margin of safety.”
4. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 209
The ticker, Alphabet Inc. (NASDAQ:GOOGL), represents the Class A shares of tech firm Alphabet. As the net income of the firm increases, there are indications that it could follow the path of competitor Apple and splurge on share buybacks to boost the EPS. Apple has spent close to half a trillion dollars on share buybacks in the past few years. With services like YouTube and Google Cloud generating a significant amount of revenue for the firm, it seems like Google does not need to invest a whole lot more into services, unlike consumer giant Apple.
In the next few years, Google Cloud, which generated $22 billion in revenue for Alphabet Inc. in the past quarter, could jump to around $100 billion annual revenue by 2025. Incentive to spend on share buybacks is increased considering that most of the cash produced by Google is held in securities with percent returns.
At the end of the fourth quarter of 2021, 209 hedge funds in the database of Insider Monkey held stakes worth $32.3 billion in Alphabet Inc., up from 195 in the preceding quarter worth $28.5 billion.
3. Meta Platforms, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 224
Meta Platforms, Inc. is a diversified technology company. On March 24, the company announced that it would invest close to $800 million to build a new hyperscale data center in Kansas. The facility, comprising 1 million square feet, will be the 16th Meta data center in the US and the 21st around the world. The new facility will also pursue a new sustainability initiative of the firm under which the center will have at least 80% more water efficiency while using 32% less energy.
On March 10, Deutsche Bank analyst Benjamin Black initiated coverage of Meta Platforms, Inc. stock with a Buy rating and a price target of $265, noting that ESG concerns around the firm were manageable and had created an “unprecedented” favorable risk/reward profile for the stock.
At the end of the fourth quarter of 2021, 224 hedge funds in the database of Insider Monkey held stakes worth $31.8 billion in Meta Platforms, Inc., compared to 248 in the preceding quarter worth $38.5 billion.
In its Q4 2021 investor letter, Boyar Value Group, an asset management firm, highlighted a few stocks and Meta Platforms, Inc. was one of them. Here is what the fund said:
“Corporate executives can have many different reasons for selling shares (anticipation of tax law changes, philanthropy, diversification, and much more), but the sheer number of billionaire founders who sold shares in 2021 should raise eyebrows and might well be signaling a market top. Bloomberg’s Ben Steverman and Scott Carpenter report not only that Mark Zuckerberg of Meta Platforms, Inc. (formerly known as Facebook) sold shares in his company almost every day last year but also that the founders of Google sold ~$3.5 billion worth of stock (the first time either Sergey Brin or Larry Page has sold shares since 2017).”
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 262
Microsoft Corporation is a Washington-based tech giant. The company has multiple drivers of growth in the coming years, including the Azure web services business, the Office subscription software business, and the gaming business. The firm is also famous for successful acquisitions. As the $75 billion deal to acquire Activision matures, it is worth considering that the revenue of LinkedIn, another blockbuster Microsoft purchase from a few years ago, has seen revenue triple since the takeover.
On February 8, Morgan Stanley analyst Keith Weiss maintained an Overweight rating on Microsoft Corporation stock with a price target of $372, identifying the firm as a “durable EPS growth story” and a “strong buy”.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation with 26.8 million shares worth more than $9 billion.
In its Q4 2021 investor letter, Vulcan Value Partners, an investment management firm, highlighted a few stocks and Microsoft Corporation was one of them. Here is what the fund said:
“Microsoft Corporation was a material contributor during the quarter. It is one of the highest quality companies in the world. We believe it has tremendous competitive advantages in its consumer and commercial Microsoft Office products as well as in its server and tools and Azure divisions. Over the last several years, Microsoft Corporation has been implementing a successful transition from a traditional software license and maintenance revenue model to a subscription revenue model. The company remains competitively entrenched, produces strong free cash flow, and has a strong balance sheet.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 279
Amazon.com, Inc. is a technology firm with core interests in the ecommerce business. Amazon invested nearly $11 billion into the streaming content for Amazon Prime Video in 2020 and $13 billion in 2021, complementing the subscription growth story with a nearly trillion dollar valuation. The subscription growth of Amazon Prime Video is higher than the revenue growth of Netflix. The service is on track to rake in revenue of nearly $100 billion by 2025.
On March 25, Evercore ISI analyst Mark Mahaney kept an Outperform rating on Amazon.com, Inc. stock with a price target of $4,300, noting that shipping elasticity, brand advertising revenue, grocery, and the cheap share price were underappreciated growth catalysts for the stock.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. with 4.1 million shares worth more than $13.9 billion.
In its Q4 2021 investor letter, Davis Funds, an asset management firm, highlighted a few stocks and Amazon.com, Inc. was one of them. Here is what the fund said:
“Within the traditional growth category, growing euphoria has led to bubble prices for many companies, most especially those with new and unproven business models such as those discussed above. In contrast, our research focuses on a select handful of proven growth stalwarts whose shares still trade at reasonable valuations. For example, because of concerns about future litigation and regulation, several dominant internet businesses, including Amazon.com, Inc., trade at steep discounts to many unproven and unprofitable growth darlings that, in our view, trade at euphoric prices. While we expect a continued barrage of negative headlines around the company, as well as increased regulation in the years ahead, we do not expect a significant decline in its long-term profitability.”
You can also take a peek at 10 Best Healthcare Dividend Stocks to Buy Now and 10 Dividend Stocks with Over 20 Years of Dividend Increases.
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This article is originally published at Insider Monkey.
