In this article we will take a look at Barry Ritholtz’s and Josh Brown’s top 10 stock picks.
Barry Ritholtz and Josh Brown are well-known in the investing space. Barry Ritholtz, 59, started The Big Picture in 1998, while Brown is the founder of Reformed Broker. The two co-founded Ritholtz Wealth Management which currently has an asset portfolio of around $2 billion under management.
Ritholtz Wealth Management avoids individual client portfolio customization except in cases of complex estate and tax planning problems. Barry Ritholtz’s and Josh Brown’s stock picks include companies like Sony Group Corporation (NYSE: SONY), Apple Inc. (NASDAQ: AAPL), and Microsoft Corporation (NASDAQ: MSFT).
Sony Group Corporation has partnered with Discord to introduce the gaming-centric social app into its PlayStation console. Through the deal, Sony Interactive Entertainment will become a minority investor in Discord’s $100M Series H funding round. Sony Group Corporation shares are up 56% over the last 12 months.
Rosenblatt Securities has maintained its Buy rating for Sony Group Corporation, saying its distribution deal with Walt Disney works out as a modest positive for the company. The deal with Disney came shortly after signing a similar distribution deal with Netflix to distribute Sony films in the lucrative “Pay 1” release window.
Apple Inc., a notable holding of Barry Ritholtz and Josh Brown, recently announced a 54% increase in revenue to $89.6 billion in Q1 2021. International sales accounted for 67% of the total revenue in Q1 2021. Apple Inc. is reportedly working to launch its in-house cellular modems to replace QUALCOMM Incorporated (NASDAQ: QCOM) in its devices. According to Apple analyst Ming-Chi Kuo, Apple Inc. is likely to start using its own 5G baseband as early as 2023. Apple’s move into modems is not entirely surprising as it bought Intel’s smartphone modem business in 2019 for $1 billion.
Microsoft Corporation is also one of the best stocks to buy based on the portfolio of Barry Ritholtz and Josh Brown. Microsoft Corporation’s (NASDAQ: MSFT)’s cloud solution is seeing a continued rise in adaption and has become a formidable competitor for AWS and Google Cloud. The company established data centers in Malaysia, Indonesia, and Taiwan and is expected to generate more than $21 billion in new revenue and create an additional 100,000 jobs. Microsoft Corporation’s (NASDAQ: MSFT) has partnered with cybersecurity firm Darktrace to offer self-learning AI for cybersecurity within cloud applications and Microsoft environments. Microsoft Corporation shares are up 38% over the last 12 months.
Picking profitable stocks is becoming difficult by the day, even for the experts. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, 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 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. 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.
Let’s start out list of the best stocks to buy based on the portfolio of Barry Ritholtz and Josh Brown.
10. Visa Inc. (NYSE: V)
Barry Ritholtz and Josh Brown’s Stake Value: $3,751,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.31%
Number of Hedge Fund Holders: 164
Visa Inc. (NYSE: V) is a global payment company that offers payments technology to financial institutions, businesses, merchants, strategic partners, and government entities worldwide.
The company reported $3.1 billion or $1.42 per share in GAAP and non-GAAP net income in Q1 2021, while net revenue was $5.7 billion.
Visa Inc. is also making in-roads into the cryptocurrency industry and recently introduced USD Coin (USDC), a stablecoin whose value is pegged at the US dollar to be used in transactions using Visa over Ethereum. To offer smooth USDC settlement capability, Visa has partnered with Crypto.com, one of the world’s largest crypto platforms.
Wedgewood Partners, in its Q1 2021 investor letter, mentioned Visa Inc. (NYSE: V). Here is what Wedgewood Partners has to say about Visa Inc. in its letter:
“Visa Inc. payment volume recovered along with consumer spending habits, finishing up +5% during the December quarter; but it skewed heavily toward online purchases, particularly with debit. Historically, Visa has had a meaningful portion of its volume derived from higher-yielding credit card spending related to cross-border travel and entertainment (T&E). As many countries maintain closed borders, Visa Inc.’s cross-border T&E segment has stayed depressed. However, we expect this business will rebound as borders inevitably reopen to COVID-19 vaccinated populations. In the meantime, we trimmed Visa to help fund a reestablished position in Booking Holdings, which should disproportionately benefit from the aforementioned reopening as well.”
9. JPMorgan Chase & Co. (NYSE: JPM)
Barry Ritholtz and Josh Brown’s Stake Value: $3,795,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.32%
Number of Hedge Fund Holders: 111
JPMorgan Chase & Co. is a U.S investment bank and financial services company with its headquarters in New York City.
In January BofA Securities upgraded the stock to “Buy” from “Neutral” and set a price target of $181.
In its Q4 2020 investor letter, Bretton Fund spoke about JPMorgan Chase & Co (NYSE:JPM) and Bank Of America Corp (NYSE:BAC) stocks. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: ‘There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.’ Little did we know ‘sooner’ really meant ‘a few weeks from now.’ Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan Chase & Co. and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan Chase & Co.’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM)
Barry Ritholtz and Josh Brown’s Stake Value: $3,482,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.29%
Number of Hedge Fund Holders: 76
Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) specializes in the production and sale of integrated circuits and semiconductors.
The company, which has its headquarters in Taiwan, recently reported NT$111.32 billion in net revenue on a consolidated basis for April 2021, a 13.8% drop from what was reported in March 2021 and a 16.0% increase from the same period in 2020.
Taiwan Semiconductor Manufacturing Company Limited is set to benefit from a Chinese government program seeking a stable supply for crucial goods like semiconductors. In a statement, President Tsai Ing-wen said the government is working with the European Union and other democracies to increase access to chips amid a global shortage that has affected several industries.
Like Sony Group Corporation, Apple Inc. and Microsoft Corporation, TSM is one of the best stocks to buy in the portfolio of Barry Ritholtz and Josh Brown.
In response to growing demand, Taiwan Semiconductor Manufacturing Company Limited has announced it will set up five additional chipmaking fabs in Arizona to expand its $12 billion plant. The expansion is at the request of the U.S government and is expected to be completed in the next three years. Atlantic Equities initiated a coverage of Taiwan Semiconductor Manufacturing Company Limited and has rated it as “Neutral.”
7. Tesla, Inc. (NASDAQ: TSLA)
Barry Ritholtz and Josh Brown’s Stake Value: $5,092,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.42%
Number of Hedge Fund Holders: 62
Tesla, Inc. (NASDAQ: TSLA) is one of the top stock picks of Barry Ritholtz and Josh Brown.
During Q1 2021, Tesla, Inc.’s sales from digital assets amounted to $272 million with a “positive impact” of $101 million.
Tesla, Inc. is working on expanding its capacity in the highly competitive Chinese automobile market with the expansion of its Shanghai factory, which is used to repair and reproduce crucial components like battery cells and electric motors.
Tesla, Inc. sold more than 1.3 million electric and plug-in hybrid vehicles in 2020. However, Tesla, Inc. has been forced to operate in a highly changing regulatory environment in China, with authorities adding new rules to guide EV recycling to protect the environment and save materials.
Baron Partners Fund, in its Q1 2021 investor letter, mentioned Tesla, Inc. (NASDAQ: TSLA). Here is what Baron Partners Fund has to say in its letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla, Inc.’s full self-driving technology.”
6. Alibaba Group Holding Limited (NYSE: BABA)
Barry Ritholtz and Josh Brown’s Stake Value: $1,814,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.15%
Number of Hedge Fund Holders: 135
Alibaba Group Holding Limited (NYSE: BABA) is a Chinese e-commerce company that offers online and mobile commerce businesses to customers in China and worldwide.
The e-commerce giant recently announced its financial results for Q1 2021, with revenues increasing by 63.9% to RMB187.4 billion compared to what the company reported in Q1 2020. The company’s revenue beat projections by RMB6.73 billion.
Alibaba Group Holding Limited finished the first quarter with 925 million in MAUs, an increase of 23 million compared to what the company had at the end of 2020.
The Chinese internet giant Alibaba has invested $350 million in Trendyol, a Turkish e-commerce firm, in a capital increase. The Turkish e-commerce platform has attracted a lot of support from foreign investors and is one of the leading players in the highly fragmented Turkish e-commerce market.
CICC’s Junhao Fan and Deutsche Bank’s Vitus Leung are the latest to start covering Alibaba Group Holding Limited and have rated the stock with “Outperform” and “Buy,” respectively. Like Tesla, Inc., Sony Group Corporation, Apple Inc. and Microsoft Corporation, Alibaba is one of the best stocks to buy in the portfolio of Barry Ritholtz and Josh Brown.
Polen Global Growth Fund, in its Q1 2021 investor letter, mentioned Alibaba Group Holding Limited (NYSE: BABA). Here is what Polen Global Growth Fund has to say in its letter:
“In the case of Alibaba Group Holding Limited, two significant news events impacted the company’s shares in the last few months of 2020. First, the Chinese government intervened to halt–for an undetermined period of time–Ant Group’s IPO. Alibaba owns 33% of Ant Group, and Ant Group’s “Alipay” application facilitates financing and payments around the Alibaba ecosystem. Second, rumors of Chinese regulatory oversight in the internet space were solidified at the end of 2020 when China’s State Administration for Market Regulation announced an investigation under the nation’s AntiMonopoly Law. In combination, these events contributed to a selloff in BABA shares that resulted in a roughly 30% decline from highs in late October 2020.
We view Alibaba Group Holding Limited as arguably one of the most dominant businesses in the world.
We believe the company is also playing an integral role in China’s ambitions to reorient its economy from one that is export-driven to one that is domestically consumption-driven. Alibaba’s marketplaces—TaoBao and Tmall—in combination with its logistics capabilities may well provide the most efficient way to purchase and receive goods in many of China’s lower-tier cities. Important to the investment case, Alibaba Group Holding Limited’s core commerce business continues to compound at high rates while enjoying low total addressable market penetration and multiple competitive advantages, not the least of which consist of two-sided network
effects between merchants and consumers. At approximately 19x next twelve month’s earnings, we think Alibaba will provide a
favorable investment outcome even if it must pay fines or modify some business practices. We continue to expect earnings growth in excess of 20% over the next three to five years. Even if earnings growth were to fall to 15%, we think it would still result in a favorable outcome at the price at which we added to the position.”
5. Berkshire Hathaway Inc. (NYSE: BRK-B)
Barry Ritholtz and Josh Brown’s Stake Value: $3,022,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.25%
Number of Hedge Fund Holders: 111
Berkshire Hathaway Inc. (NYSE: BRK-B) is a U.S conglomerate specializing in freight rail transportation, insurance, and utility businesses in the global market.
In its recent financial report, Berkshire Hathaway Inc. reported $7.02 billion in operating earnings for Q1 2021, up from $5.87 billion in Q1 2020.The growth is mainly attributed to an increase in earnings from insurance underwriting. During the quarter, the company spent around $6.6 billion to buy back stock. This is a drop from the $9.0 billion spent in Q4 2020.
Vltava Fund, in their Q1 2021 investor letter, mentioned Warren Buffett’s Berkshire Hathaway Inc. Here is what Vltava Fund has to say in its letter:
“Despite the considerable rise in stock markets over the past year, there are still many attractive opportunities. Human nature also is playing a bit into our hands. Investor crowds often chase popular stocks, hot IPOs, or mysterious SPACs and completely leave aside stocks they consider boring and not sexy enough. A typical example of this category is our long-term largest position in Berkshire Hathaway. Since we bought it for the first time, its price has nearly quadrupled and yet it remains just as undervalued today as it was at that time. Considering the current rate at which it is buying back its own shares and the amount of cash that Berkshire Hathaway has, my greatest wish as a shareholder is for the company’s share price to remain as low as possible for as long as possible.”
4. Facebook, Inc. (NASDAQ: FB)
Barry Ritholtz and Josh Brown’s Stake Value: $2,491,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.21%
Number of Hedge Fund Holders: 257
In its financial report for Q1 2021, Facebook, Inc. (NASDAQ: FB) reported 1.88 billion daily active users (DAUs) for March 2021, while monthly active users (MAUs) were 2.85 billion. This represents an increase of 10% and 15% respectively year-over-year. Mid-April, Wedbush rated the stock as “Neutral” and set a price target of $355.
Distillate Capital, in its Q1 2021 investor letter, mentioned Facebook, Inc.. Here is what Distillate Capital has to say about Facebook, Inc. in its letter:
“Facebook has come in and out of the portfolio before and did so this quarter on the back of substantial improvement in projected free cash flows such that its valuation now meets the criteria for inclusion.”
3. Alphabet Inc. (NASDAQ: GOOGL)
Barry Ritholtz and Josh Brown’s Stake Value: $3,911,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.33%
Number of Hedge Fund Holders: 185
Alphabet Inc. (NASDAQ: GOOGL) is one of the best stocks to buy, based on the portfolio of Barry Ritholtz and Josh Brown.
Alphabet Inc.’s Google is also in the process of expanding access to its mobile wallet with entry into the global market following new partnerships with Wise and The Western Union Company (NYSE: WU).
Alphabet Inc.’s Google’s total revenue in Q1 2021 amounted to $55.3 billion, mainly boosted by an increased online activity and an increase in advertising activities. The company’s cloud services have also seen significant growth contributing $4.0 billion to the company’s revenue basket. China Renascence recently upgraded the company’s stock from “Hold” to “Buy,” and has set a price target of $3,000.
Polen Global Growth Fund, in its Q1 2021 investor letter, mentioned Alphabet Inc. Here is what the fund said:
“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. Amazon.com, Inc. (NASDAQ: AMZN)
Barry Ritholtz and Josh Brown’s Stake Value: $9,493,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.79%
Number of Hedge Fund Holders: 243
Amazon.com, Inc. (NASDAQ: AMZN) is a global consumer company that retails consumer products in North America and worldwide. The global retail giant has announced plans to hire an additional 75,000 workers in its distribution centers across the United States and Canada.
Amazon.com, Inc. has released the latest updated version of its Echo Show line with the introduction of a new Echo Show 8 ($169.99). It has an 8-inch HD display, 13-megapixel wide-angle camera, and Echo Show 5 ($99.99), which has a 5.5-inch display and an upgraded HD camera with twice the pixels. Echo Show 8 also has an octa-core processor and dual stereo speakers.
In the recent Brand Protection Report, Amazon said it blocked 10 billion suspected phony listings before they could be launched live on its e-commerce platform. This is a 67% increase compared to 2020, when the company hired more than 10,000 people and spent over $700 million to block phony listings. Evercore ISI analyst Mark Mahaney rated the stock as “Outperform” and has a price target of $4,000.
Polen Focus Growth Fund, in its Q1 2021 investor letter, mentioned Amazon.com, Inc. (NASDAQ: AMZN). Here is what the fund said:
“We purchased Amazon in February 2021, which accounts for 5% of the Portfolio’s weighting. For most of the last decade, Amazon did not meet our guardrails. We also did not have enough visibility into future free cash flow margins to indicate that the company would sustainably meet our guardrails and, relatedly, if valuation supported the double-digit annualized returns we seek. We now believe we have that visibility.
In 2008, almost all of Amazon’s revenue and operating profits came from its e-commerce business. Amazon Prime and Amazon Web Services (AWS) were new and relatively small back then. The company had roughly 5% operating profit margins overall, entirely from the e-commerce business. In 2009, the company began harvesting its retail business profits to accelerate investment in its distribution and logistics infrastructure globally and very heavily build out and scale AWS data centers. The company’s return on equity began to decline at that time and turned negative for three full years from mid-2012 to mid-2015 (margins and free cash flow declined similarly). So, beginning in 2010 and continuing to mid-2018, Amazon’s business was outside our guardrails. We chose to stick to our guardrails and not own Amazon.
Amazon’s profit drivers have changed quite dramatically over the years. Starting in the back half of 2018, Amazon came back above our hurdles. Revenue generation overcame ongoing heavy investments in areas such as delivery infrastructure, data center infrastructure, and shipping.
Our research suggests that today, after considering cost allocation, Amazon’s underlying profit drivers from higher-margin AWS and Advertising could grow much faster than its low-margin e-commerce business (excluding Prime), its historical driver of revenues and operating profits.
Amazon Prime, AWS, and Advertising together account for only about 20% of revenue today, but we believe over 150% of operating profits. Looking forward, growth higher-margin businesses means Amazon’s total margins and profit dollars could rise quite dramatically.
It is important to note that Amazon proved to be an exception to our guardrails. Based on our experience, very few companies that remain outside our guardrails for an extended period operate from a position of competitive strength but rather, from a position of competitive pressure. Today, we feel we have better visibility into the future earnings growth and margins from AWS and Advertising and believe these could drive 30%+ annual earnings growth for the next five years. Even with significant P/E multiple compression, we would still expect double-digit investment returns.”
1. Microsoft Corporation (NASDAQ: MSFT)
Barry Ritholtz and Josh Brown’s Stake Value: $9,219,000
Percentage of Barry Ritholtz and Josh Brown’s 13F Portfolio: 0.77%
Number of Hedge Fund Holders: 251
Microsoft Corporation is a global tech giant specializing in developing, licensing, and software support services to companies and governments around the world.
Rosenblatt’s analyst John McPeake has rated the stock as “Buy” and has set a price target of $301. While in April, Wolfe Research rated it as “Outperform,” setting the price target at $290.
Polen Global Growth Fund, in its Q1 2021 investor letter, mentioned Microsoft Corporation (NASDAQ: MSFT). Here is what the fund said:
“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 Corporation’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.”
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This article is originally published at Insider Monkey.
