In this article, we examined the 10 best stocks to buy according to billionaire Ray Dalio, and his portfolio management strategy to gauge whether the legendary investor is in a position to reverse the losing trend. You can skip our comprehensive analysis of Dalio’s history, investment philosophy, and hedge fund performance, and go directly to 5 Best Stocks to Buy According to Billionaire Ray Dalio.
One of the world’s most successful hedge fund managers Raymond Thomas Dalio’s $223 billion hedge fund Bridgewater Associates has been struggling to beat the market trends over the last year. His hedge fund lost another 20% during the first quarter of this year following a double-digit loss in the pandemic year. However, Bridgewater Associates seeks to rebound in the rest of 2021. For that, the hedge fund has made huge adjustments in its portfolio to cope up with the market volatility. The founder of the famous Pure Alpha fund poured in billions of dollars into consumer staple, consumer discretionary, and communication stocks. Most of these companies have established business models along with sustainable cash generation potential, helping them to offer regular cash dividends to investors.
The American Billionaire, who has a net worth of around $20 billion and is ranked as the 88th richest person based on Forbes list, slashed stakes in debt securities, financial stocks, and exchange-traded funds that were the key driver of losses in 2020. The financial sector, which was accounted for 81% of the overall portfolio at the end of 2019, represented only 32% of the portfolio at the end of the first quarter of 2021.
Some of the notable holdings of Dalio’s hedge fund as of the first quarter of 2021 include Walmart (NYSE:WMT), Procter & Gamble Co (NYSE: PG) and Johnson & Johnson (NYSE: JNJ).
In Walmart Inc (NYSE: WMT), Dalio increased his stake by 17% in the first quarter, ending the period with 3.6 million shares of the company, worth $487.76 million.
Last month, Walmart (NYSE:WMT) beat Q1 estimates for EPS and revenue. The company’s comparable sales growth of 6% crushed analysts’ forecast of 0.9%. Ecommerce sales in the period jumped 37%.
Bridgewater owns 1.71 million shares of Johnson & Johnson (NYSE: JNJ), worth $281.02 million. Johnson & Johnson (NYSE: JNJ) shares are up 4% year to date. The company is facing a rapidly declining demand of its COVID-19 vaccines in the U.S. as reports suggest that about 21 million doses of COVID-19 vaccine developed by Johnson & Johnson (NYSE: JNJ) remain unused in the U.S.
In Procter & Gamble Co (NYSE: PG) , Dalio has a $436 million stake as of the end of the first quarter. Procter & Gamble Co (NYSE: PG) is current gaining attention after Wells Fargo analyst Chris Carey gave positive comments about the company’s top-line estimates.
Dalio on Bitcoin
Ray Dalio, who has generated more than $46 billion for investors since inception, claims that cryptocurrencies have the potential to fulfill the need for alternative investments. While he was among the biggest critics of bitcoin and the digital currency phenomena in the past, he now owns bitcoin and expects it to become a true store of value. In a recent interview, he stated that bitcoin is a better investment than bonds as he believes that bonds pay less than inflation. However, he is also concerned about government and regulators’ role.
“One of the great things, I think, as a worry is that the government has the capacity to control. Bitcoin, or the digital currencies. They know where they are, and they know what’s going on,” he said.
Mr. Dalio, 71, appears less optimistic about the materials sector. He slashed materials stocks weighting to around 5% of the Bridgewater Associates portfolio at the end of the first quarter, down significantly from almost 21% of portfolio weighting in the second quarter of 2020. During the March quarter, Bridgewater Associates initiated new positions in 127 stocks and raised its existing position in 204 stocks. Moreover, Ray Dalio’s hedge fund sold out 197 stocks and reduced its positions in 123 stocks. As of the end of the first quarter, Bridgewater held $11 billion in the 13F portfolio, with the top ten positions represented 38% of the overall portfolio weighting.
Ray Dalio of Bridgewater Associates
While Ray Dalio’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 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points. (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 digging into the 10 best stocks to buy according to billionaire Ray Dalio. We used Bridgewater’s 13F portfolio for the first quarter of 2021 for this analysis.
Best Stocks to Buy According to Billionaire Ray Dalio
10. Pinduoduo Inc. (NASDAQ: PDD)
Dalio’s Stake Value: $149,408,000
Percentage of Ray Dalio’s 13F Portfolio: 1.31%
Number of Hedge Fund Holders: 56
The China-based e-commerce platform Pinduoduo Inc. (NASDAQ: PDD) is a member of Ray Dalio’s hedge fund Bridgewater Associates portfolio since the second quarter of 2019. At the end of the first quarter of 2021, the firm held 1.11 million shares of Pinduoduo Inc. (NASDAQ: PDD) valued at around $149 million. Shares of Pinduoduo Inc. (NASDAQ: PDD) soared more than 80% in the past twelve months.
Tao Value, an investment management firm, mentioned a few stocks including Pinduoduo Inc. (NASDAQ: PDD) in the first quarter investor letter. Here is what Tao Value stated:
“Pinduoduo Inc. (NASDAQ: PDD) reported a strong quarter, reporting MAU of 720 million, now surpassing Taobao. However, it was overshadowed by a bigger news on Colin Huang resigning from Board and completely disassociating himself from PDD’s management & operation. Huang explained in his letter to shareholders that he would start fundamental research initiatives in food science. Although not entirely shocked (as he already stepped down from CEO July 2020), I am surprised by the fast pace of such transition. I remain confident in the organization and the culture Huang built but will monitor it closely.”
9. Starbucks Corporation (NASDAQ: SBUX)
Dalio’s Stake Value: $152,976,000
Percentage of Ray Dalio’s 13F Portfolio: 1.34%
Number of Hedge Fund Holders: 61
Bridgewater Associates first initiated a position in Starbucks Corporation (NASDAQ: SBUX) in the first quarter of 2020 and added to its existing position by 17% during the first quarter of 2021. Shares of Starbucks are up 36% in the last twelve months. In addition, the company offers a dividend yield of 1.62% and it raised dividends in the last eleven successive years. Ray Dalio held 1.39 million shares of Starbucks Corporation (NASDAQ: SBUX) valued at around $152 million, accounting for 1.35% of the entire portfolio.
Like McDonald’s Corporation (NYSE: MCD), Walmart (NYSE:WMT), Procter & Gamble Co (NYSE: PG) and Johnson & Johnson (NYSE: JNJ), Starbucks is one of the best stocks to buy according to billionaire Ray Dalio.
Wedgewood Partners, an investment management firm, mentioned a few stocks including Starbucks in the first quarter investor letter. Here is a part of what Wedgewood Partners stated:
“As we have observed Starbucks Corporation (NASDAQ: SBUX) through the unpredictable events of the past year, we believe all the things we liked about the Company’s competitive position before the pandemic have been turbocharged by the pandemic. We always have maintained the Company had no serious competition, anyway, and that in both large growth markets (U.S. and China), there was enormous fragmentation of share that would allow the Company to continue to expand through market expansion (especially in China) and through share gain versus small competitors. In fact, when we last discussed Starbucks, there was a lot of noise about competition in China from a newly established domestic competitor, Luckin Coffee, and that situation quickly dissolved into farce. In any case, had Luckin been a legitimate business, we had maintained that China was a massive market – and one in which coffee consumption was massively underpenetrated in comparison to other markets. We believed too that there was plenty of room for multiple large competitors to exploit.”
8. Costco Wholesale Corporation (NYSE: COST)
Dalio’s Stake Value: $198,439,000
Percentage of Ray Dalio’s 13F Portfolio: 1.74%
Number of Hedge Fund Holders: 56
Ray Dalio’s hedge fund also lifted its existing position in Costco Wholesale Corporation (NYSE: COST) during the first quarter by 15% to 562,979 shares, representing 1.75% of the entire portfolio. Costco Wholesale Corporation (NYSE: COST) is among the companies that have the ability to offer sustainable dividend growth along with a steady share price appreciation. Costco’s stock price is up 21% in the past twelve months. It has also increased its dividend in the past five straight years. Costco Wholesale Corporation (NYSE: COST) currently offers a dividend yield of 0.83%.
Like McDonald’s Corporation (NYSE: MCD), Starbucks Corporation (NASDAQ: SBUX), Walmart (NYSE:WMT), Procter & Gamble Co (NYSE: PG) and Johnson & Johnson (NYSE: JNJ), COST is one of the best stocks to buy according to billionaire Ray Dalio.
Ensemble Capital, an investment management firm, highlighted a few stocks including Costco Wholesale in the first quarter investor letter. Here is what Ensemble Capital stated:
“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco Wholesale Corporation (NYSE: COST) shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.
Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”
7. McDonald’s Corporation (NYSE: MCD)
Dalio’s Stake Value: $210,780,000
Percentage of Ray Dalio’s 13F Portfolio: 1.85%
Number of Hedge Fund Holders: 67
McDonald’s Corporation (NYSE: MCD) is a member of Ray Dalio’s stock portfolio since the beginning of last year. His hedge fund increased its position in McDonald’s Corporation (NYSE: MCD) by 22% to 1.86% of the overall portfolio during the first quarter of this year. MCD is considered the best stock for defensive investors amid its long dividend history and steady share price upside potential. The company currently offers a dividend yield of 2.23%.
Hedge funds were increasing their bets on the stock. The number of long hedge fund bets increased by 5 in recent months. McDonald’s Corporation was in 67 hedge funds’ portfolios at the end of the first quarter of 2020 compared to 62 positions in the previous quarter. The all-time high for this statistic is 84.
Like Costco Wholesale Corporation (NYSE: COST), Starbucks Corporation (NASDAQ: SBUX), Walmart (NYSE:WMT), Procter & Gamble Co (NYSE: PG) and Johnson & Johnson (NYSE: JNJ), MCD is one of the best stocks to buy according to billionaire Ray Dalio.
6. PepsiCo, Inc. (NASDAQ: PEP)
Dalio’s Stake Value: $252,980,000
Percentage of Ray Dalio’s 13F Portfolio: 2.23%
Number of Hedge Fund Holders: 61
The consumer staples company PepsiCo, Inc. (NASDAQ: PEP) also gained Ray Dalio’s confidence recently. In the first quarter of 2021, Bridgewater Associates lifted its stake in PepsiCo by 21% to 2.23% of the portfolio. PepsiCo, Inc. (NASDAQ: PEP) also has the potential to offer strong returns to investors in the form of dividends and share price gains. PepsiCo, Inc. (NASDAQ: PEP) raised its dividend in the past 49 consecutive years. It currently offers a dividend yield of around 2.9%.
PepsiCo, Inc. (NASDAQ: PEP) shareholders have witnessed an increase in enthusiasm from smart money in recent months. PepsiCo was in 61 hedge funds’ portfolios at the end of the first quarter of 2020 compared to 56 positions in the previous quarter. The all-time high for this statistic is 65.
Like McDonald’s Corporation (NYSE: MCD), Costco Wholesale Corporation (NYSE: COST), Starbucks Corporation (NASDAQ: SBUX), Walmart (NYSE:WMT), Procter & Gamble Co (NYSE: PG) and Johnson & Johnson (NYSE: JNJ), Pepsi is one of the best stocks to buy according to billionaire Ray Dalio.
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Disclosure: None. 10 Best Stocks to Buy According to Billionaire Ray Dalio is originally published on Insider Monkey.
