We recently compiled a list of the 10 Stocks Hedge Funds Are Crazy About Right Now. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other hedge fund-approved stocks.
Investing, broadly speaking, narrows down to two strategies. These see an investor decide whether to buy a stock for the short term and make quick profits or hold it for years to patiently wait for the returns to accrue. One of the most successful investor of our times, Warren Buffett (see his latest portfolio), is an ardent follower of the latter approach, and his wealth bears testament to his success.
Of course, deciding to pick the right stocks to sit on for years isn’t easy or else everyone would be rich by now. However, there are ways in which one can gain an edge over others. One such way is to see what the professionals are doing and then emulate their strategy. At Insider Monkey, we get right at the heart of investing by picking out the top stocks that hedge funds are investing in. Why hedge fund stock picks? Well, these professionals, who almost often charge an arm and a leg for their services, conduct extensive due diligence to pick out the right set of stocks. After all, no one would invest with a hedge fund if the fund was simply picking stocks by flipping a coin.
Yet, while due diligence is great and necessary to protect investors, investing, at the end of the day, is all about returns. By the looks of it, the funds do seem to know what they’re doing. Last year, the top ten hedge fund stock picks ended up outperforming the S&P benchmark stock index by 48.9 percentage points. In other words, while the index returned 26.1% in 2023, the top ten stocks returned 75.1% through price gains. This trend is also present in the top 30 hedge fund stocks of 2023 as these posted 53.2% in gains to outperform the S&P by 27 percentage points. Unsurprisingly, year to May 29th, the top 30 hedge fund stocks of 2024 led the S&P’s 11% and posted 20.2% in gains.
Unfortunately, though, data shows that as of 2021 end, 14% of the stock market was made of active funds while 16% was accounted for by passive funds. Compared to passive funds accounting for 8% of the market a decade ago with 20% belonging to active funds, it’s clear that the broader public believes that shifting to passive is a safer investment approach. After all, while everyone wants to make money, no one wants to lose it either.
But what if one could make their own investing decisions and gain an inside track to investing by figuring out what stocks most hedge funds have invested in? Well, at Insider Monkey we regularly compile data from more than 900 hedge funds to see where the smart money is headed. This is how we know that the top hedge fund stocks outperformed the benchmark index last year, and it’s also a strategy that’s helped us beat the market over the last 10 years. Compared to the SPY’s 235.6% in returns between 2014 and May 2024, the 10 most popular stocks among hedge funds returned 463.7%.
But wait. At this point, you could argue that since hedge fund SEC filings come with a 45 day lag, perhaps they aren’t that important. After all, it might be more important to know what the funds are doing now. Well, since we’ve been compiling top hedge fund stocks since 2012 in our quarterly newsletter, we can guarantee you that the top hedge fund stocks haven’t changed by much since 2018. So not only isn’t the time lag that significant, but by subscribing to our newsletter, you can gain an early track to see which stocks are falling out of favor among the funds as well.
So, all this talk about the top hedge fund stocks might make you wonder about the stocks themselves. Curious? Check out the 31 Most Popular Stocks Among Hedge Funds. We also cover legendary investors through pieces such as Warren Buffett’s 12 Longest Held Stocks.
Our Methodology
To make our list of the top ten hedge fund stocks, we scanned Insider Monkey’s database of 900+ hedge fund filings for Q1 2024 and picked out the stocks with the highest number of investors.
A customer entering an internet retail store, illustrating the convenience of online shopping.
Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Investors In Q1 2024: 293
Amazon.com, Inc. (NASDAQ:AMZN) is an interesting stock. This is because while its fortunes are because of the highly lucrative and fast growing eCommerce market, the firm has used this growth to establish a commanding position in the enterprise computing market too. This means that Amazon.com, Inc. (NASDAQ:AMZN) can balance its eCommerce and enterprise computing businesses, and use AI to the benefit of both. The firm’s dominant market share in eCommerce insulates it from new entrants or competitors to provide it with a stable moat. Additionally, Amazon.com, Inc. (NASDAQ:AMZN)’s AWS platform designs its own chips and has integrated AI into customer offerings too, in order to adequately compete with offerings from Microsoft. Keeping an eye high growth industries, the firm’s satellite internet subsidiary Kuiper which plans to launch satellites soon can also provide it an entry into an attractive cash flow generating market currently dominated by SpaceX’s Starlink.
Ithaka Group mentioned Amazon.com, Inc. (NASDAQ:AMZN) in its Q1 2024 investor letter. Here is what the firm said:
Founded in 1994, Amazon has evolved from its early roots as an online bookstore to become one of the world’s largest eCommerce retailers. At the end of 2022 Amazon stood poised to capture ~40% of all US e-commerce sales, representing five times more share than the next closest competitor. In addition to eCommerce, Amazon Web Services (“AWS”) has become the market leader in outsourced cloud infrastructure. Further, Amazon Advertising is garnering significant share in digital advertising, particularly product placement ads, thanks to consumers beginning their product searches on Amazon’s site. Amazon’s stock appreciated on the back of stabilization of the company’s cloud computing segment and increased confidence the company would be able to contain expenses and push operating margins above prior peaks in the near-to-medium term.
Overall AMZN ranks 2nd on our list of the best hedge fund-approved stocks to buy. You can visit 10 Stocks Hedge Funds Are Crazy About Right Now to see the other hedge fund-approved stocks that are on hedge funds’ radar. While we acknowledge the potential of AMZN 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 AMZN 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.