Below you can find our list of the 5 best magic formula stocks to buy now. For a detailed discussion as well as a more comprehensive list please see 10 Best Magic Formula Stocks To Buy Now.
5. Facebook, Inc. Common Stock (NASDAQ: FB)
Social media giant Facebook is among the top holdings of Joel Greenblatt as of the end of the third quarter, making up 1.29% of his hedge fund’s portfolio. The total value of the stake is $40.37 million.
Facebook is currently in hot water as it faces a host of lawsuits by federal authorities and states. The Federal Trade Commission sued Facebook on Dec. 9, accusing the company of buying and killing small startups to cull competition. On the same day, a coalition of 46 states, along with the District of Columbia and Guam, sued Facebook over antitrust concerns.
Facebook beat analysts’ estimates for the third quarter but reported a decline in users in the U.S. and Canada. The company warned that it expects further decrease in users in both countries. However, earnings and revenue surpassed analysts’ forecasts.
Wedgewood Partners talked about Facebook in its 2020 Q3 investor letter:
“Facebook’s revenues grew +12% constant currency despite the near total shutdown of economic activity during the month of April. The vast majority of Facebook’s revenues are derived from small businesses, many of which have borne the brunt of lockdowns. To combat the sudden disappearance of foot traffic, these businesses are initiating or accelerating the adoption of digital customer acquisition strategies provided by Facebook’s vast ecosystem, including instant access to over 2 billion daily users. We continue to carry Facebook as one of our largest holdings as its value proposition is difficult to copy, yet the stock trades at still somewhat reasonable multiples relative to large cap peers.”
4. Alphabet Inc Class A (NASDAQ: GOOGL)
Gotham Asset Management unloaded 11% of its stake in Alphabet in the third quarter. The firm now owns 28,625 shares of the company, worth $41.95 million.
Like Facebook, Alphabet’s unit Google is also facing the heat over its data privacy policies and market dominance. On Dec. 17, a lawsuit backed by 38 U.S. states claimed that Google is maintaining a monopoly over internet search via illegal contracts and tactics.
However, Alphabet continues to grow and diversify its revenue streams. The company is increasing its hold in lucrative markets like Cloud, self-driving cars, video and robotics. In the third quarter, Alphabet’s ad revenue totaled $33.9 billion, up from $29 billion a year ago. Alphabet’s YouTube, which brought in $5 billion in advertising revenue in the third quarter, now has 30 million paid subscribers.
Baron Opportunity Fund said the following about Alphabet in its 2020 Q3 investor letter:
“Considering solid Fund inflows, we added to long-term holding Alphabet Inc. to maintain its weighting in the portfolio. Alphabet is the parent company of Google, the world’s largest search and online advertising company. We increased our position in Alphabet this quarter as a protracted COVID-19-related recovery in travel and brand advertising presented an attractive buying opportunity. We are encouraged by improving trends in both search and YouTube, driven by durable tailwinds to e-commerce and local advertising, as well as the continued shift of video advertising dollars away from linear television as consumers increasingly cut the cable TV cord. We believe Google is becoming slightly more disciplined in capital allocation than it has been historically. Lastly, Google Cloud, which this quarter achieved a $12 billion revenue run rate under the leadership of Thomas Kurian, is having increasing success competing with larger vendors, due to its strengths in security, open-source, and data analytics.”
3. Microsoft Corporation (NASDAQ: MSFT)
Third on the list of Gotham’s biggest holdings is Microsoft, which is up over 35% year to date. However, the hedge fund trimmed its stake in the technology company by 11% in the third quarter, ending the period with 283,698 MSFT shares, worth over $59.67 million.
BofA on Dec. 16 reinstated Microsoft stock with a Buy rating and a $256 target. The firm’s analyst Brad Sills thinks that the company stock can sustain low double digit in the coming 3-5 years, driven by growth in Cloud, productivity apps, games and Xbox business.
Microsoft is reporting a stunning growth in its Cloud business The company’s commercial cloud clocked a $53.2 billion annual revenue run rate in the third quarter, up from $50 billion in the second quarter.
2. Amazon.com, Inc. (NASDAQ: AMZN)
Amazon is the second biggest stake of Gotham Asset Management, as of the end of the third quarter. After selling 11% of its hold in the ecommerce company in the quarter, the hedge fund now owns 19,013 AMZN shares, which have a total value of $59.87 million.
The COVID-19 pandemic proved to be a huge catalyst for Amazon as people started restricting their movement and buying groceries online. Year to date, Amazon shares have gained a whopping 69%.
With over 1.6 trillion market cap, Amazon growth seems to have no end. In the third quarter, the company posted an EPS of 12.37, versus $7.41 per share expected. Revenue in the quarter came in at $96.15 billion, above the Street’s forecast of $92.7 billion.
1. Apple Inc (NASDAQ: AAPL)
Gotham Asset Management went bullish on Apple in the third quarter, increasing its hold in the company by as much as 222%. The fund owns 625,518 shares of Apple worth $72.44 million.
Apple started a timely transition towards software and services after facing stalling iPhone demand a couple of years ago. In the third quarter, the company’s services business grew by about 13%.
Morgan Stanley analyst recently maintained an Outperform rating for Apple with a $144 price target, citing a stronger-than-expected demand of iPhone in China. Apple ranks 9th among the 30 most popular stocks among hedge funds.
Please also see 10 Best Value Stocks To Buy Now and 15 Best Long-term Stocks To Buy Now.
Disclosure: None.
