In this article, we take a look at 12 best wide moat stocks to buy according to hedge funds. If you want to see more best wide moat stocks to buy according to hedge funds, go directly to 5 Best Wide Moat Stocks to Buy According to Hedge Funds.
Companies with wide moats tend to have competitive advantages that help them earn more in profits over the long term than companies without moats.
Given their relative stability, the market share and financials of wide moat stocks are often more predictable. Although their earnings and revenues might change from year to year, the financials of wide moat stocks tend to change significantly less than their competitors who don’t have the same wide moats.
In economically difficult times, many wide moat stocks tend to be profitable even if their profits are lower. Given their profitability and relative stability, some wide moat stocks have raised their annual dividends for many consecutive years. Some have also repurchased substantial amounts of their own shares.
In terms of wide moat stocks, many blue chip stocks are wide moat stocks given their scale, competitive advantages, and their earnings power.
2022
2022 has been a challenging year in the market as the Federal Reserve has raised interest rates seven times this year to fight inflation.
Although U.S. unemployment is low and October and November’s core inflation results were lower than expected, many economists think that there could be a recession next year. According to a December 12-16 Bloomberg survey of 38 economists, the odds of a recession are 70% for next year, up from 65% in November. Meanwhile, the economists on average see GDP growing only 0.3% next year.
Given the interest rate increases, high inflation, and potential economic headwinds next year, many wide moat stocks are trading for lower valuations than they were before 2022.
While their share prices are lower, some of the wide moat stocks could have long term upside given their quality businesses even if there is near term downside if economic data fails to meet expectations.
Given the uncertainty, it could be a good idea for long term investors to own a well diversified portfolio of stocks across many different sectors, however.
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Methodology
For our list of 12 Best Wide Moat Stocks to Buy According to Hedge Funds, we selected 12 companies with competitive advantages from the top 50 widely held stocks among hedge funds in our database at the end of Q3.
We then ranked each stock based on the number of hedge funds in our database that held shares in the same stock at the end of the third quarter.
For those of you interested, also check out 11 Best Dow Stocks To Buy Now.
12 Best Wide Moat Stocks to Buy According to Hedge Funds
12. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 85
Johnson & Johnson (NYSE:JNJ) has a wide moat given the company has raised its annual dividend for 60 straight years. Considering the company has increased its dividend so consistently, Johnson & Johnson (NYSE:JNJ)’s healthcare business has been strong enough to sustain payments to its shareholders through multiple recessions and different periods of interest rates and inflation. Over time, Johnson & Johnson (NYSE:JNJ) has also managed to buy back a substantial amount of its own shares. In September, the company’s board authorized a new stock repurchase program of up to $5 billion.
Of the 920 hedge funds in our database, 85 owned shares of Johnson & Johnson (NYSE:JNJ) at the end of Q3, ranking the stock #12 on our list of 12 Best Wide Moat Stocks to Buy According to Hedge Funds.
Alongside Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ) is a wide moat stock that’s owned by many hedge funds in our database at the end of Q3.
11. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 89
NVIDIA Corporation (NASDAQ:NVDA) is the leader in GPUs which are more efficient at processing some AI applications than traditional CPUs. Given the increase in demand for AI and machine learning in recent years, demand for NVIDIA Corporation (NASDAQ:NVDA)’s GPUs have increased substantially and the company’s EPS has also increased substantially. With more profits, NVIDIA Corporation (NASDAQ:NVDA) has more resources to invest in R&D to improve its already leading GPUs further and widen its moat in a potentially high growth sector in the future.
89 hedge funds in our database owned shares of NVIDIA Corporation (NASDAQ:NVDA), ranking it as one of the most popular semiconductor stocks among elite funds at the end of Q3.
10. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 90
S&P Global Inc. (NYSE:SPGI) is the owner of Standard & Poor’s which is one of the three main global credit agencies in the world along with Moody’s and Fitch. Given the industry concentration, S&P Global Inc. (NYSE:SPGI) has a relatively stable business with opportunities for growth as the global financial industry continues to expand. In terms of earnings estimates, analysts expect S&P Global Inc. (NYSE:SPGI) to earn $11.05 per share in 2022, $12.57 per shre in 2023, and $14.78 per share in 2024.
90 hedge funds in our database owned shares of S&P Global Inc. (NYSE:SPGI), making it one of the more popular financial stocks among elite funds at the end of Q3.
9. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 97
As one of the big four American banks, Bank of America Corporation (NYSE:BAC) has substantial scale. At the end of Q3 for example, the bank had 35.6 million consumer checking accounts and 3.7 million small business checking accounts for its consumer banking division. For its global wealth and investment management division, Bank of America Corporation (NYSE:BAC) had a total AUM balance of $1.3 trillion.
With substantial scale, Bank of America Corporation (NYSE:BAC) can realize higher margins than many of its smaller competitors and potentially be more profitable in the long term.
8. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
As another of the big four American banks, JPMorgan Chase & Co. (NYSE:JPM) has substantial scale that provides it with a wide moat. In Q3, the bank had assets under management of $2.6 trillion and the company ranked #1 for global investment banking fees. As a result of its strong business, the bank earned a very respectable return on common equity of 15% for Q3 2022.
110 hedge funds in our database owned shares of JPMorgan Chase & Co. (NYSE:JPM) at the end of the third quarter, ranking the stock #8 on our list of 12 Best Wide Moat Stocks to Buy According to Hedge Funds.
7. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 112
The Walt Disney Company (NYSE:DIS) is an entertainment powerhouse that owns many leading brands such as Lucasfilm and Pixar. Given its leading brands, the company has many loyal customers who will watch The Walt Disney Company (NYSE:DIS)’s films either at the movie theater or on Disney+, buy its merchandise, and visit the theme park attractions in Disney World.
Although The Walt Disney Company (NYSE:DIS) shares haven’t done well this year, the company nevertheless has long term earnings growth potential given the quality of its entertainment assets and the potential synergies the company could unlock with them.
6. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 140
Apple Inc. (NASDAQ:AAPL) is a technology powerhouse with a wide moat given its market capitalization of over $2 trillion, its annual net income of close to $100 billion, and its dominant position in the high margin premium smartphone sector. In addition to having substantial financial resources and enviable market share, Apple Inc. (NASDAQ:AAPL) also has a huge user base that the company could potentially sell high margin VR or AR products to in the future.
Like Apple Inc. (NASDAQ:AAPL), Meta Platforms, Inc. (NASDAQ:META), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are wide moat stocks owned by many hedge funds in our database at the end of the third quarter.
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Disclosure: None. 12 Best Wide Moat Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.
