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What World-Class Hedge Funds Think About 5 Morgan Stanley’s Top Growth Stocks Through 2019

With most investors focused on the development of oil prices and the probability of further interest rate increased by the Federal Reserve this year, Morgan Stanley has commissioned its analysts to compile a list of 30 stocks to hold for the next three years. “We have tried to identify the best franchises, not the most undervalued stocks. Our driving principle was to create a list of companies whose business models and market positions would be increasingly differentiated by 2019,” Morgan Stanley said. Among the criteria used by analysts are the company’s ability to keep its competitive edge, cost efficiency and growth potential. In this article we’ll take a look at five of those 30 stocks and find out how do hedge funds like them.

By analyzing the equity portfolios of almost 800 top investors, we can see what stocks they are collectively bullish on and use this data to compile a portfolio that can outperform the market. We have determined through this process that the best strategy is to follow the 15 most popular small-cap picks among hedge funds, which have delivered an alpha of around 81 basis points per month in our backtests covering the period between 1999 and 2012 (see more details).

Servicemaster Global Holdings Inc (NYSE:SERV)

Nr. of Shares (as of December 31): 235,685

Value of Holding (as of December 31): $9.25 million

Hedge fund sentiment towards Servicemaster Global Holdings Inc (NYSE:SERV) has slightly cooled down during the fourth quarter, with the number of funds with long positions (among those we track) having decreased to 31 from 34 at the end of the third quarter. Billionaire Ken Griffin‘s Citadel Investment Group dumped approximately 35% of its holding over the quarter and held roughly 2.26 million shares of Servicemaster Global Holdings Inc (NYSE:SERV) at the end of December. Scott Mclellan and his fund, Marble Arch Investments, have only joined the party during the fourth quarter, having amassed 2.74 million shares of Servicemaster, the largest holding among the funds we follow. The company is set to announce 2016 first quarter results on May 4 and analysts are expecting revenues of $607 million and earnings of $0.39 per share, according to Yahoo! Finance. A provider of residential and commercial services, Servicemaster Global Holdings Inc (NYSE:SERV) has a market cap of $5.16 billion and is currently trading at a trailing Price to Earnings (P/E) ratio of 32.36, slightly lower than the industry average of 36.70 according to Yahoo! Finance.

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Constellation Brands, Inc. (NYSE:STZ)

Nr. of Shares (as of December 31): 1,370,865

Value of Holding (as of December 31): $195 million

At the end of December 2015, roughly 19% of Constellation Brands, Inc. (NYSE:STZ) common stock was held by 67 funds from our database, up from 64 reported at the end of September. Kensico Capital, managed by Michael Lowenstein, held the largest position among the funds tracked by Insider Monkey, having reported ownership of 6.36 million shares, down by 5% for the quarter. Stephen Mandel‘s Lone Pine Capital has, on the other hand, indicated a 15% increase in its stake to 5.35 million shares for the fourth quarter. Constellation Brands, Inc. (NYSE:STZ) released its fiscal fourth quarter results on April 6 and managed to beat analysts’ estimates. Revenues came in at $1.54 billion, up by 14% year over year, while earnings amount to $1.19 per share. For the full year, the company reported revenues of $6.55 billion and earnings of $5.18 per share.

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WhiteWave Foods Co (NYSE:WWAV)

Nr. of Shares (as of December 31): 2,846,457

Value of Holding (as of December 31): $110 million

Morgan Stanley has rated WhiteWave Foods Co (NYSE:WWAV) as ‘Overweight’ and has placed a price target of $45 per share. A consumer packaged food and beverage company, WhiteWave shares are currently trading at a trailing P/E ratio of 42.64, which is in line with the industry average of 41.30. By mid February, the stock has reversed a recent downtrend and managed to recover the ground lost since the start of the year, currently up by 2.8%. The number of investors from our database that held a long position in WhiteWave fell to 26 at the end of the 2015 fourth quarter, down from 33 long positions reported a quarter before. Ken Griffin’s Citadel Investment Group holds the largest stake in WhiteWave Foods Co (NYSE:WWAV) among the funds we follow, having reported ownership of approximately 3.49 million shares, up by 780% over the quarter. J Kevin Kenny Jr’s Emerging Sovereign Group is not far behind with a position that amounts to 2.28 million shares.

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First Republic Bank (NYSE:FRC)

Nr. of Shares (as of December 31): 438,182

Value of Holding (as of December 31): $28.9 million

The popularity of First Republic Bank (NYSE:FRC) registered a slight boost during the fourth quarter, with 20 of the funds followed by Insider Monkey having indicated a stake in the company in their latest 13F filings, up from 17 at the end of September. In its latest 13F filing, Ken Fisher‘s Fisher Asset Management has indicated ownership of 423,543 shares, up by 1% for the quarter. Robert Joseph Caruso’s Select Equity Group reported a 2% decrease in its holding to 3.51 million shares by the end of December. Morgan Stanley analysts have placed an ‘Overweight’ rating on First Republic Bank (NYSE:FRC) and a price target of $75 per share. The company has recently issued its first quarter financial report, managing to surpass Wall Street’s expectations. First Republic Bank posted a profit of $0.88 per share on the back of $519.6 million, while analysts were looking for $529.2 million in revenues and earnings of $0.80 per share. The stock ended Friday’s trading session at $70.83 per share, up by 9% so far this year. The company has a market cap of $10.3 billion and pays an annual dividend of $0.60 per share, which translates into a yield of 0.9%.

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Nike Inc (NYSE:NKE)

Nr. of Shares (as of December 31): 14,084,729

Value of Holding (as of December 31): $880 million

At the end of December, Nike Inc (NYSE:NKE) could be found in the portfolio of 63 funds among those we track, up from 59 a quarter earlier. Despite the large number, these funds held only 2.3% of the company’s outstanding stock. Alex Snow‘s Lansdowne Partners held more than 16.4 million shares of the sportswear company, up by 93% over the quarter. Lone Pine Capital, run by Stephen Mandel, has also reported a sizable position that amounted to 11.5 million shares, double the amount reported a quarter before. Nike Inc (NYSE:NKE) has a market cap of approximately $100 billion and pays an annual dividend of $0.6 per share, which represents a yield of 1%. The stock is currently trading at a trailing P/E ratio of 29, slightly higher than the industry average of 25.90.

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Disclosure: None