In this article, we will take a look at the 11 cash-rich stocks to buy according to hedge funds. To skip our analysis of the recent trends, and market activity, you can go directly to see the 5 Cash-Rich Stocks to Buy According to Hedge Funds.
The top 75 non-banking stocks, based on their cash reserves, listed on major United States stock exchanges, held an aggregate of nearly $2.0 trillion of cash and equivalents and short-term investments on their balance sheet according to their latest publicly available financial results. Technology sector companies, and ecommerce companies combined accounted for the biggest share of this cash pile with reserves of nearly $858 billion. Out of these 75 companies, the 11 cash-rich stocks to buy according to hedge funds are sticking on a cash and short-term investments pile of a whopping $707 billion, more than the annual GDP of the majority of nations worldwide.
This raises the question: why do companies carry so much cash? There are several factors that come into play when we look into ‘cash-hoarding’ tendencies of large (and small) corporations. Companies like to maintain a cash (and liquid assets) buffer to allow them to maneuver effectively, especially in times of economic uncertainty as available balances allow them to hold of layoffs or other similar measures in case of adversity. Companies looking for expansion, either organically through investments in R&D etc., or through merger & acquisition activities, have greater flexibility to manage the market conditions.
A prime example is Microsoft Corporation’s (NASDAQ:MSFT) recent acquisition of video game company, Activision Blizzard, Inc., completed in October, for a cash payment of $61.8 billion, net of cash acquired. A cash pile of nearly $144 billion as of September 30 enabled Microsoft Corporation (NASDAQ:MSFT) to pay the price from its own coffers.
Most of the companies on our list are working on different programs to return cash to their shareholders. For instance, in addition to the massive acquisition, Microsoft Corporation (NASDAQ:MSFT) pays a regular quarterly dividend. The company also launched a share repurchase program in November 2021 with the authorization to repurchase $60 billion worth of shares. As of September 30, $18.7 billion remained of the $60 billion repurchase program.
Our list of 11 cash-rich stocks to buy according to hedge funds includes some of the most notable names in the stock markets and includes several trillion dollar companies. The shares of these companies have benefited from multiple factors recently, including cost cutting measures, AI revolution, and macroeconomic factors such as slowdown in interest rate increases, among others. The list includes chipmaker and hardware beneficiary of AI boom, NVIDIA Corp (NASDAQ:NVDA), and two trillion-dollar software & internet companies, Alphabet Inc. (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT), competing for the leadership position on the search engine and software side of things.
Our list also includes other leading companies such as Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK-B), among others.
Methodology
We first identified the 50 non-banking stocks with the highest cash and equivalents and short term investments balances based on their latest quarterly results. Then we picked the top 11 of these according to Insider Monkey’s proprietary hedge fund sentiment data. The hedge fund sentiment is based on Insider Monkey’s database of 910 funds as of Q3 2023. These stocks have been ranked according to the hedge fund ownership.
In case of certain stocks on our list that primarily report their financial results in currencies other than the U.S. Dollar, we have used the currency exchange rates on December 5 to convert their figures to U.S. dollars.
11. UnitedHealth Group Inc. (NYSE:UNH)
Latest Cash and Short-Term Investments: $44.10 billion
Number of Hedge Fund Holders: 104
UnitedHealth Group Inc. (NYSE:UNH) provides health coverage, software, data, and consultancy services. Its health insurance business utilizes technology and data capabilities to help coordinate patient care, improve affordability, analyze cost trends, manage pharmacy benefits, and create a simpler consumer experience.
On October 13, UnitedHealth Group Inc. (NYSE:UNH) released its financial results for the third quarter of 2023. It generated a strong performance during the quarter with total revenue and net income both exceeding Q3 2022 figures by more than 10% at $92.4 billion and $6.0 billion, respectively.
Following the earnings release, RBC Capital raised the firm’s price target on UnitedHealth Group Inc. (NYSE:UNH) shares to $596 from $572 and maintained an ‘Outperform’ rating.
As of Q3 2023, 104 of the 910 hedge funds tracked by Insider Monkey owned shares of UnitedHealth Group Inc. (NYSE:UNH), valued at $11.0 billion. Its largest shareholder was GQG Partners with ownership of 3.2 million shares valued at $1.6 billion.
In its Baron Health Care Fund Q3 2023 investor letter, Baron Funds, an investment management company, made the following comments about UnitedHealth Group Inc. (NYSE:UNH):
“UnitedHealth Group Incorporated is a diversified health and well-being company with $200 billion in revenue that operates across four segments, United Healthcare, Optum Health, OptumInsight, and OptumRX, serving 134 million individuals in all 50 states and more than 125 countries. [. . .] We remain positive on this market-leading managed care company with revenue twice that of its closest competitor. The company continues to gain Medicare Advantage share given attractive and stable benefits and could achieve greater profitability as medical management is deployed across newer, higher acuity lives. We believe UnitedHealth has a broad number of levers at its command and can sustainably deliver 13% to 16% annual longterm earnings growth.”
10. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Latest Cash and Short-Term Investments: $49.16 billion
Number of Hedge Fund Holders: 107
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), based in Hsinchu, Taiwan, is a leading semiconductor foundry operator. It serves more than 500 customers and manufactures over 12,300 products for various applications including smartphones, high performance computing, the Internet of Things (IoT), automotive, and digital consumer electronics.
On October 19, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) released its financial results for Q3 2023. Its revenue declined by 11% y-o-y to $17.3 billion, while net income shrunk by 25% y-o-y to $6.7 billion.
Following the earnings release, Needham analyst Charles Shi reiterated a ‘Buy’ rating for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) shares with an unchanged price target of $115 which represents a potential upside of 19.57% based on the share price on December 5.
As of Q3 2023, 107 of the 910 hedge funds tracked by Insider Monkey owned shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), valued at $9.7 billion. Its largest shareholder was Ken Fisher’s Fisher Asset Management with ownership of 30.6 million shares valued at $2.7 billion.
9. Alibaba Group Holding Limited (NYSE:BABA)
Latest Cash and Short-Term Investments: $80.36 billion
Number of Hedge Fund Holders: 110
Hangzhou, China-based Alibaba Group Holding Limited (NYSE:BABA) is a leading ecommerce company with businesses comprising China commerce, international commerce, local consumer services, logistics services, cloud, digital media and entertainment, innovation initiatives and others.
On March 28, Alibaba Group Holding Limited (NYSE:BABA) announced a new organizational and governance structure for the company under which the company will be divided into six major business groups with independent CEOs and board of directors. Five of the business groups will have the flexibility to seek their own IPOs while the sixth business group, Taobao & Tmall Group, will remain fully owned by the company.
As part of the plans for the new structure, on September 26, Alibaba Group Holding Limited (NYSE:BABA) announced its intention to spin-off and separate listing of Cainiao Smart Logistics Network Limited on the Stock Exchange of Hong Kong (HKEX). The company currently owns 69.54% shares of Cainiao and intends to retain more than 50% of Cainiao shares post-transaction.
The board of directors of Alibaba Group Holding Limited (NYSE:BABA) has approved an annual cash dividend of $1.0 per ADS for FY 2023. In addition, the company repurchased $1.7 billion worth of its shares during the quarter and $14.6 billion still remain under the buyback program authorized by the company’s board.
As of Q3 2023, 110 of the 910 hedge funds tracked by Insider Monkey were long Alibaba Group Holding Limited (NYSE:BABA) shares, for a total value of $3.4 billion.
8. Berkshire Hathaway Inc. (NYSE:BRK-B)
Latest Cash and Short-Term Investments: $30.84 billion
Number of Hedge Fund Holders: 116
Warren Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. (NYSE:BRK-B) engages in diverse business activities including insurance and reinsurance, utilities and energy, freight rail transportation, manufacturing, retailing and services.
As of Q3 2023, Berkshire Hathaway Inc. (NYSE:BRK-B) shares were held by 109 prominent hedge funds with the total shares held by hedge funds valued at $15.5 billion. Bill & Melinda Gates Foundation Trust was the largest hedge fund shareholder on record with ownership of 22.5 million shares valued at $7.9 billion.
7. Apple Inc. (NASDAQ:AAPL)
Latest Cash and Short-Term Investments: $61.56 billion
Number of Hedge Fund Holders: 134
Apple Inc. (NASDAQ:AAPL) is a leading technology company focused on the designing, manufacturing, and marketing of smartphones, personal computers, tablets, wearables, and accessories, and sells a variety of related services. It released worldwide the latest version of its flagship smartphone titled iPhone 15, on September 22 earlier this year. Sales for the models have remained strong in the early period and analysts expect positive results from the release.
The quarterly revenue of Apple Inc. (NASDAQ:AAPL) once again declined by 1% on a y-o-y basis in the quarter ended September 30. The company posted a revenue of $89.5 billion and a net income of $23 billion, which translated to an adjusted EPS of $1.46.
As of Q3 2023, Apple Inc. (NASDAQ:AAPL) shares were held by 134 of the 910 hedge funds tracked by Insider Monkey with the total shares held by hedge funds valued at a whopping $179 billion. Warren Buffett’s Berkshire Hathaway was its biggest shareholder with ownership of 915.6 million shares valued at $157 billion.
In its Baron Technology Fund Q3 2023 investor letter, Baron Funds, an investment management firm, made the following comments about Apple Inc. (NASDAQ:AAPL):
“Despite [the] quarterly fluctuations in product sales, we are encouraged by several long-term trends, including: (1) revenue from higher-margin services like the App Store, iCloud, and Apple Pay, which are growing faster than the overall business, driving better revenue visibility and higher free-cash-flow (FCF) margins; (2) continued gains in global market share in smartphones, wearables, and other hardware categories; and (3) consistent returns of capital to shareholders via share repurchases and dividends. On top of these trends in the core business, Apple is thoughtfully investing in new categories like augmented reality, search, financial services, and streaming media content. We took advantage of weakness in the quarter to add to our position in Apple.”
6. Visa Inc. (NYSE:V)
Latest Cash and Short-Term Investments: $22.00 billion
Number of Hedge Fund Holders: 167
Visa Inc. (NYSE:V) is a leading digital payments company facilitating transactions between consumers, merchants, financial institutions, and government entities across more than 200 countries and territories.
On October 24, Visa Inc. (NYSE:V) released its financial results for Q3 2023. Its revenue increased by 11% y-o-y to $8.6 billion while its net income increased by 19% y-o-y to $4.7 billion. The company repurchased $4.1 billion worth of its common shares during the quarter and had authorization to repurchase an additional $4.7 billion worth of shares at the end of the period.
In October, the board of directors of Visa Inc. (NYSE:V) authorized a new $25.0 billion multi-year share repurchase program and increased quarterly cash dividend 16% to $0.520 per share.
According to the Insider Monkey data on 910 leading hedge funds, 167 hedge funds were long Visa Inc. (NYSE:V) shares as of Q3 2023. Chris Hohn’s TCI Fund Management was the largest hedge fund shareholder with ownership of 16.8 million shares valued at $3.9 billion.
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Disclosure: None. 11 Cash-Rich Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.
