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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| March 13, 2019
It's a good idea to keep one eye on the "smart money." Sure, hedge funds' performance doesn't always live up to the hype, but considering they represent more than $3 trillion in assets under management and have built a reputation of having stock-market savvy, it's good to know what they're putting their capital toward.
Helpfully, the folks at WalletHub keep tabs on the stocks that hedge fund managers are buying, selling and holding every quarter. Combing through regulatory filings, WalletHub looks at the positions of more than 400 hedge funds, tallies their positions in individual stocks, then ranks the stocks by their total holdings value.
Spoiler alert: Every one of these companies is massive by market value. Indeed, they would have to be to accommodate so much institutional interest. It also is no surprise that these stock picks are all household names.
Here are the 25 best blue-chip stocks to buy now, based on how popular they are with hedge funds. Given these companies' blue-chip status and strong track records, it's easy to see why they're the ones the "smart money" loves the most.
Data is as of March 12, 2019, unless otherwise noted. Companies are listed in reverse order of popularity with hedge funds, according to WalletHub. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided by FactSet via WSJ.com.
Market value: $501.0 billion
Dividend yield: N/A
Analysts' opinion: 3 strong buy, 1 buy, 4 hold, 0 sell, 0 strong sell
A bet on Berkshire Hathaway (BRK.B, $202.50) isn't just a bet on chairman and CEO Warren Buffett, the greatest value investor of all time, it's a diversified wager on the broader economy.
Berkshire owns scores of companies outright, from Geico insurance to industrial powerhouse Precision Castparts to the BNSF Railway. It also holds sizeable stakes in everything from Costco (COST) to Sirius XM Holdings (SIRI) to Delta Air Lines (DAL) … and several of the stocks on this list.
The Oracle of Omaha's record speaks for itself. Under the direction of Buffett and partner Charlie Munger, Berkshire Hathaway created almost $356 billion in wealth from 1976 to 2016, good for an annualized return of 22.6%. Berkshire Hathaway also is the best-performing stock in the Standard & Poor's 500-stock index over the past 50 years.
Market value: $231.7 billion
Dividend yield: 3.5%
Analysts' opinion: 5 strong buy, 2 buy, 7 hold, 0 sell, 0 strong sell
As the largest pure-play pharmaceutical company in the U.S. by market value and revenue, and a component of the Dow Jones Industrial Average, Pfizer (PFE, $41.73) is a natural holding for institutional investors seeking a balance of income and growth.
This blue-chip drug company has raised its dividend annually every year since 2010. At the same time, analysts expect steady (if unspectacular) bottom-line gains. Analysts expect PFE to generate average annual earnings growth of nearly 6% for the next five years, according to data from Refinitiv.
Pfizer's massive market value – and related liquidity – as well as its long-term track record of outperformance should help maintain its popularity with the hedge fund crowd.
Market value: $147.0 billion
Dividend yield: 2.9%
Analysts' opinion: 19 strong buy, 4 buy, 5 hold, 0 sell, 1 strong sell
As the nation's fourth-largest bank by both assets and market value, Citigroup (C, $62.81) is a natural fit for hedge funds looking for exposure to the financial sector.
Wall Street expects the money-center bank to generate average annual earnings growth of nearly 17% over the next half-decade, according to data from Refinitiv. Their average price target of $77.15 gives C stock an implied upside of about 23% in the next 12 months or so.
Citigroup’s stock has lagged the S&P 500 by a wide margin over the past 52 weeks, but the firm's massive market value, share liquidity and standing as one of the nation's biggest banks make it hard for hedge funds to pass up.
Market value: $207.9 billion
Dividend yield: 3.0%
Analysts' opinion: 18 strong buy, 3 buy, 12 hold, 0 sell, 0 strong sell
Home Depot (HD, $184.00) is an irresistible way for institutional investors like hedge funds to bet on both the housing market and the health of U.S. consumers.
Not only is Home Depot the nation's largest home improvement retailer, it's also one of the elite 30 members of the Dow. Blue-chip stocks don't get bluer than that. Home Depot also happens to be one of the best stocks of all time.
Stifel analysts rate shares in Home Depot at "Buy," citing "the company's continued demonstration of executing operational improvements while delivering strong top-line growth." Analysts surveyed by Refinitiv expect HD to deliver average earnings growth of more than 11% annually for the next five years.
Market value: $237.3 billion
Dividend yield: 4.2%
Analysts' opinion: 12 strong buy, 0 buy, 17 hold, 1 sell, 0 strong sell
Hedge funds like big, blue-chip stocks. And for those seeking defense and income, too, Verizon (VZ, $57.43) is a big, no-brainer blue-chip. The only telecommunications stock in the Dow delivers a hefty yield on its dividend. It’s also a Dividend Achiever – not sporting quite the 25-year dividend-growth minimum necessary to join the Dividend Aristocrats, but still something substantial at a decade or more. VZ has improved its payout every year since 2007.
Verizon isn't going to overwhelm you with growth, but it's hardly a utility stock. Analysts expect earnings to increase at an average annual pace of 9.5% for the next five years. At the same time, as a defensive telecom stock, it tends to hold up better when the market is in a downturn. With a beta of 0.51, Verizon can be thought of as roughly half as volatile as the S&P 500.
Verizon also has an enviable track record as an investment. From 1984 to 2016, VZ delivered an annualized return of 11.2%, which created $165.1 billion in wealth.
Market value: $209.7 billion
Dividend yield: 2.7%
Analysts' opinion: 12 strong buy, 0 buy, 3 hold, 1 sell, 0 strong sell
Like its fellow Dow pharmaceutical stock Pfizer, Merck (MRK, $81.23) is a hit with hedge funds. Its massive market cap, blue-chip status and attendant liquidity are no doubt part of the appeal. It also doesn't hurt that Merck has a bunch of blockbuster drugs on its hands.
Cancer drug Keytruda is a runaway best-seller, having been approved for advanced melanoma, non-small-cell lung cancer, head and neck cancer, classical Hodgkin’s lymphoma and bladder cancer. The pharmaceutical giant is seeking additional approvals for Keytruda for a wide range of other cancers. Bulls also point to strength in Januvia for diabetes, as well as Gardasil, a human papillomavirus (HPV) vaccine.
Merck has something else in common with rival Pfizer: The pharma giant also ranks among the 50 best stocks of all time.
Market value: $93.2 billion
Dividend yield: 1.4%
Analysts' opinion: 10 strong buy, 2 buy, 7 hold, 0 sell, 1 strong sell
If it's good enough for Warren Buffett, it's good enough for the hedge fund crowd.
Buffett first took a stake in American Express (AXP, $110.43) in 1963 and he has held on ever since. Today, Berkshire is AXP's largest shareholder with an 18% stake in the firm.
Uncle Warren's ardor for American Express has been well-placed. AXP's management is strong, it's a dominant brand in the industry and it generates large amounts of free cash flow (the money left over after essential capital expenditures are made that can be used to finance dividends and stock buybacks).
Did we mention that American Express also happens to be a Dow stock?
Market value: $121.8 billion
Analysts' opinion: 37 strong buy, 4 buy, 3 hold, 0 sell, 0 strong sell
Salesforce.com (CRM, $158.28) began delivering software-as-a-service long before cloud-based services became all the rage. The company sells subscriptions to web-based applications to help companies increase and manage their sales.
Analysts at Stifel rates shares at "Buy," thanks in part to the company's market-leading position in its industry and a focus on bringing new products to life. And even after recent weakness, Goldman Sachs analyst Heather Bellini told CNBC "we continue to see CRM as one of the best positioned companies in software."
But what really gets hedge funds' blood flowing is the company's growth prospects. Analysts project Salesforce's earnings to rise at an average annual clip of almost 29% over the next five years.
Market value: $369.0 billion
Dividend yield: 2.6%
Analysts' opinion: 7 strong buy, 1 buy, 9 hold, 1 sell, 0 strong sell
Why, yes, it's another Dow stock. Johnson & Johnson (JNJ, $139.18) is the largest health-care company in the blue-chip index. In addition to pharmaceuticals, JNJ also makes medical devices and well-known over-the-counter consumer brands such as Listerine mouthwash, Tylenol pain reliever and Johnson’s Baby Shampoo.
Johnson & Johnson has been under siege lately. Recent reporting suggests JNJ had known for years that its talcum powder contained the known carcinogen asbestos, underscoring what many have suspected for quite some time now. It's also being sued for its alleged role in the opioid crisis.
Hedge funds, however, are keeping the faith. JNJ's mega market value, central role in the health-care sector and status as a top long-term holding make it difficult for hedge funds to ignore.
Market value: $128.9 billion
Analysts' opinion: 17 strong buy, 3 buy, 12 hold, 0 sell, 0 strong sell
With the likes of Photoshop, Premiere Pro for video editing and Dreamweaver for website design, among others, Adobe Systems (ADBE, $263.51) is the undisputed leader in making software for designers and other creative types.
ADBE's dominant position is partly why analysts at Canaccord Genuity have a "Buy" rating on the stock. "Quality never goes out of favor," they write. "Adobe is a very high quality firm that we strongly believe should be in a large-cap growth portfolio."
Hedge funds clearly agree, no doubt lured by earnings growth that's forecast to rise at an average rate of nearly 23% per year through 2024.
Market value: $196.9 billion
Analysts' opinion: 10 strong buy, 4 buy, 11 hold, 0 sell, 0 strong sell
Dow stock alert! Coca-Cola (KO, $46.05) – while struggling with shrinking interest in sugary drinks – is another longtime, much beloved holding of Warren Buffett's Berkshire Hathaway. As a massive stock and cornerstone of the consumer staples sector of the market, it's a natural fit for a wide swath of institutional investors.
It's also an income investor's dream come true. King Coke has paid a quarterly dividend since 1920, and that dividend has increased annually for the past 55 years.
The dependable, rising dividend and comparatively low volatility make KO a way to add defensive ballast to a portfolio. And the gargantuan market value and attendant liquidity means there's plenty of room for institutional investors to build large positions. KO also happens to be one of the best stocks of all time.
Market value: $178.7 billion
Dividend yield: 2.1%
Analysts' opinion: 21 strong buy, 4 buy, 8 hold, 0 sell, 0 strong sell
Cable, broadband and media giant Comcast (CMCSA, $39.49) has a full load of "Strong Buy" ratings from Wall Street analysts, so it should come as no surprise that it's popular with hedge funds, as well.
Comcast, which also owns NBC Universal, closed its $39 billion takeover of European pay-TV giant Sky in October. Jefferies Equity Research says Comcast is a "franchise pick" for investors' portfolios. Among other points in CMCSA's favor, analysts say NBC Universal is undervalued by the market.
Additionally, Comcast is a big hit with active mutual fund managers and just happens to be one of the 50 best stocks of all time. CMCSA generated an annualized return of 12.4% from 2002 to 2016. That was good for lifetime wealth creation of $147 billion.
Market value: $212.1 billion
Analysts' opinion: 18 strong buy, 2 buy, 3 hold, 1 sell, 0 strong sell
Boeing's (BA, $375.41) stock could be in for an extended period of turbulence as airlines around the world ground its popular 737 Max 8 jets amid safety concerns. How hedge funds respond remains to be seen, but the aerospace giant can probably maintain its allure long-term.
Boeing's massive market value and blue-chip status – it’s yet another member of the Dow – make it a natural home for hedge funds and other institutional investors.
A long record of consistent share-price outperformance also helps explain why Boeing is so popular with the hedge-fund crowd. Boeing has beaten the broader market by wide margins over the last one-, three-, five- and 10-year periods. BA is one of the best S&P 500 stocks of the past 25 years, too. And the company is a dividend-growth fiend, having more than doubled its quarterly payout since 2015.
Market value: $155.5 billion
Analysts' opinion: 27 strong buy, 3 buy, 11 hold, 0 sell, 3 strong sell
Netflix (NFLX, $356.27) is popular with hedge funds.
You don't say!
The streaming media and production company holds the pole position in its industry and has a torrid growth forecast. Analysts expect Netflix to generate average annual earnings growth of almost 50% over the next five years, according to data from Refinitiv. That's remarkable for a company with a market value already in excess of $150 billion.
"We are strongly encouraged regarding our investment thesis, which revolves around a rapidly expanding catalog of original content driving continued strong subscriber growth," say analysts at Canaccord Genuity, who rate NFLX shares at "Buy."
Market value: $232.8 billion
Dividend yield: 0.59%
Analysts' opinion: 32 strong buy, 5 buy, 3 hold, 1 sell, 0 strong sell
It seems like everyone loves Mastercard (MA, $226.94). The global payments processor is a favorite of analysts and active mutual fund managers, too.
And then there’s the imprimatur of the world’s greatest value investor. Warren Buffett’s Berkshire Hathaway owns 4.9 million shares in Mastercard worth about $1.1 billion.
Analysts at Wedbush rate MA at “Outperform,” citing the company’s strong growth trends, unique strategy and robust global brand.
Mastercard has proven to be a wise investment. It has outperformed the broader market by wide margins over the past one-, three-, five- and 10-year periods. That may just continue. Analysts project earnings growth to average nearly 21% annually for the next five years.
Market value: $225.9 billion
Dividend yield: 3.6%
Analysts' opinion: 13 strong buy, 3 buy, 11 hold, 1 sell, 2 strong sell
Wells Fargo (WFC, $49.65) can't shake bad press, but the nation's third-largest bank by assets remains popular with hedge funds, analysts and, yes, Warren Buffett.
We’ve been bullish on WFC on more than one occasion in the past. After all, it’s one of Warren Buffett’s top holdings and has been an exemplary stock for retirement. That said, shares have underperformed the broader market over the past one-, three- and five-year periods, hampered by the bank's phony accounts scandal and other issues.
Perhaps hedge funds smell a bargain. Analysts at Sandler O'Neill highlight WFC's cost controls and aggressive capital management in assigning a "Buy" rating on the stock.
Market value: $279.5 billion
Bank of America (BAC, $28.94) is another stock beloved by both hedge funds and Warren Buffett alike. The nation's second-largest bank by assets is a top holding of Berkshire Hathaway. The holding company owns a stake worth about $26 billion, second in value only to its investment in Apple (AAPL).
The bet has paid off so far in 2019, as shares in Bank of America have easily outperformed the broader market.
As a massive money-center bank, BAC is almost unavoidable for hedge funds looking to make big bets on the financial sector. Analysts expect average annual earnings growth of almost 21% over the next five years, according to Refinitiv data.
Market value: $340.7 billion
Dividend yield: 3.1%
Analysts' opinion: 13 strong buy, 1 buy, 15 hold, 0 sell, 1 strong sell
What goes for BofA goes double for JPMorgan Chase (JPM, $104.04) when it comes to hedge funds looking to make big bets on the financial sector. Not only is JPM America’s largest bank by assets, it's a member of the Dow Jones Industrial Average too.
With its blue-chip status, huge market value and highly respected – if not occasionally controversial – CEO Jamie Dimon, JPMorgan is naturally a magnet for hedge funds. It also helps that Warren Buffett is a fan too.
Berkshire Hathaway upped its stake in the bank by 40% in the fourth quarter of 2018. Buffett's holding company first invested in JPM by purchasing 35.7 million shares in Q3, so now it owns more than 50 million shares.
Market value: $343.6 billion
Dividend yield: 0.7%
Analysts' opinion: 31 strong buy, 6 buy, 3 hold, 0 sell, 0 strong sell
It’s easy to see why Visa (V, $151.73) is popular with hedge funds. As the world’s largest payments network, the company is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Analysts polled by Refinitiv expect Visa’s profits to increase an average of almost 16% a year over the next half-decade.
Wall Street is wildly bullish on the name, too. Of the 40 analysts tracked by FactSet, 31 call Visa a "Strong Buy," six have it at "Buy" and three say it's a "Hold."
But it's not just analysts and highflying hedge-fund managers who have taken a shine to Visa. It also happens to be yet another Buffett stock pick. Berkshire Hathaway owns 10.6 million shares in Visa, worth roughly $1.6 billion.
Market value: $235.8 billion
Dividend yield: 1.5%
Analysts' opinion: 22 strong buy, 3 buy, 1 hold, 0 sell, 0 strong sell
Large institutional investor looking to make big bets in the health insurance sector can’t really avoid UnitedHealth Group (UNH, $245.88). With a market value of $236 billion and a 2020 sales forecast of $265 billion, UNH is the largest publicly traded health insurance company by a wide margin.
UnitedHealth’s girth stems from a long history of mergers and acquisitions – including MetraHealth, HealthWise of America and AmeriChoice – and stock-price outperformance. In the past five years alone, UNH shares delivered a total return (price appreciation plus dividends) of 248%, according to Morningstar. The broad U.S. stock market generated a total return of just 66% over the same span.
Analysts expect UnitedHealth’s earnings to increase an average of 15% annually for the next five years, according to data from Refinitiv. If they’re right, UNH should continue its winning ways.
Market value: $832.3 billion
Analysts' opinion: 38 strong buy, 4 buy, 2 hold, 0 sell, 0 strong sell
It should come as no surprise that hedge funds are big believers in Google parent Alphabet (GOOGL, $1,197.25). The stock has been a key driver of the bull market's returns throughout its 10-year run, and Alphabet's growth prospects remain bright.
Analysts expect Alphabet to deliver average annual earnings growth of almost 18% for the next half-decade. That's a red-hot pace for a company already worth around $830 billion.
And Alphabet is no one-trick pony. True, thanks to Google, it owns commanding market share in the fast-growing digital advertising industry. But Alphabet also is a major player in cloud-based services. Additionally, it's home to self-driving car startup Waymo, as well as Nest Labs, a developer of gadgets for the Internet of Things. Artificial intelligence, machine learning and virtual reality are other major areas of investment.
Market value: $490.7 billion
Analysts' opinion: 34 strong buy, 5 buy, 8 hold, 0 sell, 1 strong sell
Facebook (FB, $171.92) might be feeling increasing heat from critics and would-be regulators, but hedge funds don't much care. Such is the potential earnings power of the world's largest social network.
Facebook forms a digital-advertising duopoly with Google, thanks to its 2.32 billion monthly active users. But there's more to the company than its eponymous network. It also owns Instagram, the increasingly popular photo-sharing platform, and mobile instant-messaging apps WhatsApp and Messenger. It also owns Oculus, a virtual reality company.
Analysts forecast annual average earnings growth of more than 16% for the next five years. With shares trading at just 19 times expected earnings, it's understandable that so many analysts say FB stock is worth buying.
Market value: $852.6 billion
Dividend yield: 1.6%
Analysts' opinion: 17 strong buy, 3 buy, 18 hold, 0 sell, 1 strong sell
Gigantic Dow stock owned by Warren Buffett? Check. So naturally it follows that Apple (AAPL, $180.91) is a hedge fund darling.
Slower iPhone sales have knocked shares down from the 2018 highs that gave Apple a trillion-dollar market value. But hedge funds and Warren Buffett believe the company has plenty of growth left in it.
The bull case for AAPL stock is that the company's customers, a famously loyal bunch, don’t just buy a single gadget; they buy into an entire ecosystem of hardware, software and services. That includes things such as apps from the App Store, music on iTunes and financial services such as Apple Pay.
Market value: $821.8 billion
Analysts' opinion: 39 strong buy, 5 buy, 1 hold, 0 sell, 0 strong sell
From Wall Street analysts to mutual fund managers, it seems everyone loves Amazon.com (AMZN, $1,673.10). It's only to be expected that hedge funds do too.
The e-commerce giant, which did not prioritize profits for years, is forecast to generate average annual earnings growth of 44% for the next half-decade. That’s an astonishing growth rate for a company of Amazon’s size. And Amazon isn't just a retailer. The company has several additional drivers of revenue, including Amazon Web Services (AWS), its Echo smart speakers, even ads.
"There are still plenty of exciting growth standouts, including AWS, advertising, and even third-party sales," say Canaccord Genuity analysts, who rate shares at "Buy."
Market value: $871.7 billion
Analysts' opinion: 27 strong buy, 3 buy, 2 hold, 0 sell, 1 strong sell
Microsoft (MSFT, $113.62) continues its reign as the stock most popular with hedge funds. The Dow stock has staged a remarkable run over the past three years, delivering a total return of more than 130%. For comparison's sake, the broader market is up 47% over the same time frame.
Thanks to the extended rally, MSFT is currently the world's biggest company by market value.
Credit the software giant’s transition to subscription-based services and cloud computing. Analysts at Stifel, who rate shares at "Buy," view subscription products such as Azure and Office 365 as large, multi-year growth engines.
Analysts forecast average earnings growth of 14% a year for the next five years, according to a survey by Refinitiv. That’s impressive for a company that’s worth roughly $870 billion.