In this article, we discuss the 5 stocks getting the attention of elite hedge funds. If you want to read our detailed analysis of these stocks, go directly to the 10 Stocks Getting Attention of Elite Hedge Funds.
5. XPO Logistics, Inc. (NYSE: XPO)
Number of Hedge Fund Holders: 57
XPO Logistics, Inc. (NYSE: XPO) is ranked fifth on our list of 10 stocks getting the attention of elite hedge funds. The firm provides supply chain solutions and operates from Connecticut.
On August 12, investment advisory Morgan Stanley initiated coverage of XPO Logistics, Inc. (NYSE: XPO) stock with an Equal Weight rating and a price target of $75, noting it may be a while before the market realizes the true value of the company.
Out of the hedge funds being tracked by Insider Monkey, Bermuda-based investment firm Orbis Investment Management is a leading shareholder in XPO Logistics, Inc. (NYSE: XPO) with 11 million shares worth more than $1.5 billion.
In its Q4 2020 investor letter, Adestella Investment Management, an asset management firm, highlighted a few stocks and XPO Logistics, Inc. (NYSE: XPO) was one of them. Here is what the fund said:
“XPO Logistics (XPO) – the XPO thesis was very simple, but it proved very successful. As the stock irrationally sold off in the spring and made only a tepid recovery in the following months, we were able to buy into a well-operated business with plenty of growth drivers at a compelling price. Sentiment surrounding the company improved thanks to a strong earnings, the resumption of asset sale plans that had been shelved in the spring, and the announcement of a spinoff to unlock the SOTP value. As the stock approached our estimate of a $115 fair value, we exited with more than a clean double from our cost basis.”
4. Lithia Motors, Inc. (NYSE: LAD)
Number of Hedge Fund Holders: 63
Lithia Motors, Inc. (NYSE: LAD) is an Oregon-based automotive retailer. It is placed fourth on our list of 10 stocks getting the attention of elite hedge funds.
On July 22, investment advisory Craig-Hallum maintained a Buy rating on Lithia Motors, Inc. (NYSE: LAD) stock and raised the price target to $520 from $500, underlining that the firm beat every metric in the recently released quarterly earnings report.
At the end of the second quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $2.9 billion in Lithia Motors, Inc. (NYSE: LAD), up from 40 in the preceding quarter worth $2.3 billion.
3. Nuance Communications, Inc. (NASDAQ: NUAN)
Number of Hedge Fund Holders: 72
Nuance Communications, Inc. (NASDAQ: NUAN) is a Massachusetts-based firm that markets artificial intelligence solutions. It is ranked third on our list of 10 stocks getting the attention of elite hedge funds.
In earnings results for the third fiscal quarter, posted on August 6, Nuance Communications, Inc. (NASDAQ: NUAN) reported earnings per share of $0.16, missing market expectations by $0.01. The revenue over the period was $336 million, beating estimates by more than $2 million.
Out of the hedge funds being tracked by Insider Monkey, New York-based firm Coatue Management is a leading shareholder in Nuance Communications, Inc. (NASDAQ: NUAN) with 13 million shares worth more than $732 million.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Nuance Communications, Inc. (NASDAQ: NUAN) was one of them. Here is what the fund said:
“In general, improving growth companies are taking specific actions to enhance their growth profiles going forward, whether through a restructuring, business model change, new management team or more productive use of assets. Another recent example is Nuance Communications, which was simplified and reorganized under new leadership in 2018 and subsequently acquired by Microsoft for a significant premium this quarter. This continues the Strategy’s long track record of positioning successfully to benefit from consolidation, with more than 80 companies having been acquired since inception.”
2. UnitedHealth Group Incorporated (NYSE: UNH)
Number of Hedge Fund Holders: 105
UnitedHealth Group Incorporated (NYSE: UNH) is placed second on our list of 10 stocks getting the attention of elite hedge funds. The firm operates as a diversified healthcare firm. It is headquartered in Minnesota.
On July 16, investment advisory Stephens reiterated an Overweight rating on UnitedHealth Group Incorporated (NYSE: UNH) stock and raised the price target to $460 from $440, appreciating the solid earnings reported by the firm for the second quarter of 2021.
At the end of the second quarter of 2021, 105 hedge funds in the database of Insider Monkey held stakes worth $13 billion in UnitedHealth Group Incorporated (NYSE: UNH), up from 89 in the preceding quarter worth $12 billion.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and UnitedHealth Group Incorporated (NYSE: UNH) was one of them. Here is what the fund said:
“A good way to conceptualize how we think about portfolio construction is to picture a pyramid. At the bottom of the pyramid are the durable compounding growth companies that form the strong foundation, resilience and consistency for the Strategy. We think these companies should comprise just under half of portfolio assets and feature annual revenue growth rates ranging from two times GDP up to 20% as well as healthy free cash flow generation.
UnitedHealth Group, a name we have owned in the Strategy since 1992, is a good example of a long-term compounder, having grown its revenue base from approximately $600 million to north of $260 billion over that time frame. It remains constantly focused on investing in new growth drivers such as telemedicine and health care analytics. Broadcom and Comcast have delivered similar long-term appreciation through a combination of organic growth, capital deployment into new and adjacent opportunities through merger and acquisition activity as well as returning capital to shareholders through buybacks and dividends.”
1. Amazon.com, Inc. (NASDAQ: AMZN)
Number of Hedge Fund Holders: 271
Amazon.com, Inc. (NASDAQ: AMZN) is ranked first on our list of 10 stocks getting the attention of elite hedge funds. The firm operates as a diversified technology corporation and is headquartered in Washington.
On July 30, investment advisory Stifel maintained a Buy rating on Amazon.com, Inc. (NASDAQ: AMZN) stock with a price target of $4,400, noting that investors should buy the stock amid a short-term pullback in share price on the back of a revenue miss in the second quarter earnings.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ: AMZN) with 3.8 million shares worth more than $13 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ: AMZN) was one of them. Here is what the fund said:
“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.”
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