In this article, we discuss the 10 best stocks to buy according to billionaire D.E. Shaw.
Equity market pricing is never perfect due to supply and demand imbalances, emotional reactions, and errors. Billionaire investor David Elliot Shaw excels at detecting and exploiting these inefficiencies to generate shareholder value. Unlike most hedge fund managers who rely on intuition, Shaw uses sophisticated mathematical models and algorithms for investment decisions. Over the years, he has developed software and hardware to gain an edge in investment opportunities.
Born in 1951, David E. Shaw became a successful billionaire scientist and hedge fund manager. After earning a PhD from Stanford in 1980, he founded D.E. Shaw & Co. in 1988 with six employees and $28 million in capital. The hedge fund has averaged a 12.5% return since inception, with only one down year. Shaw’s firm uses powerful computers and advanced algorithms for quick market responses and risk management, returning over $51 billion to investors. Likewise, it generated a net return of 11.88% between 2001 and 2011. While Shaw’s firm was down by 9% at the height of the financial crisis in 2008, it bounced back to profitability with a 21% return in 2009.
READ ALSO: 10 Best Stocks to Buy According to Billionaire David Einhorn and Billionaire Paul Singer’s Top 12 Long-Term Stock Picks.
D.E. Shaw is expanding and launching new funds. In 2023, they raised money for D.E. Shaw Alkali Fund VI, the newest in their Alkali group. By November 2024, they had secured $1 billion for this fund, focusing on corporate debt, structured credit, and synthetic securitizations.
Last year, the firm also raised $1.1 billion for two new private investment vehicles: D.E. Shaw Voltaic Fund and D.E. Shaw Diopter Fund. In June 2024, D.E. Shaw announced it was raising its second fund in 16 months to target bank capital deals. They filed a private placement notice for D.E. Shaw Diopter Fund II, but the amount wasn’t disclosed.
Bloomberg reported that D.E. Shaw’s largest hedge fund, the D.E. Shaw Composite Fund, gained 9.6% in 2023, outperforming the HFR Global Hedge Fund Index, which was up about 2.5% through December 15. Reuters added that D.E. Shaw’s macro-oriented fund, the Oculus Fund, gained 7.8% in 2023, beating its macroeconomic peers. According to Bloomberg, the Oculus Fund has never had a negative year since it started.
Diversification is another vital arsenal that D.E. Shaw & Co. relies on to spread risk and reduce market volatility. The firm is highly diversified with a portfolio value of about $116.49 billion. While technology stocks account for the most significant share in the equity market at 24.6%, the hedge fund also has stakes in Services at 17.5% and the financial sector at 7.7%. In addition to diversifying holdings, Shaw relies on a multi-strategy approach to squeeze optimum value in the market.
Billionaire D.E. Shaw suggests investing in resilient companies, even as the US Federal Reserve signals fewer interest rate cuts in 2025. Despite three cuts reducing the benchmark rate to 4.25%-4.5%, economic slowdown concerns persist, especially in the labor market. Job growth is mainly in government and health care, while growth in manufacturing, business, and professional services has stagnated.
David E. Shaw of D.E. Shaw
Our Methodology
To make the list of best stocks to buy according to billionaire D.E. Shaw, we scanned D.E. Shaw & Co investment portfolio. We then settled on the hedge fund’s largest holdings analyzing why they stand out and the number of hedge funds that hold stakes in them. Finally, we ranked the stocks in ascending order based on D.E. Shaw & Co stake value.
At Insider Monkey, we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Stocks to Buy According to Billionaire D.E. Shaw
10. Hess Corporation (NYSE:HES)
D.E. Shaw & Co’s Stake Value: $547.41 Million
Number of Hedge Fund Holders: 75
Hess Corporation (NYSE:HES) is an exploration and production company that produces, transports and sells crude oil, natural gas liquids (NGLs), and natural gas. Its stock is down by about 11% for the year compared to a 30% gain for the S&P 500. The underperformance comes on oil prices plunging to about $70 a barrel.
Amid the underperformance, Hess Corporation (NYSE:HES) continues to outperform on the operations front, affirming why it is one of the best stocks to buy, according to billionaire D.E. Shaw. The company delivered better-than-expected third-quarter results on October 30, 2024. Its net income totaled $498 million or $1.62 a share, better than $1.25 a share expected.
Its net production was also up by 17% to 461,000 barrels but was weighed down by lower oil processes. Hess Corporation (NYSE:HES) exited the quarter with $1.9 billion in cash and cash equivalents. Likewise, the company raised its dividend offering by 14% to $0.50 a share.
Amid the better-than-expected financials, Hess Corporation’s (NYSE:HES) competitive edge stems from its focus on large, high-impact oil resources. Its focus is on resource-rich regions, including Guyana Stabroek Block and domestic operations in the Bakken Shale. Additionally, the company is engaged in a potential merger with Chevron, which could result in substantial growth benefits.
9. Alphabet Inc. (NASDAQ:GOOGL)
D.E. Shaw & Co’s Stake Value: $617.90 Million
Number of Hedge Fund Holders: 202
Alphabet Inc. (NASDAQ:GOOGL) is one of the best stocks to buy according to billionaire D.E. Shaw as artificial intelligence developments continue to fuel investor optimism. The stock is already up by 41%, outperforming the overall market as investors remain optimistic that the company is succeeding in safeguarding its lucrative search engine business.
Broader adoption and integration of AI features into the Google search engine is believed to have strengthened the company’s search empire. Likewise, Google’s lucrative digital advertising business remains well-protected and poised to enjoy robust growth. Investments in AI are seen as one of the factors that have resulted in substantial free cash flow into Google’s core search advertising business, which has reached $55.8 billion over the past 12 months.
The strengthened financial flexibility leaves Alphabet Inc. (NASDAQ:GOOGL) in a strong position to fund growth in multiple sectors for years. One key area is cloud computing, whereby Alphabet is the third largest player with a 12% market share right behind Amazon and Microsoft. The company has been integrating AI features into its cloud offerings as one of the ways of attracting clients. Similarly, revenues in the cloud unit were up 35% to record highs of $11.35 billion in the quarter.
Alphabet Inc.’s (NASDAQ:GOOGL) long-term prospects have also received a boost with the launch of a quantum computing chip that it says can solve a problem in five minutes. Enhancing computing speeds with the new chips could be a game changer that could strengthen Alphabet’s prospects on the cloud.
8. CAVA Group, Inc. (NYSE:CAVA)
D.E. Shaw & Co’s Stake Value: $637.31 Million
Number of Hedge Fund Holders: 32
CAVA Group, Inc. (NYSE:CAVA) is a company that operates a chain of restaurants in the US. It is turning out to be one of the biggest surprises in the restaurant industry. Its share price has more than doubled after a 188% rally year to date. The rally has come on the company delivering blowout growth in revenues and earnings nearly every quarter since going public in mid-2023.
CAVA Group, Inc. (NYSE:CAVA) has become dominant in the expanding Mediterranean food market by leveraging its distinctive value proposition to appeal to a broad clientele. This accomplishment demonstrates CAVA’s capacity to change dining preferences and establish Mediterranean food as a powerful force in the restaurant sector.
In the third quarter, CAVA Group, Inc. (NYSE:CAVA) delivered an 18.1% increase in same-store sales, resulting in a 39% increase in revenues to $241.5 million. Earnings before taxes were up 69% to $33.5 million as net income jumped 165% to $18 million. The robust sales growth comes as the restaurant chain continues to expand its footprint with 11 new locations, bringing its total locations to 352.
In its prospectus last year, CAVA Group, Inc. (NYSE:CAVA) stated that it has the potential to open more than 1,000 restaurants in the US by 2032. Such a move would strengthen the company’s revenue base by allowing it to target new niche markets.
