We recently compiled a list of the 10 Most Owned Stocks by Hedge Funds Right Now. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other stocks owned by hedge funds.
Wall Street stocks surged this month after the Federal Reserve released minutes of its September meeting, which resulted in the first interest rate cuts in over four years. The details disclosed a ‘substantial majority’ of central bankers backing the 0.5 percentage-point cut, raising optimism among investors for further cuts ahead.
The broader market hit record highs on October 11, driven by several financial stocks reporting stronger-than-expected results during the recently concluded quarter. Another factor encouraging investors has been the downturn in US inflation, which fell to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate. This has raised hopes of a quarter-point cut in the central bank’s next meeting in November.
However, some analysts warn against diving into stocks after interest rate cuts, citing uncertainty around the upcoming presidential elections. Liz Young Thomas, the head of investment strategy at SoFi, while talking to Business Insider in early September discussed historic patterns in US markets towards the end of the third quarter and the beginning of the fourth.
She noted how the market performs well between June and August due to thinner volumes when traders are on vacation, while volatility picks up with an uptick in activity after they return to their desks in September. However, during the election year, this volatility peaks around mid-October, instead of September, according to Young Thomas.
Fundstrat Global Advisors’ co-founder, Tom Lee, has also cautioned investors against election-related uncertainty. Here is what he stated in an interview with CNBC late last month:
This Fed cut cycle I think is setting the stage for markets to be really strong over the next one month or next three months. But, what the stocks do between now and let’s say election day, I think is still a lot of uncertainty. And that’s the reason why I’m a little hesitant for investors to dive in.
Earlier that month in the weeks leading to the interest rate cuts, Lee, who is generally bullish on the stock market, forecasted a 7-10% dip between September and October amid nervousness around the presidential elections. However, Lee urged investors to ‘buy the dip’, indicating that he sees the likely fall as an opportunity to buy stocks while they trade for a lower value.
Adam Turnquist from LPL Financial also anticipates seasonal volatility in the weeks ahead but reiterated what Lee did, that the dip presents an opportunity to buy when the share is trading low and earn high returns when the market stabilizes. Turnquist advises investors not to readjust their existing portfolios because seasonal volatility has short-term effects and is difficult to forecast.
With that said, let’s now shift focus to hedge fund sentiment on the stock market and discuss some of the most widely held stocks by hedge funds.
Methodology
We scanned Insider Monkey’s database of 912 hedge funds for the second quarter of 2024 and picked the top 10 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company.
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).
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the world’s leading technology companies by revenue and owns several notable platforms such as Google Search, Google Maps, Gmail, YouTube, and more.
On August 5, the US Department of Justice ruled against Alphabet in an anti-trust lawsuit regarding search dominance, with the judge declaring that the company stifled competition in the online search market to maintain its monopoly. This could lead to the company paying billions of dollars in hefty fines or legal settlements. Then earlier this month, in another case, a district judge ordered Google to overhaul its mobile app business and open the Play Store to rival firms. These verdicts have hurt Alphabet’s reputation and led to a bearish sentiment in some circles.
Financially, the company continues to remain strong. Driven by solid performances from Google Search and Google Cloud, Alphabet reported robust results in Q2 with revenues totaling $84.7 billion, increasing 14% from last year. Net income for the quarter stood at $23.6 billion, which represented an EPS of $1.89, beating analysts’ expectations of $1.85 per share.
Google Services revenue was recorded at $73.9 billion, up from $66.2 billion in 2023. The ‘Google Search & Other’ segment revenue totaled $48.5 billion, while YouTube and Google Network earned $8.7 billion and $7.4 billion in revenues during Q2. Strong results during the quarter have helped Alphabet Inc. (NASDAQ:GOOGL) garner substantial investor optimism. Here is what The London Company Large Cap Strategy stated about Alphabet in its Q2 2024 investor letter:
Alphabet Inc. (NASDAQ:GOOGL) – GOOG was a top performer this quarter as it reported strong Search revenue, tighter cost controls, and momentum in Cloud. Both direct and brand Search ads were better than expected and the strength in YouTube monetization continues. Expense controls have translated to 700bps of margin improvement. Management is removing layers to improve efficiency, which should drive margins higher. GOOG also provided details on paths to monetize Al for advertisers. GOOG initiated a dividend during the quarter to return additional cash to shareholders. It has a solid balance sheet, a significant market share, and generates strong returns.
According to the Insider Monkey database for Q2 2024, Alphabet is one of the most owned stocks by hedge funds right now, with 216 funds having a stake in the company. Wall Street analysts are also bullish on the stock, with consensus among them on Alphabet’s Buy rating. They also anticipate an upside potential of 20% in the company’s share price.
Overall GOOGL ranks 4th on our list of the most owned stocks by hedge funds right now. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.