Growth Stock Portfolio: 5 Stock Picks By Hedge Funds

In this article, we discuss 5 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: 12 Stock Picks By Hedge Funds. 

5. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders: 106

P/E Ratio as of November 3: 32.86

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese technology conglomerate, and it is one of the top picks of elite hedge funds for a growth stock portfolio. On November 1, Alibaba was one of the Chinese tech firms which gained on reports that China might ease some of its COVID-related restrictions around the country, resulting in fewer supply chain disruptions.

Truist analyst Youssef Squali maintained a Buy recommendation on Alibaba Group Holding Limited (NYSE:BABA) on November 1 but slashed the firm’s price target on the shares to $125 from $135, noting that the company is positioned to achieve positive returns by the second half of 2023. 

According to Insider Monkey’s data, 106 hedge funds were bullish on Alibaba Group Holding Limited (NYSE:BABA) at the end of June 2022, compared to 100 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 14.5 million shares worth $1.6 billion. 

Here is what Artisan Partners specifically said about Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2022 investor letter:

“Alibaba Group Holding Limited (NYSE:BABA) declined 30% during the quarter primarily due to the continued impact of China’s zero-COVID policy. In August, more than 70 Chinese cities with 300 million combined population were in some state of lockdown. Unfortunately, this comes on top of the other regulatory and competitive challenges that had previously been pressuring Alibaba’s shares over the past year. The painful decline in the share price has made Alibaba a poor investment so far—for good reason. In the second quarter, core online e-commerce revenues were down 10%, and adjusted profits declined 18%. That said, Alibaba shares are priced for this terrible environment to continue forever, and many of the exogenous issues should eventually abate. Signs suggest the regulatory pressure is already easing. The government has been stepping in with economic stimulus. The zero-COVID policy must eventually end. In addition, Alibaba’s management has taken important steps to improve profitability by reducing investments in loss-making new business ventures. When the environment improves, we believe that Alibaba’s core business franchises will return to growth, and profits will follow. The disconnect between Alibaba’s price and value continues to be one of the biggest we have seen in our careers.”

4. The Walt Disney Company (NYSE:DIS)

Number of Hedge Fund Holders: 109

P/E Ratio as of November 3: 58.12

The Walt Disney Company (NYSE:DIS) is another stock backed by smart investors for a growth stock portfolio. At the end of September, the American entertainment conglomerate entered into a support agreement with activist investor Daniel Loeb and his firm Third Point, and will also add Facebook veteran Carolyn Everson to its board with Loeb’s help.

KeyBanc analyst Brandon Nispel on October 26 maintained an Overweight rating on The Walt Disney Company (NYSE:DIS) but lowered the price target on the shares to $143 from $154. The analyst noted that Disney’s conventional Media business is exposed to harsh macro trends, but the company’s focus on sports positions it favorably. The Walt Disney Company (NYSE:DIS)’s streaming services allow for the transition of subscribers from linear to streaming that is difficult for others to replicate and Disney parks are resilient and offer meaningful cash to help finance the transition to streaming, added the analyst. 

According to the second quarter database of Insider Monkey, Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the one of the largest position holders in The Walt Disney Company (NYSE:DIS), with 3.8 million shares worth $366.3 million. 

Here is what Third Point specifically said about The Walt Disney Company (NYSE:DIS) in its Q3 2022 investor letter:

“As disclosed in our Q2 letter, we reinitiated a significant position in The Walt Disney Company (NYSE:DIS) when the company retested its Covid lows earlier this year. At the current price, Disney is trading for little more than the stand-alone value of its Parks business and a mere 15x ’24 “street” consensus. The company remains early in its Direct to Consumer (“DTC”) transition with a leading market position, and yet the current stock price ascribes negligible value to the streaming business. We believe this is due to questions around the terminal economics of streaming, given large losses being generated today at Disney (>$1 billion dollars last quarter) and stagnating margins at peers such as Netflix. On the last earnings call, management highlighted three items that could lead to an inflection in DTC profitability over the next 12 months: a 38% price increase for Disney+ in the US; moderating growth in cash content expense; and an advertising tier for Disney+ launching in two months that can drive additional ARPU given high demand for the Disney brand amongst advertisers.

While the company has guided Disney+ achieving breakeven sometime within the fiscal year ending September 2024, the valuation suggests the market remains skeptical. Disney only trades at ~14x the $7 in earnings generated prior to the Fox acquisition, which implies investors don’t expect earnings to meaningfully exceed this figure in the coming years. Hence, the first value driver we highlighted in our last letter is the opportunity for management to optimize Disney’s cost base to drive earnings growth. We believe Disney has ample means to rationalize costs across its operating platform and deliver targeted content for home viewing that does not entail the same cost structure of exclusive theatrical releases…” (Click here to view the full text)

3. Salesforce, Inc. (NYSE:CRM)

Number of Hedge Fund Holders: 116

P/E Ratio as of November 3: 276.65

Another firm preferred by hedge funds for a growth stock portfolio is Salesforce, Inc. (NYSE:CRM), an American provider of customer relationship management technology and platforms to deliver connected experiences to customers. In mid-October, activist investor Starboard Value reported taking up a “significant” stake in  Salesforce, Inc. (NYSE:CRM), which elevated the stock. 

Macquarie analyst Sarah Hindlian-Bowler on November 2 assumed coverage of Salesforce, Inc. (NYSE:CRM) with an Outperform rating and a $210 price target. The analyst believes the shares are undervalued and forecasts that the firm will end its multiple contraction with growth from Cloud Suite and improving margins.

According to Insider Monkey’s data, 116 hedge funds were long Salesforce, Inc. (NYSE:CRM) at the end of Q2 2022, compared to 114 funds in the last quarter. Harris Associates is a prominent stakeholder of the company, with over 5 million shares worth $829 million.

Here is what Cooper Investors Global Equities Fund has to say about Salesforce, Inc. (NYSE:CRM) in its Q3 2022 investor letter:

“It seems unfashionable to discuss technology stocks given the current market mood, but we are observing positive signs from US software companies in terms of their journey along the ‘HubrisHumility’ cycle. We have trimmed and concentrated our software exposure significantly over the last 18 months down to two cloud-native SAAS players, Workday and Salesforce. We met with both businesses during our trip and came away encouraged from language indicating increased focus on profitability and cost control.

We see significant optionality in these businesses to grow at the same time as expanding margins and free cash flow. The discussions increased our conviction that returns on capital are now becoming a priority for CEOs and CFOs in this sector who are talking for the first time about cost discipline, reduced capex, more measured hiring practices, a reduction in the level of stock-based compensation and scaled back M&A ambitions. Salesforce in a recent earnings update announced its first ever buyback for US$10bn…” (Click here to see the full text)

2. Mastercard Incorporated (NYSE:MA)

Number of Hedge Fund Holders: 137

P/E Ratio as of November 3: 31.39

Mastercard Incorporated (NYSE:MA), the American multinational payments technology giant, is one of the best stocks to consider for a growth portfolio as per elite investors. Mastercard Incorporated (NYSE:MA)’s earnings and revenue continued to increase in Q3 2022, supported by ongoing gains in cross-border travel. However, the pace of growth softened as compared to the prior quarter amid rising economic uncertainty.

On November 1, investment advisory Mizuho maintained a Buy rating on Mastercard Incorporated (NYSE:MA) but lowered the firm’s price target on the shares to $380 from $385 after the Q3 results. Analyst Dan Dolev raised 2022 estimates but slashed outer-year expectations.

Among the hedge funds tracked by Insider Monkey in Q2 2022, Charles Akre’s Akre Capital Management is the largest stakeholder of the company, with 5.8 million shares worth $1.85 billion. Overall, 137 hedge funds were long Mastercard Incorporated (NYSE:MA) at the end of June this year. 

Here is what L1 Capital International specifically said about Mastercard Incorporated (NYSE:MA) in its Q2 2022 investor letter:

“Growth in electronic payments, the continued shift away from cash and cheques, and the provision of additional services such as fraud identification and prevention continue to power Mastercard Incorporated (NYSE:MA)’s growth (Figure 14). In person cross-border transactions are recovering alongside normalization of travel.

Mastercard and Visa (we have invested in both) continue to dominate the electronic payments industry outside of China, utilizing their own multi-faceted networks as well as Government and third-party payments infrastructure to facilitate transactions. Another perfect example of a ‘Noah’s Ark’ industry structure.

Regulation, technological disruption and disintermediation, and geopolitical constraints are perennial issues for consideration, but Mastercard (and Visa) management have repeatedly demonstrated their ability to manage these issues…” (Click here to read the full text)

1. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders: 252

P/E Ratio as of November 3: 84.70

Amazon.com, Inc. (NASDAQ:AMZN) is an American multinational technology conglomerate specializing in e-commerce, cloud computing, AI, advertising, and digital streaming. Amazon.com, Inc. (NASDAQ:AMZN) is one of the top picks of hedge funds for a growth stock portfolio. Insider Monkey’s data shows that 252 funds were bullish on Amazon.com, Inc. (NASDAQ:AMZN) at the end of Q2 2022, compared to 271 in the prior quarter. 

Tigress Financial analyst Ivan Feinseth on November 2 reiterated a Buy rating on Amazon.com, Inc. (NASDAQ:AMZN) but lowered the price target on the shares to $192 from $232. The analyst said that the updated price target factors in a re-rating of valuation and growth rate adjustments. He views the recent pullback in Amazon.com, Inc. (NASDAQ:AMZN) stock as a “major” buying opportunity.

According to Insider Monkey’s database, Ken Fisher’s Fisher Asset Management held a significant position in Amazon.com, Inc. (NASDAQ:AMZN) during the second quarter of 2022, comprising 48.6 million shares worth $5.16 billion. 

Polen Capital made the following comment about Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2022 investor letter:

“At an individual company level, the top three absolute contributors were Amazon.com, Inc. (NASDAQ:AMZN), ADP, and Autodesk. Amazon reported better-than-expected earnings during the quarter driven by robust earnings and margins in AWS, its cloud division. The company also posted positive numbers for advertising in the face of a tough environment for the sector.”

You can also take a look at 15 Countries That Consume The Most Alcohol and 10 Best Rebound Stocks To Buy Now.

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