In this article, we will review the top 10 stocks to buy now according to secretive billionaire quant hedge fund manager. Click to skip ahead and see the Top 5 Stocks To Buy Now.
Secretive billionaire quant hedge fund manager John Overdeck and David Siegel back in 2001 founded quantitative trading powerhouse Two Sigma Advisors that currently oversees $35 billion in assets under management. The quant king John Overdeck is the main brain behind the quantitative stock trading strategies because of his mathematical background. He won a silver medal in the International Mathematical Olympiad when he was only 16 years old.
John Overdeck earned a B.S. in Mathematics and an M.S. degree in Statistics from Stanford University. He was ranked the highest earning hedge fund manager in 2019. After achieving a B.S. in Mathematics and an M.S. in Statistics from Stanford University, the secretive billionaire quant hedge fund manager worked as Managing Director at D.E. Shaw & Co, and as Vice President and technical assistant at Amazon.com, Inc. (NASDAQ: AMZN).
He is a member of Forbes’ list of 400 wealthiest Americans in 2020, with a net worth of more than $6.5 billion.
The other co-founder David Siegel has also been playing a key role in enhancing returns of the computer-powered hedge fund since 2001. David Siegel earned a Ph.D. in Computer Science degree from the Massachusetts Institute of Technology and worked as a Chief Information Officer at D.E. Shaw & Co, and Tudor Investment Corp.
The algorithmic trading techniques worked strongly for John Overdeck and David Siegel in the past years as their fund turned into one of the biggest hedge funds in the US. Surprisingly, the quant hedge fund has been lagging behind this year as the market crash triggered by the coronavirus pandemic has jolted their computer powered algorithms.
The risk-premia strategy of Two Sigma saw a loss of 11.5% this year. The firm’s absolute-return fund fell 2.7%, while its absolute-return macro fund dropped 23%.
“Quants rely on data from time periods that have no reflection of today’s environment,” said Adam Taback, chief investment officer of Wells Fargo Private Wealth Management, to Bloomberg. “When you have volatility in markets, it makes it extremely difficult for them to catch anything because they get whipsawed back and forth.”
Two Sigma might be struggling this year, but its historical track record is impressive. Two Sigma’s Compass Enhanced fund returned more than 30% annually during the 5 years between 2009 and 2014. We are coming out of another economic contraction stronger than we came out of the the 2008-2009 financial crisis. So, if Two Sigma repeats the same performance, its investors will see their portfolios nearly quadruple over the next 5 years. In any case, we believe we can locate long-term winners among Two Sigma’s top 10 stock picks.
While John Overdeck and David Siegel’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start examining the top 10 stocks to buy according to secretive billionaire hedge fund manager to see how the computer-powered trading strategies are employed to tackle higher volatility levels.
10. PayPal Holdings (NASDAQ: PYPL)
The payment transfer company PayPal (PYPL) is one of the most favorite stocks of Two Sigma Advisors over the years. The quant hedge fund has been holding PayPal stock since the first quarter of 2016, but the firm’s computer-powered techniques pushed the quant fund to enhance the stake in the digital payment transfer company in the latest quarter.
The firm has raised its stake in PayPal by 9000% in the third quarter to 1.8 million shares valued at $369 million, accounting for 1.05% of the overall portfolio.
PayPal has been one of the best performers so far this year as the digital payment transfer company saw massive growth in user base and payment transfer volumes. Shares of PayPal holding jumped 105% in the last twelve months.
The Insider Monkey report shows that hedge funds are bullish on PayPal: “Paypal Holdings was in 150 hedge funds’ portfolios at the end of September. The all-time high for these statistics prior to this quarter was 144. This means the bullish number of hedge fund positions in this stock currently sits at its all-time high. There were 144 hedge funds in our database with PYPL positions at the end of the second quarter. Our calculations also showed that PYPL currently ranks 8th among the 30 most popular stocks among hedge funds.”
Polen Capital briefly shared its thoughts about PayPal in its Q3 investor letter:
“We continue to have high conviction in MasterCard and Visa, which we trimmed last quarter, and chose to rebalance our weights as we added to our position in PayPal. PayPal’s value proposition to merchants and consumers continues to expand in the current environment, and we believe this will have a lasting positive impact on the business. At the end of the quarter, our collective position in Visa, MasterCard, and PayPal was more than 13%, an increase in our aggregate weight from the start of the year.”
9. Merck & Co (MRK)
The pharmaceutical company Merck & Co (NYSE: MRK) has been a permanent member of Two Sigma’s portfolio. The quant hedge fund first initiated a stake in Merck during the fourth quarter of 2010. Although the billionaires’ hedge fund has sold 13% of stake in the latest quarter, the pharmaceutical giant still stands at the 9th place in our list of the top 10 stocks to buy now.
The stake currently accounts for 1.06% of the portfolio valued at $371 million. The shares of Merck underperformed this year due to pandemic related challenges.
Although it is not in the Insider Monkey’s 30 popular stocks among hedge fund managers, the report still shows hedge funds are showing interest in Merck: “Merck was in 80 hedge funds’ portfolios at the end of the third quarter of 2020. The all-time high for this statistics is 84. MRK investors should pay attention to an increase in hedge fund interest of late. There were 76 hedge funds in our database with MRK positions at the end of the second quarter.”
Saturna Capital opined on MRK in its Q1 letter saying that BMY and “Merck benefited from low valuations, strong balance sheets, and attractive dividends going into the crisis, minimizing the negative fallout.”
8. The Procter & Gamble Company (NYSE: PG)
The secretive billionaire quant hedge fund manager has slashed its stake in Procter & Gamble Company (NYSE: PG) by 26% in the latest quarter. Despite that, Two Sigma Advisors hold a massive stake in PG. The firm first initiated a position in consumer staples company during the second quarter of 2012 and it is currently ranked as the eighth largest holdings valued at $380 million.
In addition to more than 70% share price growth in the past five years, PG’s average dividend growth in the past five years stood around 3.13%.
Procter & Gamble Company is not in the list of the top 30 most popular stocks among hedge funds. However, the report shows increased activities during the third quarter: “The Procter & Gamble Company has seen an increase in activity from the world’s largest hedge funds recently. The Procter & Gamble Company was in 75 hedge funds’ portfolios at the end of the third quarter of 2020. The all-time high for this statistics is 79. There were 73 hedge funds in our database with PG positions at the end of the second quarter.”
7. AbbVie Inc. (NYSE: ABBV)
The secretive billionaire quant hedge fund manager continues showing confidence in AbbVie Inc. (NYSE: ABBV). The firm has raised its stake by 4% in the latest quarter to 4.3 million shares valued at $381 million, making it the 7th stock in our list of the top 10 stocks to buy now.
Shares of AbbVie soared more than 17% in the last twelve months. It’s a good stock to hold because of its dividend growth potential. The company has raised dividends at an average of 20% in the past five years. ABBV is also among Warren Buffett’s top 10 dividend stock picks.
Despite billionaire quant hedge fund manager’s confidence, Insider Monkey says, “ABBV has experienced a decrease in hedge fund sentiment recently. AbbVie Inc was in 82 hedge funds’ portfolios at the end of the third quarter of 2020. The all-time high for this statistics is 89.
6. Tesla, Inc (NASDAQ: TSLA)
The world’s largest electric vehicle company Tesla (NASDAQ: TSLA) is the fifth-largest stock holding of billionaire quant hedge fund manager. Although the firm has sold 34% of shares in the latest quarter to capitalize on massive share price gains, Two Sigma’s stake in the electric vehicle company jumped from 0.93% of the portfolio to 1.17% of the portfolio.
Tesla stock price rallied almost 783% since the beginning of 2020, thanks to increasing demand for electric vehicles. The company’s strong financial and operational performance added to share price gains. It has generated profits in the past five successive quarters.
Insider Monkey report says, “In Q3 2020, the number of bullish hedge fund positions on Tesla stock increased by about 6% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Tesla’s growth potential.”
Baron Opportunity Fund laid out the bulls’ case in Tesla in its Q3 letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, and energy storage solutions. The company reported robust second quarter results, solidly ahead of market expectations, despite the impact of the COVID-19 pandemic and associated macro-economic challenges. Indeed, in the second quarter, Tesla delivered almost 91,000 total vehicles – with strong unit level economics of 25.4% GAAP automotive gross profit margins – and another quarter of GAAP profitability and solid free cash flow (above $400 million). Moreover, Tesla recently announced a record of nearly 140,000 total vehicle deliveries for the third quarter. Despite global COVID-19 disruptions, our long-term expectations remain high due to Tesla’s differentiated products and healthy unit economics. Tesla has announced capacity expansions in Shanghai, China; Berlin, Germany; and Austin, Texas to support its short-term path to 1 million vehicles and its long-term goal of 20 million. Just a couple of weeks ago, Tesla held its Battery Day event, and presented a grand vision around its battery innovation and expanding its competitive advantages, including massively increasing internal battery production capacity (100 gigawatt-hours by 2022 and 3,000 by 2030), improving battery range (about 50%), and significantly lowering battery costs (cost per kilowatt-hour to decline by over 50%). We remain confident that Tesla will leverage its brand, technology leadership, and the electric vehicle secular trend to achieve sustainable long-term growth.”
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