In this article, we discuss the 12 safest stocks to buy according to hedge funds.
Hedge funds, known for their sophisticated investment strategies and ability to generate returns across market cycles, have a complex performance history. Since their inception in 1949, hedge funds have evolved significantly, with returns varying widely by strategy, market conditions, and the broader economic environment. The first hedge fund was created by Alfred Winslow Jones in 1949, combining long and short equity positions to hedge against market risk. During the 1950s and 1960s, hedge funds gained attention for their ability to outperform traditional mutual funds. Jones’s fund reportedly generated returns of approximately 20% annually in its early years, setting a precedent for the industry.
Read more about these developments by accessing 10 Best AI Data Center Stocks and 10 Buzzing AI Stocks According to Goldman Sachs.
The 1970s and early 1980s were challenging due to high inflation, stagflation, and the oil crisis, but some hedge funds excelled by capitalizing on macroeconomic trends. Macro-focused funds like those led by George Soros delivered impressive returns by making bold bets on currencies and commodities. For example, Soros famously earned $1 billion in 1992 by shorting the British pound. The 1990s were a golden era for hedge funds, marked by rapid industry growth and strong performance. The average annual return of hedge funds during this period was approximately 15%, according to data from Hedge Fund Research. Managers benefited from a booming stock market, globalization, and the rise of new asset classes.
Notable successes included Tiger Management, led by Julian Robertson, and Renaissance Technologies, whose Medallion Fund achieved annualized returns exceeding 30%. The 2000s were a mixed decade for hedge funds. The early 2000s saw strong performance during the dot-com crash, as many funds profited from short positions in overvalued tech stocks. Between 2000 and 2002, the S&P 500 fell by 43%, while hedge funds, on average, delivered positive annualized returns of around 6%. However, the 2008 financial crisis tested the industry. The HFRI Fund Weighted Composite Index declined by 19% in 2008, its worst annual performance on record. However, since the 2010s, there has been a prolonged bull market, barring minor blips during the pandemic, during which hedge funds have shined relative to other investment vehicles.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
For this article, we selected stocks that have solid businesses with recurring revenue streams, reliable dividend payouts, and burgeoning growth pipelines. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Stocks
Safest Stocks to Buy According to Hedge Funds
12. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 54
Colgate-Palmolive Company (NYSE:CL) makes and sells consumer products. This company is a great investment prospect due to numerous factors. For example, the company has exceeded the sector median of 2 years by 2,950% in 61 consecutive years of dividend growth. The company has also maintained 61 consecutive years of dividend payments, significantly outperforming the sector median of 14.1 years by 331%. This reflects Colgate-Palmolive’s long-term commitment to shareholders and its ability to generate consistent and reliable returns. Moreover, the company’s partnership with Water Org aims to support its mission of ensuring clean water access for all by bringing safe water and sanitation to more people. Lastly, the company is using advanced technologies, including digital twins and generative artificial intelligence, to enhance product development processes.
11. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 58
PepsiCo, Inc. (NASDAQ:PEP) manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. This company presents an exceptional investment opportunity for several reasons. Firstly, as per the report for the third quarter of 2024, total cash returns to shareholders were $8.2 billion, comprising dividends of $7.2 billion and share repurchases of $1 billion, which demonstrates the company’s strategy to reward its investors while maintaining a strong financial position. In addition, the company has a great record of 52 consecutive years of dividend growth, surpassing the sector median of 2 years by 2,500%. The company has also maintained 52 consecutive years of dividend payments, outperforming the sector median of 14.1 years by 268%, which shows long-term profitability and its commitment to rewarding shareholders.
10. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 69
NextEra Energy, Inc. (NYSE:NEE) transmits, distributes, and sells electric power to retail and wholesale customers in North America. There are multiple reasons that contribute to the appeal of this company as an investment. To start with, the company’s exceptional financial performance is illustrated in the report for the fourth quarter of 2024. For instance, the company expects to grow its dividends per share at a roughly 10% rate per year through at least 2026, off a 2024 base. Moreover, the company has also demonstrated impressive dividend growth, with 29 consecutive years of increases, outperforming the sector median of 10 years by 190%. Additionally, the company has maintained 35 consecutive years of dividend payments, exceeding the sector median of 24.8 years by 41%, reflecting long-term commitment to shareholders and its ability to deliver valuable returns over an extended period. The company has announced a joint development agreement that will accelerate the development of up to 4.5 gigawatts (GW) of new solar generation and energy storage projects.
9. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 82
Home Depot, Inc. (NYSE:HD) operates as a home improvement retailer. This company is a great investment prospect due to numerous factors. For example, the company has demonstrated impressive dividend growth. The company has surpassed the sector median of 1.7 years by 782% in 15 consecutive years of increases. Moreover, the company continues to provide unmatched convenience for home improvement shoppers by expanding its delivery capabilities. Customers can select products through Uber Eats and DoorDash, making it easier than ever to access the tools, materials and supplies they need. Lastly, the company has also announced the exclusive availability of the Lifx Luna smart lamp, a new addition to its smart home product lineup.
8. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 91
Oracle Corporation (NYSE:ORCL) offers products and services that address enterprise information technology environments worldwide. This company stands as a top investment choice for a variety of reasons. Firstly, the company has demonstrated impressive dividend growth with 10 consecutive years of increases, surpassing the sector median of 1.7 years by 495%. Secondly, El Paso Electric is using an integrated data access solution from Oracle and UtilityAPI that meets the Green Button Download My Data (DMD) and Connect My Data (CMD) certification requirements. The offering enables residential customers to opt in to automate the secure transfer of their utility energy usage data to authorized third-party vendors. Moreover, AI agents and generative AI capabilities within Oracle Fusion Cloud Sales aim to help sales teams create more meaningful engagements and accelerate sales processes.
7. Vistra Corp. (NYSE:VST)
Number of Hedge Fund Holders: 97
Vistra Corp. (NYSE:VST) operates as an integrated retail electricity and power generation company. There are several key factors that make this company an outstanding investment. As per the report for the third quarter of 2024, the company has authorized an additional $1 billion of share repurchases, which is expected to be utilized by year-end 2026. This shows the company’s confidence in its financial position and aims to potentially increase earnings per share. Moreover, the company has connected two utility-scale solar facilities to the grid and extended operations of the Baldwin power plant in response to reliability concerns in the Midcontinent Independent System Operator (MISO). This new solar facility is expected to generate $6 million in total property tax payments over the project’s life.
6. Danaher Corporation (NYSE:DHR)
Number of Hedge Fund Holders: 98
Danaher Corporation (NYSE:DHR) is a Washington-based conglomerate with interests in professional, medical, industrial, and commercial products and services. This company represents a valuable investment opportunity for a number of reasons. To begin, the company has shown great growth in dividends with 11 consecutive years of increases, significantly exceeding the sector median of 2 years by 450%. The company has also maintained dividend payments for 31 years, surpassing the sector median of 15 years by 106%, reflecting its long-standing commitment to shareholder returns. Moreover, Danaher Diagnostics LLC and Danaher Ventures LLC, two subsidiaries of Danaher Corporation, have formed an investment partnership with Innovaccer that would improve patient outcomes and experience through novel digital and diagnostic solutions. Significantly, this also aligns with the company’s mission to accelerate the transition to precision medicine with AI-enabled diagnostics.
5. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 106
Eli Lilly and Company (NYSE:LLY) develops and markets human pharmaceuticals. There are various reasons why this company makes an excellent investment. Firstly, the company has demonstrated impressive dividend growth with 10 consecutive years of increases, surpassing the sector median of 2 years by 400%. The company has also consistently paid dividends for 35 years, outperforming the sector median of 15 years by 133%. This highlights the company’s strong commitment to rewarding shareholders over an extended period. Moreover, the company has announced a $3 billion expansion in Kenosha County, Wisconsin. This investment will extend the company’s global parenteral product manufacturing network, helping to meet the growing demand for its diabetes, obesity and future pipeline medicines across therapeutic areas. Notably, this would add 750 highly skilled jobs to the current 100-plus workforce at this location.
4. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 120
Berkshire Hathaway Inc. (NYSE:BRK-B) is an Omaha-based conglomerate with interests in transport, insurance, and other businesses. There are several key factors that make this company an outstanding investment. First, the company’s operational resilience and adaptability in managing higher volumes are reflected in the report for the third quarter of 2024. For instance, operating revenues from consumer products were $2.1 billion, showing an increase of 7% and 8.2%, respectively, from 2023. The revenue increases were attributable to higher volumes of 16.7% in the third quarter and 16.9% in the first nine months of 2024 compared to 2023, partially offset by lower average revenue per unit. Secondly, Berkshire Hathaway’s BNSF railway plans to invest $3.8 billion this year in maintenance and expansion. These projects will include 11,400 miles of surfacing and undercutting work on the tracks, as well as the replacement of 2.5 million rail ties and 410 miles of rail.
3. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 131
Mastercard Incorporated (NYSE:MA) is a technology company that provides transaction processing and other payment-related products and services. The firm is in strong financial health, supported by consistent revenue growth, profitability, and a robust balance sheet. As of Q3 2024, the company reported net revenue of $7.4 billion, an 11% year-over-year increase, driven by higher cross-border transaction volumes and a 19% growth in value-added services. Cross-border volumes surged 21%, reflecting resilient consumer spending and international travel recovery. The company posted an adjusted net income of $3.9 billion, translating to an adjusted earnings per share (EPS) of $3.89, exceeding market expectations. Operating margins remain strong at over 57%, underscoring Mastercard’s ability to manage costs effectively while scaling its business.
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 158
Apple Inc. (NASDAQ:AAPL) is a consumer electronics firm. This company offers a robust investment case for several reasons. Apple has achieved 11 consecutive years of dividend growth, exceeding the sector median of 1.7 years by 555%, reflecting its commitment to consistently increasing shareholder returns. The company is also planning to launch a new low-cost iPhone, a refreshed low-cost iPad, and an M4 MacBook Air. The iPhone SE, the company’s first device with an Apple 5G modem, will see an update in 2025, and it is expected to feature a 6.1-inch OLED display, Face ID, and an iPhone 14-like design. It will be the first Apple device with an Apple 5G modem. Additionally, Apple is working on an 11th-generation iPad with a faster chip and support for Wi-Fi 6E. The tablet is also expected to feature Apple’s custom-designed modem chip, an A17 Pro chip, and 8GB RAM. Lastly, the iPad Air is going to get updated with either an M3 or M4 chip, and it could debut alongside a new lower-cost Magic Keyboard that Apple is developing for the more affordable iPad models.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 286
Amazon.com, Inc. (NASDAQ:AMZN) operates as a technology conglomerate with core interests in the ecommerce business. This company offers a robust investment case for several reasons. To begin with, the financial performance, as depicted in the report for the third quarter of 2024, shows a compelling investment opportunity. For instance, net income increased to $15.3 billion or $1.43 per diluted share, compared with $9.9 billion, or $0.94 per diluted share, in the third quarter of the prior year. Additionally, operating cash flow increased 57% to $112.7 billion for the trailing twelve months, compared with $71.7 billion for the trailing twelve months ended in September of the prior year. This demonstrates the company’s improved cash generation and financial health over the period. Moreover, the company has started a strategic collaboration with Databricks to accelerate the development of custom models built with Databricks Mosaic AI on AWS. Databricks will also use AWS Trainium chips to help customers improve price performance when building generative AI applications.
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN) as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a stock that is more promising than Amazon.com, Inc. (NASDAQ:AMZN) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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