In this article, we discuss the 10 growth stock picks by hedge funds. If you want to skip our detailed analysis of these stocks, go directly to Growth Stock Portfolio: 5 Stock Picks By Hedge Funds.
Consumer spending patterns are starting to shift from goods to services as the economy normalizes after the disruptions of the COVID-19 pandemic. According to the results of a survey by the Institute for Supply Management, an Arizona-based non-profit body, the measure of new orders in the services industry stood at 63.5 in September, up from 63.2 in August. The non-manufacturing activity index was also up to 61.9 in September from 61.7 in August, indicating the growth of the services sector.
The indicators are surprising since inflation fears have dogged the progress of an economic recovery even after mass vaccination campaigns across the globe. Despite the issues related to labor, logistics, and materials that are pushing the prices of goods sky-high, the growth of the services sector – responsible for more than two-thirds of US economic activity – is perhaps one reason why the government has dismissed inflation concerns as transitory. These concerns are expected to last well into 2022, according to Oren Klachkin, a New York-based economic expert.
In this environment, growth stocks are expected to perform well since the consumer spending patterns are shifting and the economy is normalizing. Investors keen to take advantage of this should check out the top stock picks of hedge funds at the end of the second quarter 2021 which include Expedia Group, Inc. (NASDAQ:EXPE), NVIDIA Corporation (NASDAQ:NVDA), and Activision Blizzard, Inc. (NASDAQ:ATVI), among others discussed in detail below. Growth stocks often fall in the space, biotech, and other explosive domains.
Why should we care about hedge fund activity? 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 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). 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.
Our Methodology
With this context in mind, here is our list of the 10 growth stock picks by hedge funds. The firms were selected using data from the 873 hedge funds tracked by Insider Monkey.
Only those that saw an increase in the number of hedge funds having stakes in the firm in the second quarter, as compared to the first quarter of 2021, were picked. The list is compiled according to the number of hedge funds having stakes in each stock.
Special importance was assigned to the basic business fundamentals and analyst ratings for each firm to provide readers with some context so they can make more informed investment choices.
Growth Stock Portfolio: Stock Picks By Hedge Funds
10. Biogen Inc. (NASDAQ:BIIB)
Number of Hedge Fund Holders in Q2: 67
Number of Hedge Fund Holders in Q1: 63
Biogen Inc. (NASDAQ:BIIB) is placed tenth on our list of 10 growth stock picks by hedge funds. The company develops therapies for the treatment of neurological and neurodegenerative diseases. It operates from Massachusetts.
On September 22, investment advisory Needham initiated coverage of Biogen Inc. (NASDAQ:BIIB) stock with a Buy rating and a price target of $400, noting the potential of pipeline drugs of the firm was “underappreciated”.
At the end of the second quarter of 2021, 67 hedge funds in the database of Insider Monkey held stakes worth $3.1 billion in Biogen Inc. (NASDAQ:BIIB), up from 63 in the preceding quarter worth $1.4 billion.
Just like Expedia Group, Inc. (NASDAQ:EXPE), NVIDIA Corporation (NASDAQ:NVDA), and Activision Blizzard, Inc. (NASDAQ:ATVI), Biogen Inc. (NASDAQ:BIIB) is one of the growth stocks on the radar of hedge funds.
In its Q2 2021 investor letter, Longleaf Partners Fund highlighted a few stocks and Biogen Inc. (NASDAQ:BIIB) was one of them. Here is what the fund said:
“Biogen (52%, 1.24%), a biotechnology company specializing in therapies for the treatment of neurological diseases, contributed in a way that warrants a longer than usual writeup. When we first began buying the company in early January, the stock scored well on all three Business, People and Price criteria, but the range of outcomes was wider than most investments for us. On the business, while the company has had a leading position in neuroscience for decades, it had become a collection of assets that was hard for the stock market to value. This led to most short-term investors focusing on year-over-year (YOY) earnings declines in 2021 and pipeline uncertainty. We focused most on strong cash flows from Biogen’s Multiple Sclerosis franchise, a growing yet hidden biosimilars business, and a pipeline that we believed was actually quite interesting and diversified beyond the manic market focus on Aducanumab, a proposed treatment for Alzheimer’s. On the people front, we also liked what the board and management had been doing (large, discounted repurchases and prudent internal and external investments) and not doing (no big, dumb M&A or unsustainable dividends). Our single point appraisal was around $375/share, but we saw a range at the low end of slightly above $250 if the pipeline totally failed or approaching $500 if the company saw a reasonable amount of pipeline success. We also thought that we were effectively paying a very low double-digit multiple of FCF/share. It is important to note that we were not betting on our science expertise or any other predictions that fall outside our circle of competence. Rather, we used our bottom-up appraisal skills to find a security that was mispriced at that given moment – we had followed the company for over 10 years before our purchase – and that shorter-term investors were afraid to own due to the potential for near-term stock price volatility. We started with a partial position, as we felt the wider-than-usual range of outcomes and uncertainty around the stock could lead to the chance to fill it out at a better price later.
On June 7, the FDA approved Aducanumab (now known as Aduhelm) after a contentious process that has yet to fully play out. The stock shot upward, and our single point value increased to $425. With the stock trading at that level, we exercised our price discipline and sold our position. In this era of “multi-decade-compounders at any price” and given SAM’s history of being long term, it feels weird to be in and out of something so quickly. But it also feels OK to be able to use our appraisal skills to secure a payoff for our long-term clients. The company’s stock price has fallen since our sale, and we will continue to watch the price-to-value (P/V) gap going forward.”
9. Palo Alto Networks, Inc. (NYSE:PANW)
Number of Hedge Fund Holders in Q2: 69
Number of Hedge Fund Holders in Q1: 64
Palo Alto Networks, Inc. (NYSE:PANW) is ranked ninth on our list of 10 growth stock picks by hedge funds. The firm provides cybersecurity solutions and is headquartered in California.
On September 15, investment advisory Deutsche Bank maintained a Buy rating on Palo Alto Networks, Inc. (NYSE:PANW) stock and raised the price target to $560 from $515, underlining that the momentum was “indicative of a clear product fit in a buoyant cybersecurity end market”.
Out of the hedge funds being tracked by Insider Monkey, Connecticut-based firm Viking Global is a leading shareholder in Palo Alto Networks, Inc. (NYSE:PANW) with 2.6 million shares worth more than $979 million.
8. Workday, Inc. (NASDAQ:WDAY)
Number of Hedge Fund Holders in Q2: 72
Number of Hedge Fund Holders in Q1: 69
Workday, Inc. (NASDAQ:WDAY) is a California-based firm that provides enterprise cloud applications. It is placed eighth on our list of 10 growth stock picks by hedge funds.
On September 22, investment advisory Needham reiterated a Buy rating on Workday, Inc. (NASDAQ:WDAY) stock and raised the price target to $310 from $290, noting the firm could reaccelerate growth exiting the pandemic.
At the end of the second quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $5.18 billion in Workday, Inc. (NASDAQ:WDAY), up from 69 in the previous quarter worth $5.17 billion.
In addition to Expedia Group, Inc. (NASDAQ:EXPE), NVIDIA Corporation (NASDAQ:NVDA), and Activision Blizzard, Inc. (NASDAQ:ATVI), Workday, Inc. (NASDAQ:WDAY) is one of the growth stocks attracting the attention of institutional investors.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Workday, Inc. (NASDAQ:WDAY) was one of them. Here is what the fund said:
“In addition to the new issue market, we have been tactically adding growth exposure. We took advantage of the selloff in disruptors that comprise a large portion of the portfolio to initiate a position in enterprise software maker Workday.”
7. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders in Q2: 74
Number of Hedge Fund Holders in Q1: 69
MercadoLibre, Inc. (NASDAQ:MELI) is placed seventh on our list of 10 growth stock picks by hedge funds. The firm operates an online commerce platform and is headquartered in Argentina.
On August 5, investment advisory BTIG maintained a Buy rating on MercadoLibre, Inc. (NASDAQ:MELI) stock and raised the price target to $1,930 from $1,720, noting that the firm had delivered “robust” earnings in the second quarter.
At the end of the second quarter of 2021, 74 hedge funds in the database of Insider Monkey held stakes worth $4 billion in MercadoLibre, Inc. (NASDAQ:MELI), up from 69 in the previous quarter worth $5 billion.
Expedia Group, Inc. (NASDAQ:EXPE), NVIDIA Corporation (NASDAQ:NVDA), and Activision Blizzard, Inc. (NASDAQ:ATVI) are some of the top growth stocks right now, in addition to MercadoLibre, Inc. (NASDAQ:MELI).
Baron Funds, in its Q1 2021 investor letter, mentioned MercadoLibre, Inc. (NASDAQ:MELI). Here is what the fund has to say in its letter:
“MercadoLibre, Inc., a Latin American e-commerce and FinTech platform, declined in the quarter despite reporting very strong fourth quarter results. MercadoLibre falls into a category of businesses that were net beneficiaries of last year’s lockdowns and reduced consumer gatherings that fell out of favor this quarter as investors looked toward economic reopening and normalization. We are confident in MercadoLibre’s ability to create substantial long-term value as it grows into a regional powerhouse across e-commerce and financial services.”
6. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders in Q2: 76
Number of Hedge Fund Holders in Q1: 75
JD.com, Inc. (NASDAQ:JD) is ranked sixth on our list of 10 growth stock picks by hedge funds. The company owns and operates an ecommerce platform. It is headquartered in China.
On September 15, investment advisory Stifel reiterated a Buy rating on JD.com, Inc. (NASDAQ:JD) stock and raised the price target to $100 from $90, underlining that the firm appeared “less exposed” to regulatory risk than peers in China.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in JD.com, Inc. (NASDAQ:JD) with 51.5 million shares worth more than $4.1 billion.
In its Q1 2021 investor letter, Arisaig Partners, an asset management firm, highlighted a few stocks and JD.com, Inc. (NASDAQ: JD) was one of them. Here is what the fund said:
“Our largest holding as a firm, JD.com, we expect to grow earnings at an annualised rate of 30% over the next five years, implying it will trade on an EV / EBITDA of 7.5x at the end of this period. Is this a growth stock or a value stock? Does anyone care? Do these labels really matter?
For the Asia Fund, with a higher pre-existing allocation to our core FMCG holdings coming into the year, we took advantage of capital market volatility to further concentrate on our highest conviction names. JD.com has been the main destination for our limited reallocations as evidence continues to emerge supporting our thesis that the company has a strong right-to-win in the large and highly fragmented USD1.8th Chinese grocery market. We have also been encouraged by the fact that after years of persistence, the company is beginning to engage with us on ESG issues (we have specifically discussed data protection, climate change and the circular economy). ESG is now being considered at the board level, and specific sustainability reporting should follow in the coming months. Having long displayed a healthy obsession with customer service, we interpret these latest conversations as a sign that JD is beginning to develop a more sophisticated understanding of its impact on all stakeholders.”
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Disclosure. None. Growth Stock Portfolio: 10 Stock Picks By Hedge Funds is originally published on Insider Monkey.
