We recently compiled a list of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb and in this article we will discuss the activist investor’s position in Amazon.com, Inc. (NASDAQ:AMZN).
Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks This Company’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though the power company’s core markets have experienced volatility due to weak domestic electricity demand, its “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, The Texas-based energy group made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Note: All pricing data is as of June 6.
Is Amazon Dan Loeb’s Top Growth Stock Pick?
Amazon.com Inc. (NASDAQ:AMZN)
Third Point’s Stake Value: $919,938,000
Number of Hedge Fund Holders: 302
Dan Loeb grew his position in Amazon.com, Inc. (NASDAQ:AMZN) by 22% and ended Q1 2024 with a stake of $919 million in the company. Loeb’s bullish on Amazon.com, Inc. (NASDAQ:AMZN) and sees it as another “best run legacy” company that stands to capitalize on AI’s secular trends. Other hedge funds also grew their positions sizably in the company as the stock was part of 302 investors’ portfolios in Q1 2024, up from 293 portfolios in Q4 2023.
Amazon.com, Inc. (NASDAQ:AMZN) was primarily known for its e-commerce business but over the years it has diversified into other verticals including cloud, streaming, advertising, and supply chain and logistics, among many others. The tech titan, like Loeb’s other top 5 picks, has clear economic moats when it comes to its space. Amazon’s been among the frontrunners to pen contracts with renewable power operators for 24-hour data centers. The company’s also making strategic investments in AI startups, further growing its exposure and footprint. It invested an additional $2.75 billion in AI startup Anthropic in March, swelling its total investment to $4 billion. Its AWS business currently holds a majority market share and is among the top 3 cloud providers rivaling Microsoft’s Azure and Alphabet’s Google Cloud. The company’s also developing its own custom AI chips (Trainium and Inferentia) for facilitating the development of deep learning models.
Apart from being a true disruptor in tech, Amazon.com, Inc. (NASDAQ:AMZN) has generated billions of dollars of free cash flow over the years. Over the past 10 years, its free cash flow has grown at a CAGR of 34%. In 2023, the e-commerce giant converted over 100% of its profits to free cash flow. Amazon ended the year with $30.42 billion in net income and $32.2 billion in free cash flow. Moreover, the company has grown its top-line by 22.4% over the past 10 years and even more impressively its profits (10-year CAGR for net income is 62.15%). For 2024, analysts anticipate the group to grow its EPS by 57% and revenue by 11%.
On the Street, price targets range from $180 to $353 (median is $220). AMZN has gained 45% over the past 12 months and its 1-year median target implies an additional 20% upside from current levels.
Amazon.com, Inc.’s (NASDAQ:AMZN) diversified business model, advances in AI and the data center market are painting an attractive story. While the stock is an obvious long-term portfolio pick, given its blue chip status and growth rates, its newest moves are adding more reasons to buy the stock while it trades at 3 times its sales while rivals MSFT and GOOG trade at higher P/S multiples of 13.3x and 7x.
Amazon.com, Inc. (NASDAQ:AMZN) is billionaire Dan Loeb’s top growth stock pick. To learn more about the growth stocks that Dan Loeb’s piling into, check out our free report on the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb. While we acknowledge the potential of AMZN and an AI play and believe that it should have a place in your portfolio, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.