In this article, we will take a look at the 5 best American stocks to buy now. For a detailed analysis of these companies, go directly to the 15 Best American Stocks To Buy Now.
5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 146
Total Value of Hedge Fund Holdings: $141.8 Billion
Ranking 5th in our list of the 15 best American stocks to buy now is Apple Inc. (NASDAQ:AAPL). The California-based American multinational technology company produces and markets consumer electronics and computer software. The company first went public in 1980 at a share price of $22. Apple Inc. is one of the best American stocks to buy now that thrived during the pandemic where Apple profited from the rise in demand for work-from-home related devices such as laptops and iPads. In October 2020, the company reported $9 billion in sales on Mac computers. In 2020, the company acquired, Vilynx, an artificial intelligence company, to boost Apple’s use of AI in its applications.
Apple Inc.’s (NASDAQ:AAPL) revenue in the first quarter of 2021 came in at $111.4 billion, up 21% year-over-year. On May 19, Barclays maintained Equal-Weight on Apple and lowered the price target to $134.
There were 146 hedge funds that reported owning stakes in Apple Inc.’s (NASDAQ:AAPL) at the end of the fourth quarter, up from 134 funds a quarter earlier. The total value of these stakes at the end of Q4 is $141.8 billion.
Distillate Capital mentioned Apple Inc. (NASDAQ:AAPL) in its Q1 2020 investor letter:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
4. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 147
Total Value of Hedge Fund Holdings: $15.9 Billion
California-based online payment company PayPal Holdings, Inc. (NASDAQ:PYPL) ranks 4th in our list of 15 best American stocks to buy now. The company was founded in 1998 and had over 377 million active accounts. PayPal Holdings, Inc. first went public in 2002 with a share price of $40. In April 2020, during the enforced lockdown, the company profited from the rise of e-commerce where the number of new accounts increased by 7.4 million. Earlier this year, PayPal acquired US-based returns, and logistics company, Happy Returns, to develop an end-to-end marketplace platform.
PayPal Holdings, Inc. (NASDAQ:PYPL) has a market cap of $287.3 billion. The company’s first-quarter 2021 net income came in at $1.09 billion, up from $84 million in the first quarter of 2020. Shares of PYPL increased 65% over the past twelve months.
There were 147 hedge funds that reported owning stakes in PayPal Holdings, Inc. (NASDAQ:PYPL) at the end of the fourth quarter, down from 150 funds a quarter earlier. The total value of these stakes at the end of Q4 is $15.9 billion.
Polen Capital Management mentioned PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q4 2020 investor letter:
“For the full year 2020, one of the top performers was PayPal, which we purchased in 2019, the company continues to take market share in digital payments and has seen an acceleration in user adoption and engagement, especially within their “silver tech” or older user demographic. We expect many more years of ongoing double-digit growth from their various business segments and new initiatives.”
3. Alphabet Inc. Class A (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 179
Total Value of Hedge Fund Holdings: $21.9 Billion
Ranking 3rd in our list of 15 best American stocks to buy now is Alphabet Inc. (NASDAQ:GOOGL). The multinational conglomerate first went public in 2004 with an IPO price of $85. Alphabet Inc. was one of the best American stocks that thrived during the pandemic with advertisers’ spending flood. Google’s ad segment accounted for 81% of Alphabet’s $56.9 billion revenue in the fourth quarter of 2020, up 23% from the previous year.
Alphabet Inc.’s (NASDAQ:GOOGL) revenue in the first quarter of 2021 came in at $55 billion, up from $41.2 billion during the first quarter of 2020. Shares of GOOGL rose 61% over the past twelve months.
There were 179 hedge funds that reported owning stakes in Alphabet Inc.’s (NASDAQ:GOOGL) at the end of the fourth quarter, up from 162 funds a quarter earlier. The total value of these stakes at the end of Q4 is $21.9 billion.
Polen Capital Management mentioned Alphabet Inc.’s (NASDAQ:GOOGL) in its Q1 2020 investor letter:
“For our top contributors, each generated strong returns for different, but fundamentally based reasons, in our opinion. Alphabet saw renewed strength recently as advertisers generally resumed spending after a short pause during the pandemic.
Alphabet experienced some challenging quarters in 2020 as many companies paused their advertising spend. But, the business bounced back recently, spurring a strong recovery in the company’s share price. Even during such a challenging period, the company still compounded revenue at 14% in constant currency for 2020.
This is partly due to Alphabet’s multiple growth engines. For example, while its search business was negative one quarter and only grew by 6% during another, YouTube ads and Google Cloud Platform (GCP) grew at over 30% and 46% during the quarter, respectively. YouTube and GCP combined now contribute over 50% of the company’s growth, which we believe is a testament to a strong culture of innovation, a long-term mindset, and prudent capital allocation. With search bouncing back this most recent quarter–growing 17% –we believe that Alphabet continues to be well-positioned to durably compound earnings at or above 15% for many years to come. It remains one of our largest positions.”
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 258
Total Value of Hedge Fund Holdings: $52.8 Billion
Ranking 2nd in our list of 15 best American stocks to buy now is Microsoft Corporation (NASDAQ:MSFT). The Washington-based manufacturer of computer software and electronics company Microsoft Corporation was founded in 1975. Earlier this year, the company announced plans to acquire healthcare software technology Nuance Communications, Inc. (NASDAQ:NUAN) to use the potential of ambient clinical intelligence and other Microsoft cloud resources to help enable healthcare providers.
Microsoft Corporation’s (NASDAQ:MSFT) revenue in the third quarter of the fiscal year 2021 came in at $41.7 billion, up 19% from the same period in 2020. Shares of MSFT jumped 31% over the past three months. On May 18, Jefferies maintained a Buy rating on Microsoft and lowered the price target to $290.
There were 258 hedge funds that reported owning stakes in Microsoft Corporation’s (NASDAQ:MSFT) at the end of the fourth quarter. The total value of these stakes at the end of Q4 is $52.8 billion.
Polen Capital Management mentioned Microsoft Corporation’s (NASDAQ:MSFT) in its Q1 2021 investor letter:
“We have written extensively about Microsoft in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. It continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and the stock continues to reflect the fundamentals.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 273
Total Value of Hedge Fund Holdings: $51.5 Billion
Topping the 15 best American stocks to buy now is Amazon.com, Inc. (NASDAQ:AMZN). The Washington-based multinational technology company has over 150.6 million users. During the COVID-19 pandemic, Amazon.com, Inc. was one of the best American stocks that thrived. The company managed to stay afloat with an increase in online sales, specifically for products to protect against the virus, office supplies, and fitness gear. From February-March, toilet paper purchases on Amazon increased by 186% year-over-year, while cough and cold medicine sales increased by 862%.
Amazon.com, Inc.’s (NASDAQ:AMZN) net income came in at $8.1 billion in the first quarter of 2021, up from $4.0 billion in the first quarter of 2020. Shares of AMZN surged 32% over the last three months. On May 12, Citigroup held its Buy rating on AMZN and raised the price target to $4,175.
There were 273 hedge funds that reported owning stakes in Amazon.com, Inc.’s (NASDAQ:AMZN) at the end of the fourth quarter, up from 245 funds a quarter earlier. The total value of these stakes at the end of Q4 is $51.5 billion.
Hayden Capital mentioned Amazon.com, Inc.’s (NASDAQ:AMZN) in its Q1 2021 investor letter:
“Amazon (AMZN): We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment: 1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is in a much different place than when we initially invested. Back in 2014, investors were starting to question whether Amazon’s promise of future earnings potential would actually come to fruition.
Operating income had declined from ~$1.4BN in 2010, to ~$676M in 2012, to just ~$178M by the end of 2014. Expenses were outpacing revenue growth, and investors were questioning whether Amazon’s expenses were truly “investments” as they claimed, or whether it was a structural necessity of the business and thus would never flow to investor’s bottom line.
The critical question was ‘what portion of expenses are truly growth investments vs. structural expenses, and as a result, will Amazon ever be capable of generating significant profits?’
Our analysis indicated that these expenditures truly were the former, and led to the belief that the business’ structural margins would inevitably increase over time. This was our differentiated insight / investment edge.
Fast-forward to today, and our thesis proved correct with operating margins having increased from ~0.2% to ~6%. However due to this success and proving this facet out to investors, Amazon investors have much higher confidence and a better understanding of the company today. I’m not sure we have the same level of differentiated insights, as we did back then.
In addition, I believe the departure of Jeff Bezos and his long-time lieutenants signal a regime change. Perhaps it’s now “Day 1.5” instead of the Day 1 mentality that made Amazon so successful (LINK)… The departures within the past couple years include:
• Jeff Bezos – Founder, CEO, Visionary. Started Amazon in 1994.
• Jeff Blackburn – Joined Amazon in 1998. Oversaw Amazon Marketplace, Advertising,
Amazon Studios, Prime Video, Prime Music, M&A.
• Jeff Wilke – Joined Amazon in 1999. Oversaw Amazon Consumer (ecommerce)
business.
• Steve Kessel – Joined Amazon in 1999. Oversaw Physical Stores, Kindle, and Whole
Foods.
Blackburn, Wilke, and Kessel have each arguably created hundreds of billions of shareholder value. On top of this, Bezos is the visionary and culture-setter behind Amazon. When he and his long-time lieutenants take their hands off the wheel, it is probably time for us to as well.
We sold our remaining shares at an average price of ~$3,240. Based on our initial investment, we made a ~10x return in a little over six years, for a ~45% IRR7. We reinvested the proceeds into our existing portfolio, taking advantage of the prices offered by this latest market draw-down.”
You can also take a peek at 10 Best Travel Stocks to Buy Right Now, and 10 Best Automotive Stocks to Invest in Now.
