In this article, we discuss the 11 best Roth IRA stocks to buy according to hedge funds. If you want to read about some more Roth IRA stocks, go directly to 5 Best Roth IRA Stocks To Buy According To Hedge Funds.
In 2022, recession fears had clouded the marketplace as the Federal Reserve in the United States raised interest rates to tame inflation. This had resulted in a massive drop in the prices of growth stocks. These growth stocks, in recent years, have come to dominate the US stock market, morphing into trillion dollar corporations. Growth investors had seized the opportunity to pick up the shares of firms like Visa Inc. (NYSE:V), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA) at discount prices during the rut.
These investors are now repairing the benefits of these trades. Per latest figures, the shares of these three firms are all up this year, by 25%, 55%, and 245% respectively. There is little doubt that these tech firms still have a formidable runway for growth. Visa Inc. (NYSE:V) is investing heavily in the rapidly expanding blockchain space, Microsoft Corporation (NASDAQ:MSFT) is starting to realize the benefits of the entry into the massive video game business, and NVIDIA Corporation (NASDAQ:NVDA) looks set to be an industry leader in AI products.
Stocks like these, with growth prospects but solid fundamentals, generally make for the best investments in Roth IRA. Roth IRA are accounts that offer people the benefits of tax-free growth and withdrawals after retirement. Since equity investments are also covered under these benefits, many investors are on the lookout for a reasonable stock that offers growth potential but has a strong core business. They are inspired by Peter Thiel, an investor who turned his $2,000 Roth IRA equity investment into a billion dollar retirement plan.
The growth prospects offered by tech behemoths can be understood in greater detail by following the business plans of these firms. Colette Kress, the CFO of NVIDIA Corporation (NASDAQ:NVDA), recently outlined these during the third quarter earnings call. Kress highlighted how the hardware products of the firm were essentially the reference architecture for AI supercomputers and data center infrastructures, and the firm planned to ramp up the production of these AI chips heading into 2024.
“The enterprise wave of AI adoption is now beginning. Enterprise software companies such as Adobe, Databricks, Snowflake, and ServiceNow are adding AI copilots and assistants with their pipelines. And broader enterprises are developing custom AI for vertical industry applications such as Tesla and autonomous driving. Cloud service providers drove roughly the other half of our data center revenue in the quarter.
Demand was strong from all hyperscale CSPs as well as from a broadening set of GPU-specialized CSPs globally that are rapidly growing to address the new market opportunities in AI. NVIDIA H100 Tensor Core GPU instances are now generally available in virtually every cloud with instances and high demand. We have significantly increased supply every quarter this year to meet strong demand and expect to continue to do so next year. We will also have a broader and faster product launch cadence to meet a growing and diverse set of AI opportunities.”
Our Methodology
The companies that have long-term growth catalysts, dividend growth history, solid business fundamentals, and positive analyst coverage were selected for the list. Hedge fund sentiment was included as a classifier as well. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm.
A financial analyst on a business call, studying a portfolio of stocks.
Best Roth IRA Stocks To Buy According To Hedge Funds
11. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 47
United Parcel Service, Inc. (NYSE:UPS) provides letter and package delivery services. On November 8, investment advisory Loop Capital maintained a Hold rating on United Parcel Service, Inc. (NYSE:UPS) stock and lowered the price target to $162 from $172.
Among the hedge funds being tracked by Insider Monkey, Chicago-based Citadel Investment Group is a leading shareholder in United Parcel Service, Inc. (NYSE:UPS) with 1.9 million shares worth more than 306 million.
Just like Visa Inc. (NYSE:V), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), United Parcel Service, Inc. (NYSE:UPS) is one of the best Roth IRA stocks to buy according to hedge funds.
In its Q3 2023 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and United Parcel Service, Inc. (NYSE:UPS) was one of them. Here is what the fund said:
“A higher-for-longer rate mentality taking hold was a headwind for economically sensitive stocks. Rising wages have been one of the main drivers of inflation, and this has proved to be a sticky area, keeping the Fed’s attention and weighing on share prices. For example, United Parcel Service, Inc. (NYSE:UPS) renegotiated a wage increase for its union-backed workforce this summer, which weighed on margins that were already being constricted by slowing volumes. While the new union deal will dampen profits over the next 12 months due to the front-end-loaded nature of the new five-year contract, management gained increased flexibility to deploy automation, which we think should further enhance UPS’s strong competitive position and provide a long-term tailwind to profitability.”
10. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 52
AT&T Inc. (NYSE:T) provides telecommunications, media, and technology services worldwide. On October 21, Citi analyst Michael Rollins maintained a Buy rating on AT&T Inc. (NYSE:T) stock and raised the price target to $18 from $17.
At the end of the third quarter of 2023, 52 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in AT&T Inc. (NYSE:T), compared to 56 in the preceding quarter worth $1.4 billion.
9. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 57
The Coca-Cola Company (NYSE:KO) is a beverage company that manufactures, markets, and sells various non-alcoholic beverages worldwide. On December 13, investment advisory Citi maintained a Buy rating on The Coca-Cola Company (NYSE:KO) stock and raised the price target to $67 from $65.
Among the hedge funds being tracked by Insider Monkey, Omaha, Nebraska-based firm Berkshire Hathaway is a leading shareholder in The Coca-Cola Company (NYSE:KO) with 400 million shares worth more than $22 billion.
In its Q2 2022 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and The Coca-Cola Company (NYSE:KO) was one of them. Here is what the fund said:
“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, The Coca-Cola Company (NYSE:KO) trades at ~30x P/E despite having the same earnings as 10 years ago.
Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.
I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Coca-Cola is facing disruption risk from consumers shifting to new, heathier beverage brands.
But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.”
Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”
8. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 64
CVS Health Corporation (NYSE:CVS) provides health services in the United States. On December 6, Evercore ISI analyst Elizabeth Anderson maintained an Outperform rating on CVS Health Corporation (NYSE:CVS) stock and raised the price target to $85 from $80.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in CVS Health Corporation (NYSE:CVS) with 4.4 million shares worth more than $307 million.
In its Q3 2023 investor letter, Patient Capital Management, an asset management firm, highlighted a few stocks and CVS Health Corporation (NYSE:CVS) was one of them. Here is what the fund said:
“Our largest new position was CVS Health Corporation (NYSE:CVS). We owned CVS in 2021 through call options, which provided a handsome return. We sold it when it reached our assessment of intrinsic value. In the first half of the year, the stock traded down nearly 40% from its highs. CVS is valued like a pharmacy business in secular decline, while its strategy and assets are far better. CVS owns a healthcare benefits business (Aetna) and a pharmacy-benefits manager (Caremark). It recently acquired Signify Health and Oak Street Health, entering the In-Home Evaluations and primary care spaces enhancing the company’s ability to offer comprehensive healthcare services as we transition to a system more focused on value-based care. Short-term headwinds, such as an unwind from COVID, some unfavorable health care developments and negative headlines from PBM contract losses, weighed on the price. The company is again significantly undervalued, with a trough-level 8.2x P/E multiple well below peers’ 12.2x, with a 3.5% dividend yield. We saw an opportunity to diversify the portfolio with a stable company with a promising strategy and group of assets at an attractive price.”
7. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 75
The Procter & Gamble Company (NYSE:PG) provides branded consumer packaged goods worldwide. On November 13, investment advisory Jefferies initiated coverage of The Procter & Gamble Company (NYSE:PG) stock with a Buy rating and a price target of $177.
At the end of the third quarter of 2023, 75 hedge funds in the database of Insider Monkey held stakes worth $5.7 billion in The Procter & Gamble Company (NYSE:PG), compared to 74 in the preceding quarter worth $5.3 billion.
In its Q3 2023 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and The Procter & Gamble Company (NYSE:PG) was one of them. Here is what the fund said:
“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, Coca-Cola trades at ~30x P/E despite having the same earnings as 10 years ago. The Procter & Gamble Company (NYSE:PG) is likewise at ~27x P/E, with earnings only ~12% higher than a decade ago (or a ~1% annual growth rate). This equates to a mere 3.3% – 3.7% earnings yield.
Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.
I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Proctor & Gamble is facing disruption from direct-to-consumer brands that offer their products for a fraction of the price.
But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.
Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”
6. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 84
Johnson & Johnson (NYSE:JNJ) makes and sells healthcare products. On December 12, investment advisory Morgan Stanley maintained an Equal Weight rating on Johnson & Johnson (NYSE:JNJ) stock and lowered the price target to $171 from $170.
At the end of the third quarter of 2023, 84 hedge funds in the database of Insider Monkey held stakes worth $4.1 billion in Johnson & Johnson (NYSE:JNJ), compared to 88 in the previous quarter worth $4 billion.
Alongside Visa Inc. (NYSE:V), Microsoft Corporation (NASDAQ:MSFT), and NVIDIA Corporation (NASDAQ:NVDA), Johnson & Johnson (NYSE:JNJ) is one of the best Roth IRA stocks to buy according to hedge funds.
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Disclosure. None. 11 Best Roth IRA Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
