Despite dominating headlines and market caps, mega-cap stocks may be the most overlooked sector by active managers today. According to a recent Morgan Stanley note, mega-cap tech companies are now the most under-owned group relative to their weighting in the major indices among actively managed funds in over 16 years.
In an interview on CNBC on August 19, Morgan Stanley analyst Erik Woodrink said, “Most of the mega-caps are generally underowned.” The gap between the portfolio weightings and the representation in the S&P 500 of these stocks has significantly expanded. This has created a massive opportunity, according to Morgan Stanley. The firm noted that “mega-cap tech is underowned by about 140 basis points,” up from 115 basis points just a quarter earlier.
The Mag 7 stocks ex-Tesla are trading at an average forward P/E ratio of 26.76, which is reasonable, considering the premium they command. This holds true for mega-cap stocks across the board, which are trading at historically lower valuations. In this article, we’ll dive into the top 10 mega-cap stocks to buy according to hedge funds.
Our Methodology
To identify the top 10 mega-cap stocks to buy according to hedge funds, we used Finviz’s screener to choose stocks with at least a market cap of $200 billion, in order to include only mega caps. Additionally, we included only those mega-cap stocks that had an upside of at least 15%. We sorted the final list in ascending order of hedge fund sentiment as of Q2 2025.
Note: All data was recorded on September 3, 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Top 10 Mega-Cap Stocks to Buy According to Hedge Funds
10. Costco Wholesale Corporation (NASDAQ:COST)
Average Analyst Upside: 15.54%
Number of Hedge Fund Holders: 91
Market Cap: $419.73 billion
Costco Wholesale Corporation (NASDAQ:COST) is one of the top 10 mega-cap stocks to buy according to hedge funds. On August 28, Telsey Advisory maintained its Outperform rating on Costco Wholesale Corporation (NASDAQ:COST), while setting a price target of $1,100. As of September 3, the stock was trading at $945.18, meaning the firm’s implied upside for the stock is a solid 16.37% for the next twelve months.
Analysts cited the company’s membership-based model as a key driver of stable revenue growth. That translated into membership fee income growth of 10.4% year-over-year in Q3 of Fiscal Year 2025. The company reported a renewal rate of 92.7% in the U.S. and Canada and 90.2% globally during the quarter.
Costco’s revenue has grown at a compounded annual rate of 11.1% over the last four years, while improving its net margin from 2.4% to 2.9% in that period. Telsey is only one of the many admirers of the stock. Out of the 36 Wall Street analysts tracking the stock, 21 rate it as a Strong Buy or a Buy, while 14 think it’s a Hold, and only one analyst rates it a Strong Sell. The stock does command a premium, though, as it trades at a lofty forward P/E ratio of 52.29x.
9. Merck & Company, Inc. (NYSE:MRK)
Average Analyst Upside: 20.25%
Number of Hedge Fund Holders: 92
Market Cap: $210.18 billion
Merck & Company, Inc. (NYSE:MRK) is one of the top 10 mega-cap stocks to buy according to hedge funds. On September 2, Merck & Company (NYSE:MRK) shared early results from a study called CORALreef Lipids. This study tested a new medicine named enlicitide decanoate.
It’s a pill you take once a day to help adults with high cholesterol. The study showed the medicine worked well; it lowered Low-Density Lipoprotein (LDL), also known as bad cholesterol, and other fats in the blood more than a fake pill called a placebo. They checked this after 24 weeks.
What’s also important is that the medicine seems safe. People taking it didn’t have more side effects than those taking the placebo. If the drug gets approved, it could be a lot easier for patients because it’s a pill, not a shot. While shots have been efficient, they have faced adoption challenges
Merck plans to show these results to health authorities worldwide and talk about them at future meetings. This study is part of a bigger effort called the CORALreef program. It tries to help many people who still can’t get their cholesterol under control, even with medicine.
