In this article, we take a look at 11 safe stocks to buy according to hedge funds. You can skip our detailed analysis of safe stocks, and go directly to read 5 Safe Stocks To Buy According To Hedge Funds.
Finding safe stocks can be an arduous task in the current volatile market. The onset of Covid-19 in 2020 further contributed to this situation, when even the biggest of the companies suffered due to severe market conditions. In this situation, investors often look for safe options that would generate profitable returns without losing value.
According to a survey conducted by Natixis Investment Management, wealthy investors in the U.S. expect to earn an annual average return of 17.5% above inflation from their portfolios in 2021. These expectations seem high as 10-year returns of the U.S. stocks averaged 9.2% in the past 140 years, according to a report by Goldman Sachs, an American investment banking company.
Safety of investment is never guaranteed, as there are always risks attached, causing the share price to drop even for the biggest of the companies. The survey also mentioned the inclination of investors toward safe stocks as they somehow show resilience against inflation and unpredictable market situations. Over 77% of the investors surveyed asserted that they would prefer safety over investment returns and overall performance.
In this context, during the market crash of 2020 due to the pandemic, some names fared well, adapting to the new normal better than others. This provided an optimistic outlook for investors, who see the financial markets gaining in the coming years. According to a survey conducted by CNBC, 51% of the investors believe that the stock market will gain over the next year, rising about 5% more than S&P 500.
Some of the most notable safe stocks that performed better than their peers include Microsoft Corporation (NASDAQ:MSFT), Facebook, Inc. (NASDAQ:FB), PayPal Holding, Inc. (NASDAQ:PYPL), Apple Inc. (NASDAQ:AAPL), and Netflix, Inc. (NASDAQ:NFLX), among others.
Our Methodology:
Let’s analyze our list of best safe stocks to buy according to hedge funds.
For this article, we picked the safest stocks — mostly blue chip companies — that are popular among the 873 elite hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund sentiment while choosing stocks?
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 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). 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.
11 Safe Stocks To Buy According To Hedge Funds
12. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 42
3M Company (NYSE:MMM) ranks eleventh on our list of safe stocks to buy according to hedge funds. It is an American industrial company that has a track record of 63 years of consistent dividend growth. Currently, the company pays an annual dividend of $5.92 per share, yielding 3.28%.
In Q2 2021, 3M Company (NYSE:MMM) posted an EPS of $2.59, beating the estimates by $0.31. The company’s revenue for the quarter presented a 24.7% year-over-year growth at $8.95 billion. In October, Langenberg lifted its price target on 3M Company (NYSE:MMM) to $210, while keeping a Buy rating on the shares. In the past year, the stock gained 6.65%.
As of Q2 2021, 42 hedge funds tracked by Insider Monkey reported having stakes in 3M Company (NYSE:MMM), up from 41 in the previous quarter. The total value of these stakes is over $1.58 billion.
10. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 63
According to a recent report published by the U.S Department of Agriculture, coffee consumption in 2021 is going to increase, outpacing coffee production. So, profits this year are in line for Starbucks Corporation (NASDAQ:SBUX). The company ranks tenth on our list of safe stocks to buy according to hedge funds.
In the past year, Starbucks Corporation (NASDAQ:SBUX) delivered a 25.9% return to shareholders, while its year-to-date gains stood at 8.51%. The company is continuously increasing its footprint, as in the first quarter of 2021, it announced to open over 278 new stores. Recently, Sara Senatore of BofA reinstated coverage of Starbucks Corporation (NASDAQ:SBUX) with a Buy rating and a $135 price target, highlighting the growth in coffee consumption around the world.
Fundsmith LLP is the largest shareholder of Starbucks Corporation (NASDAQ:SBUX), owning roughly 11 million shares. Overall, 63 hedge funds tracked by Insider Monkey were bullish on the stock in Q2 2021, up from 61 in the previous quarter. The total value of these stakes is over $4.7 billion.
Polen Capital mentioned Starbucks Corporation (NASDAQ:SBUX) in its Q2 2021 investor letter. Here is what the firm has to say:
“For Starbucks, we believe the underlying businesses for the company remain strong. Starbucks has grappled with the impact of the pandemic, but results have continued to show an ongoing post-pandemic recovery.”
9. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 64
The Home Depot, Inc. (NYSE:HD) ranks ninth on our list of safe stocks to buy according to hedge funds. The company reported growth in comparable sales by 6.4%, 23.4%, and 24.1% in the last three quarters of 2020, respectively. Moreover, the megastores of The Home Depot, Inc. (NYSE:HD) remained open during the pandemic, as permitted by the U.S. authorities.
The Home Depot, Inc. (NYSE:HD) pays an annual dividend of $6.60 per share, yielding 1.92%. The company has increased its dividend by 68.5% in the past three years and has a track record of 9 years of dividend growth. This September, Wells Fargo lifted its price target on The Home Depot, Inc. (NYSE:HD) to $365, with an Overweight rating on the shares, as the company started exploring opportunities via different strategic initiatives.
Of the 873 elite hedge funds tracked by Insider Monkey, 64 funds have stakes in The Home Depot, Inc. (NYSE:HD) in Q2 2021, compared with 68 in the previous quarter. The total worth of these stakes is over $4 billion.
Like Microsoft Corporation (NASDAQ:MSFT), Facebook, Inc. (NASDAQ:FB), PayPal Holding, Inc. (NASDAQ:PYPL), Apple Inc. (NASDAQ:AAPL), and Netflix, Inc. (NASDAQ:NFLX), The Home Depot, Inc. (NYSE:HD) is gaining investors’ attention in 2021.
ClearBridge Investments mentioned The Home Depot, Inc. (NYSE:HD) in its Q2 2021 investor letter. Here is what the firm has to say:
“The pandemic has created challenges for businesses large and small; one major challenge for large essential retailers such as ClearBridge holdings Home Depot, Walmart and Costco has been ensuring adequate staffing to meet demand under trying conditions. All three instituted enhanced pay practices during the pandemic, with raises, unplanned bonuses and other benefits helping compensate employees for their efforts in a difficult environment. Over the course of the pandemic, for example, Home Depot has invested $2 billion in expanded benefits for employees. These have included extra weeks of paid time off that employees could use either as vacation time or supplementary pay, paid time off for employees contracting COVID-19 or requiring to be quarantined, and relaxed time off policies.
While some of the compensation measures are temporary, some have transitioned into permanent wage hikes. At Home Depot, expanded benefits include $1 billion a year in permanent raises for hourly workers.”
8. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Funds: 88
Recently, Wall Street gave a positive outlook on Johnson & Johnson (NYSE:JNJ) amid the company’s importance in Covid-19 booster shots. The company expects its 2021 COVID revenue to reach $2.5 billion due to the efficacy of its single-shot vaccines.
Johnson & Johnson (NYSE:JNJ) is an American leading manufacturer of healthcare products. Fundsmith LLP is the company’s leading shareholder, with shares worth $1.17 billion. In addition to this, 88 hedge funds tracked by Insider Monkey reported having stakes in Johnson & Johnson (NYSE:JNJ), valued at $7.05 billion. The number of hedge funds having positions in the company stood at 81 in the previous quarter, highlighting a positive hedge fund sentiment in this quarter.
Johnson & Johnson (NYSE:JNJ) has a track record of 59 years of dividend growth, and currently pays a dividend of $4.24 per share, yielding 2.65%. This September, Wells Fargo raised its price target on Johnson & Johnson (NYSE:JNJ) to $187, while keeping an Equal Weight rating on the shares.
Johnson & Johnson (NYSE:JNJ) is one of the notable safe stocks like Microsoft Corporation (NASDAQ:MSFT), Facebook, Inc. (NASDAQ:FB), PayPal Holding, Inc. (NASDAQ:PYPL), Apple Inc. (NASDAQ:AAPL), and Netflix, Inc. (NASDAQ:NFLX).
Distillate Capital mentioned Johnson & Johnson (NYSE:JNJ) in its Q2 2021 investor letter. Here is what the firm has to say:
“The largest additions in the rebalance, Johnson & Johnson was around 50 and 40 basis points incrementally. J&J underperformed in the quarter while its normalized free cash flows held steady and so its position size was topped off to match the stable cash flows.”
7. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 105
With the healthcare business in demand, UnitedHealth Group Incorporated (NYSE:UNH) is likely to generate stable returns for shareholders.
UnitedHealth Group Incorporated (NYSE:UNH) announced its solid Q3 results on October 14, with an EPS of $4.52, beating the analysts’ estimates by $0.10. The company’s revenue for the quarter stood at $72.3 billion, up 11.1% from the prior-year quarter. UnitedHealth Group Incorporated (NYSE:UNH) has a track record of 12 years of consistent dividend growth. The company pays an annual dividend of $5.80 per share, yielding 1.38%, with a dividend payout ratio of 34.3%.
This September, SVB Leerink lifted its price target on UnitedHealth Group Incorporated (NYSE:UNH) to $480, with an Outperform rating on the shares. The number of hedge funds tracked by Insider Monkey having stakes in UnitedHealth Group Incorporated (NYSE:UNH) grew to 105 in Q2, from 89 in the previous quarter. The total value of these stakes is $13.1 billion.
Like Microsoft Corporation (NASDAQ:MSFT), Facebook, Inc. (NASDAQ:FB), PayPal Holding, Inc. (NASDAQ:PYPL), Apple Inc. (NASDAQ:AAPL), and Netflix, Inc. (NASDAQ:NFLX), analysts are also paying attention to UnitedHealth Group Incorporated (NYSE:UNH).
ClearBridge Investments mentioned UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2021 investor letter. Here is what the firm has to say:
“A good way to conceptualize how we think about portfolio construction is to picture a pyramid. At the bottom of the pyramid are the durable compounding growth companies that form the strong foundation, resilience and consistency for the Strategy. We think these companies should comprise just under half of portfolio assets and feature annual revenue growth rates ranging from two times GDP up to 20% as well as healthy free cash flow generation.
UnitedHealth Group, a name we have owned in the Strategy since 1992, is a good example of a long-term compounder, having grown its revenue base from approximately $600 million to north of $260 billion over that time frame. It remains constantly focused on investing in new growth drivers such as telemedicine and health care analytics. Broadcom and Comcast have delivered similar long-term appreciation through a combination of organic growth, capital deployment into new and adjacent opportunities through merger and acquisition activity as well as returning capital to shareholders through buybacks and dividends.”
6. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 112
The Walt Disney Company (NYSE:DIS) is mainly known for its theme parks and movie franchises, but the company owns other entertainment channels, contributing to its future potential growth. The entertainment channels that the company owns include ESPN and ABC networks, Hulu, and Disney+, to name a few. The Walt Disney Company (NYSE:DIS) stands sixth on our list of safe stocks to buy according to hedge funds.
The revenues of The Walt Disney Company (NYSE:DIS) declined in 2020 due to the closure of its theme parks, but the stock remained resilient, reaching $175.72 in December 2020 from $85.98 in March of the same year. In the past year, The Walt Disney Company (NYSE:DIS) returned 37.15%. In fiscal Q3 2021, the company posted an EPS of $0.80, beating the estimates by $0.25.
As of Q2 2021, 112 hedge funds tracked by Insider Monkey have positions in The Walt Disney Company (NYSE:DIS), compared with 134 in the previous quarter. The total value of these stakes is over $10.8 billion.
Harding Loevner mentioned The Walt Disney Company (NYSE:DIS) in its Q4 2020 investor letter. Here is what the firm has to say:
“One of the original constituents of the Nifty Fifty holds a place in our portfolio today. When we bought Disney three years ago, we wrote that “we view Disney theme parks in the US, Europe, and China as resistant to online substitution.” We did not reckon on a pandemic, which closed all of them, and sent all of usto our couches. Disney, however, wasready for us, brilliantly illustrating the importance of management foresight and change management. Or, as Louis Pasteur said, “chance favors the prepared mind.
A century after its founding in 1923, Disney is in the middle of a bold shift from its legacy media networks & entertainment model—with cable TV, theme parks, and theater films dominating its earnings—to a direct-to-consumer streaming media model. The keys to Disney’s transition: matchless storytelling, coupled with financial strength. The company reliably creates content that people all over the world are eager to consume. It also hastened spending on original content to attract subscribers to its new streaming platform. These factors have allowed Disney to weather the pandemic having expanded its direct engagement with customers. Such connections yield a rich harvest of insights used to customize offerings on a mass scale, reinforcing that engagement in a virtuous circle and thereby raising the lifetime value of each customer. Subscribers to Disney+ reached 86.8 million one year after launch, compared to the 60 – 90 million management projected to reach in 2024. To be sure, Netflix, Apple, and Amazon remain formidable competitors in new-era streaming entertainment (mind what we said about everyone standing up at once), but there’s fight left in this old dog.”
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Disclosure. None. 11 Safe Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
