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Growth Stock Portfolio: 12 Stock Picks By Hedge Funds

In this article, we discuss 12 picks of elite hedge funds for a growth stock portfolio. If you want to see more stocks in this selection, go to Growth Stock Portfolio: 5 Stock Picks By Hedge Funds

Growth fund managers, Wall Street experts, and even small firms have been fairly optimistic in the face of macro challenges which are piling up one after another, ranging from persistent inflation and rising rates to virus restrictions and geopolitical unrest disrupting supply chains and energy provision globally. Investors acknowledge these headwinds, but with the November Fed meeting and Q3 2022 corporate earnings now on the table, there is some relief that the largest surprises are out of the way, which leaves stocks attractively valued. 

Eric Schoenstein, chief investment officer at Jensen Investment Management, who owns positions in premier tech firms like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), told Bloomberg on November 3: 

“We’re comfortable looking through the current headwinds and volatility, and we’re comfortable with our conclusion that these are very strong businesses that are going through a bit of a reset in expectations.” 

Big tech remains largely favored by Wall Street analysts, retail traders, and institutional investors alike. Firms like Apple, Microsoft, Alphabet, and Amazon received Buy ratings from at least 70% of Wall Street experts. As per Vanda Research, retail investors are boosting their equity investments as well. Bloomberg cited Vanda senior vice president Marco Iachini on November 3, who said: 

“The selloff in mega caps was seen as a buy-the-dip opportunity rather than a capitulation moment.”

Our Methodology 

We selected the following growth stocks based on their popularity among elite hedge funds tracked by Insider Monkey in the second quarter of 2022. We have also mentioned the latest analyst coverage, underlying business fundamentals, and the P/E ratios as of November 3. Stocks with a P/E ratio of more than 30 were selected for this list. 

Photo by Ruben Sukatendel on Unsplash

Growth Stock Portfolio: Stock Picks By Hedge Funds

12. Expedia Group, Inc. (NASDAQ:EXPE)

Number of Hedge Fund Holders: 80

P/E Ratio as of November 3: 36.35

Expedia Group, Inc. (NASDAQ:EXPE) is a Washington-based online travel company that operates through Brand Expedia, Vrbo, Classic Vacations, Expedia Cruise, Expedia Partner Solutions, Trivago, and Expedia Group Media brands. Expedia Group, Inc. (NASDAQ:EXPE) is one of the premier picks of elite hedge funds for a growth stock portfolio. 

On October 28, Truist analyst Naved Khan maintained a Buy rating on Expedia Group, Inc. (NASDAQ:EXPE) but lowered the firm’s price target on the shares to $175 from $185 part of a broader research note on Online Travel names. The group’s Q3 results should be “healthy” amid resilient demand and positive traffic patterns. Commentary from Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc. (NASDAQ:META) on strength in Travel ad spend also supports this view, the analyst wrote in a research note. 

According to Insider Monkey’s data, 80 hedge funds were long Expedia Group, Inc. (NASDAQ:EXPE) at the end of June 2022, compared to 88 funds in the last quarter. 

Like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), elite hedge funds are largely bullish on Expedia Group, Inc. (NASDAQ:EXPE). 

Here is what Artisan Partners specifically said about Expedia Group, Inc. (NASDAQ:EXPE) in its Q3 2022 investor letter:

“Expedia Group, Inc. (NASDAQ:EXPE) shares declined 1% during the quarter. Part of this was just the shares finding a bottom after a significant decline in the prior quarter. The business continues to perform well. The core business has largely recovered from the pandemic, with lodging revenues now 9% higher than 2019 levels. The overall travel environment has remained strong, but the big question is whether inflationary pressure on consumer discretionary spending will render the recovery short lived. Time will tell. In the meantime, the business is performing well, and the structural improvements in Expedia’s cost structure made during the pandemic are becoming visible. We estimate the shares are trading at ~10X normalized earnings, which remains attractive.”

11. Datadog, Inc. (NASDAQ:DDOG)

Number of Hedge Fund Holders: 81

P/E Ratio as of November 3: 4,323.69

Datadog, Inc. (NASDAQ:DDOG) provides a cloud-based monitoring and analytics platform for web developers and business users in North America and internationally. On November 3, the company posted market-beating Q3 results, and said that it expects revenue for full-year 2022 between $1.650 billion and $1.654 billion, versus a consensus of $1.63 billion. The company also initiated upbeat Q4 guidance. It is one of the best candidates for a growth stock portfolio. 

On November 2, Macquarie analyst Frederick Havemeyer initiated coverage of Datadog, Inc. (NASDAQ:DDOG) with a Neutral rating and an $85 price target. The rating represents a cautious stance on short-term macro headwinds, the analyst told investors in a research note.

According to Insider Monkey’s data, 81 hedge funds were bullish on Datadog, Inc. (NASDAQ:DDOG) at the end of June 2022, compared to 82 funds in the prior quarter. Henry Ellenbogen’s Durable Capital Partners is the leading position holder in the company, with 3.14 million shares worth $299.5 million. 

Here is what Baron Global Advantage Fund has to say about Datadog, Inc. (NASDAQ:DDOG) in its Q1 2022 investor letter:

“Another example is Datadog, the leading infrastructure monitoring, application performance monitoring and log management software platform. Datadog’s stock declined 15% during the quarter, despite reporting sparkling operational results, with revenues accelerating to a growth rate of 84% year-over-year with 33% free cash flow margins, while guiding for 2022 significantly above expectations. Datadog added 4,600 new customers in the quarter, while existing customers continued to increase their spending on Datadog products at a rapid pace with the number of customers using four or more products increasing to 33% from 22% last year. While Datadog’s stock was down, its intrinsic value has undoubtedly increased. This is enabled by rapid innovation (Datadog released 13 new products in 2021) into a market that is benefiting from the secular growth in cloud, digital transformation, and the explosion in complexity as the number of vendors, diversity of technologies and related infrastructure continued to expand.”

10. NVIDIA Corporation (NASDAQ:NVDA)

Number of Hedge Fund Holders: 84

P/E Ratio as of November 3: 42.98

NVIDIA Corporation (NASDAQ:NVDA), an American multinational semiconductor firm, is one of the top picks of the smart money for a growth stock portfolio. On October 18, Oracle Corporation (NYSE:ORCL) and NVIDIA Corporation (NASDAQ:NVDA) announced that they were expanding their current partnership in an effort to advance artificial intelligence adoption in the Oracle enterprise. According to the NVIDIA CEO, the deal would “put NVIDIA AI within easy reach for thousands of companies.”

On October 25, Needham analyst Rajvindra Gill reiterated a Buy rating on NVIDIA Corporation (NASDAQ:NVDA) but trimmed the firm’s price target on the shares to $155 from $170 as part of a broader research note on Semiconductors and Semiconductor Equipment. 

Among the hedge funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management held a significant position in NVIDIA Corporation (NASDAQ:NVDA) at the end of June 2022, comprising 7.6 million shares worth $1.15 billion. 

Here is what Baron Funds specifically said about NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2022 investor letter:

“NVIDIA Corporation (NASDAQ:NVDA) is a fabless semiconductor company and a leader in gaming and accelerated computing. NVIDIA is powering the growth of AI from the data center to the edge. Shares detracted due to inventory right sizing in NVIDIA’s gaming segment coupled with the broader market sell-off in growth stocks. Given NVIDIA’s end-to-end AI platform and its leading market share in gaming, data centers, and autonomous machines, along with the size of these markets, we believe the company can sustain its growth trajectory. See further discussion of NVIDIA in the top net purchases section below.

During the third quarter, we took advantage of its stock sell-off to add to NVIDIA Corporation, a fabless semiconductor mega cap that is a global leader in gaming cards and accelerated computing hardware and software. The sell-off was driven by a near-term inventory correction in gaming as a result of a COVID-related pull forward in demand as well as the shift in the Ethereum cryptocurrency from proof-of-work to proof-of-stake. Additionally, investors are concerned over the potential slowdown in data center revenues as a result of a weaker macroeconomic environment as well as the recently announced limitations on semiconductor shipments to China. Despite the near-term uncertainty, we believe that NVIDIA’s end-to-end AI platform and its leading market share in gaming, data centers, and autonomous machines, along with the size of these markets, would enable the company to benefit from durable growth for years to come and therefore view the stock price where we added shares as a compelling value for long-term investors. With demand for computing power doubling every one to two years, and Moore’s Law slowing down, there is more need for computing than ever. At the same time, “near free” supply growth (that was possible thanks to Moore’s Law) has slowed dramatically. NVIDIA’s accelerated architecture, with parallel computing at scale, answers that need.”

9. Booking Holdings Inc. (NASDAQ:BKNG)

Number of Hedge Fund Holders: 93

P/E Ratio as of November 3: 50.63

Booking Holdings Inc. (NASDAQ:BKNG), an American travel technology firm, is one of the firms backed by elite investors for a growth stock portfolio. In Q2 2022, the company reported earnings for the third quarter of 2022. Booking Holdings Inc. (NASDAQ:BKNG) posted a Q3 non-GAAP EPS of $53.03 and a revenue of $6.05 billion, outperforming Wall Street estimates by $3.18 and $130 million, respectively. Gross travel bookings, net of cancellations, were $32.1 billion. This represents an increase of 36% year-over-year. 

Deutsche Bank analyst Lee Horowitz on November 3 raised the price target on Booking Holdings Inc. (NASDAQ:BKNG) to $2,370 from $2.280 and kept a Buy rating on the shares. The company’s Q3 results significantly topped Street expectations, showcasing the resilience of travel recovery across all global regions as well as Booking Holdings Inc. (NASDAQ:BKNG)’s ability to gain higher share, the analyst told investors in a research note.

According to Insider Monkey’s data, 93 hedge funds were bullish on Booking Holdings Inc. (NASDAQ:BKNG) at the end of Q2 2022, compared to 99 funds in the prior quarter. Harris Associates is a significant position holder in the company, with 616,383 shares worth more than $1 billion. 

Here is what RiverPark Large Growth Fund has to say about Booking Holdings Inc. (NASDAQ:BKNG) in its Q3 2022 investor letter:

“We also bought back a small position in Booking Holdings during the quarter. Booking is the world’s leader in online travel, operating in 200 countries with brands including Booking.com, priceline.com, agoda.com, Kayak, Rentalcars.com and OpenTable. The company has been a dominant on-line travel agency for more than a decade with a high margin business model (40% EBITDA margin for 2019 and 28% for 2021) that requires limited capital expenditures, typically less than 3% of revenue, producing $4.5 billion free cash flow for 2019 and $2.5 billion for 2021 (due to the vast COVID disruption). The company has used its free cash flow for episodic acquisitions as well as to return cash to shareholders. BKNG is well positioned in travel as the largest player in online lodging bookings and the second largest player in alternative accommodations. Like all travel companies, Booking was hit hard by the pandemic, but with its high international exposure, we expect the company’s recovery to be equally strong as travel returns.”

8. T-Mobile US, Inc. (NASDAQ:TMUS)

Number of Hedge Fund Holders: 96

P/E Ratio as of November 3: 121.17

T-Mobile US, Inc. (NASDAQ:TMUS) is an American company providing mobile communications services such as voice, messaging, and data to customers in the United States, Puerto Rico, and the United States Virgin Islands. Although T-Mobile US, Inc. (NASDAQ:TMUS) missed revenue estimates in Q3, the company reassured investors about subscriber strength and posted a positive outlook for full-year 2022. T-Mobile US, Inc. (NASDAQ:TMUS) is one of the top contenders for a growth stock portfolio. 

On October 28, Cowen analyst Paul Gallant lifted the price target on T-Mobile US, Inc. (NASDAQ:TMUS) to $201 from $187 and reiterated an Outperform rating on the shares following the robust Q3 results. 

According to the second quarter database of Insider Monkey, 96 hedge funds held stakes worth $6.85 billion in T-Mobile US, Inc. (NASDAQ:TMUS), compared to 91 funds in the last quarter worth $7.2 billion. 

In its Q4 2021 investor letter, ClearBridge Investments shared its stance on T-Mobile US, Inc. (NASDAQ:TMUS):

“As mentioned, the communication services sector has come under some pressure, and irrational pricing competition has negatively impacted wireless industry growth and profitability of late, weighing on T-Mobile. Faced with these headwinds, and with pressure from other wireless carriers and cable companies that could cause the company to cede share in subscriber growth in 2022, we exited our position in the fourth quarter.”

7. PayPal Holdings, Inc. (NASDAQ:PYPL)

Number of Hedge Fund Holders: 97

P/E Ratio as of November 3: 46.54

PayPal Holdings, Inc. (NASDAQ:PYPL), an American multinational payments technology firm, is one of the leading picks of elite investors for a growth stock portfolio. On October 25, PayPal Holdings, Inc. (NASDAQ:PYPL) stock climbed as e-commerce giant Amazon authorized some of its customers to use PayPal’s Venmo at checkout during the holiday shopping season. 

Morgan Stanley analyst James Faucette on October 26 maintained an Overweight rating and a $134 price target on PayPal Holdings, Inc. (NASDAQ:PYPL) shares. Although the analyst acknowledged that the Amazon-Venmo deal will have an immaterial impact on PayPal’s financials, he views the roll-out as a significant catalyst as it can introduce Venmo to other merchants and boost the overall acceptance network, in addition to improving habituation for Venmo users.

According to Insider Monkey’s data, PayPal Holdings, Inc. (NASDAQ:PYPL) was part of 97 hedge fund portfolios at the end of the second quarter of 2022, compared to 100 in the last quarter. Terry Smith’s Fundsmith LLP is a significant position holder in the company, with 9.65 million shares worth $674 million. 

Here is what RiverPark Large Growth Fund has to say about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2022 investor letter:

“PayPal, announced better-than-expected 2Q results, positive guidance (including more than $1.3 billion of 2023 cost savings leading to operating margin expansion), a $15 billion stock repurchase program, and the appointment of Blake Jorgensen as CFO, who was previously the well-regarded CFO at Electronic Arts. The company reported 9% revenue growth, in-line with guidance, and $0.93 EPS, exceeding guidance due to robust operating leverage. Management narrowed its 2022 revenue guidance from 11%-13% growth to about 11% growth due to the macro environment but raised its EPS guidance due to greater operating margin leverage and share buybacks. The stock also reacted to the news that activist investor Elliott Management had taken a stake in the company. PYPL operates at significantly lower margins than its payment competitors Visa and Mastercard, and sources suggest that Elliott intends, among other things, to push for the company to improve its margins and drive higher cash flow growth in the near term.

PayPal provides direct exposure to the secular growth in ecommerce-driven digital payments as it is the most accepted digital wallet on-line. More than 3/4 of the 1,500 largest online retailers across North America and Europe accept PayPal, which is almost triple the acceptance of Apple Pay, the number two digital wallet. PayPal is also a key beneficiary of the current dramatic shift in consumer buying habits brought on by the pandemic, as well as the relatively newer consumer-to-consumer payment trends through its Venmo peer-to-peer (P2P) payment service. With a 2Q non-GAAP operating margin of 19%, PYPL also has significant margin expansion potential given that competitors Adyen, Visa and Mastercard have 50%-65% operating margins. We believe the combination of the secular growth of eCommerce and P2P payments, along with expanding operating leverage and the strategic use of the company’s significant and growing cash balance should fuel a mid-20% earnings growth rate over the next five years. This, to us, presents an excellent risk/reward profile given that PYPL trades at a modest premium to the market multiple and a 6% 2023 FCF yield.”

6. ServiceNow, Inc. (NYSE:NOW)

Number of Hedge Fund Holders: 99

P/E Ratio as of November 3: 394.19

ServiceNow, Inc. (NYSE:NOW) is a California-based provider of cloud computing solutions for enterprises worldwide. The company topped analyst estimates with its third quarter earnings. ServiceNow, Inc. (NYSE:NOW) reiterated the earlier FY22 operating margin guidance of 25%, while also absorbing an incremental 1% impact from forex headwinds. The revenue grew 21.2% year-over-year to $1.83 billion but fell short of Wall Street consensus. ServiceNow, Inc. (NYSE:NOW) reported adjusted earnings of $1.96 per share, beating estimates by $0.11. 

On November 2, Macquarie analyst Sarah Hindlian-Bowler assumed coverage of ServiceNow, Inc. (NYSE:NOW) with an Outperform rating and a $500 price target. The analyst expects the company to continue to “deliver a best-in-class platform for making work better.”

According to Insider Monkey’s data, 99 hedge funds were long ServiceNow, Inc. (NYSE:NOW) at the end of June 2022, compared to 90 funds in the preceding quarter. Stephen Mandel’s Lone Pine Capital is one of the leading position holders of the company, with 1.3 million shares worth $614.5 million. 

In addition to Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), ServiceNow, Inc. (NYSE:NOW) is one of the top stock picks of elite hedge funds. 

Here is what RiverPark Large Growth Fund has to say about ServiceNow, Inc. (NYSE:NOW) in its Q3 2022 investor letter:

“ServiceNow: Despite a strong beat and raise quarter and a positive analyst day where management increased its long-term subscription revenue and operating margin targets, NOW was a top detractor for the quarter as management noted the macro environment created some near-term deal slippage and longer sales cycles. For its 2Q22, the company reported 25% subscription revenue growth (including a 500-basis point currency headwind) and lowered full year subscription revenue guidance to 24% from 26%, on a 400-basis point currency headwind. Still the company reiterated its ambitious long-term targets from its May analyst day, at which the company raised its F24 subscription revenue target by $1 billion to $11 billion (up almost 60% from the $7 billion in revenue expected for 2022), all through organic growth, and increased its operating margin target to 27% (up from its 25% target for 2022).

ServiceNow is a best-of-breed provider of both IT Service Management (ITSM) and IT Operations Management (ITOM) solutions to enterprise customers. The company’s products serve mainly its clients’ internal employee base with a current focus on automating the process of IT deployment, configuration and service and management of IT assets across an organization. Both its ITSM and ITOM solutions are delivered as a software-as-a-service (SaaS) and are leading solutions in growing markets, driven by the secular trend of enterprises transitioning all aspects of their business and operations to the cloud. As the company maintains and adds customers, upsells them, and expands into adjacent markets, we believe NOW should sustain a strong long-term revenue and FCF growth trajectory.”

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Disclosure: None. Growth Stock Portfolio: 12 Stock Picks By Hedge Funds is originally published on Insider Monkey.

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