Hedge funds’ favorite stocks in the time of tech giants

The personal finance site WalletHub, using the quarterly disclosures of hedge funds, has just released a list of the 25 stocks they most favor. 

In a statement from its managing editor, John Kiernan, introducing the list, said that the knowledge displayed in this list will offer retail investors help in making informed decisions as to where to put their money.

The first five stocks on the list are: Apple (AAPL), Bank of America (BAC), Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOG). It is fascinating that four of these top five are giants of the digital revolution. Two of them, Microsoft and Alphabet/Google, are engaged at the moment in a knife fight as to the future of that revolution, but in the marketplace and in the corridors of political power.

The political part of the fight came to a head, in fact, in testimony before a committee of the House of Representatives Friday, the day after WalletHub released the list. Brad Smith, Microsoft’s president, told the House Judiciary antitrust subcommittee, that Google poses a grave threat to competition in the news business, as media companies are forced “to use Google’s tools, operate on Google’s ad exchanges, contribute data to Google’s operations, and pay Google money.”

In the present climate, a bet on either one of these two giants, MSFT or GOOG, may be akin to a short sale on the other one. So, although it is surely true there is a lot of hedge fund interest in them both, the retail investor might want to be cautious before drawing sweeping conclusions from that. GOOG is up in market value year-to-date, but nearly the whole of that rise came about in the short window from January 29 to February 3, in response to sound fourth quarter performance.

The second five stocks on the WalletHub list are: American Express Company (AXP), Facebook (FB), Coca-Cola (KO), Visa (V), and Paypal Holdings (PYPL). Here we have an even mix of credit card giants, digital disruptors, and the titans of the business model that Steve Jobs famously described as “selling sugar water.” Facebook was another of the targets of complaint at that House hearing on the state of competition in the news business.

Google and Facebook are, between them, expected to capture more than half the digital ad spending in 2021. This has devastated the newspaper industry. But the cliche that comes to mind is “be fearful when everyone else is greedy.” The tech giants are making a lot of investors greedy right now, so some may say it might be time to get fearful. The interest of the Judiciary Committee may itself be a symptom the high-fliers are at or near a top.

The remaining fifteen of the golden 25 are: Wells Fargo & Co. (WFC), NVIDIA Corp. (NVDA), Kraft Heinz Co. (KHC), Mastercard (MA), Adobe Systems (ADBE), Baker Hughes (BKR), Capital One Financial Corp. (COF), Comcast Corp. (CMCS A), Netflix Inc. (NFLX), US Bancorp (USB), Tesla (TSLA), UnitedHealth Group (UNH), Verizon Communications VZ), Charter Communications (CHTR) and Shopify (SHOP).

Christopher Faille

Christopher Faille has written on a variety of legal, regulatory, and financial issues for decades. He is the author of "The Decline and Fall of the Supreme Court" (1995), for example, and the coauthor, with David O'Connor, of "Basic Economic Principles" (2000). He was an early reporter with Lipper HedgeWorld and has contributed to Forbes and to the Hedge Fund Law Report.
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