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 Salesforce, Inc. (NYSE:CRM) 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 service team in an office setting using the company’s Customer 360 platform to communicate with customers.
Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Investors In Q1 2024: 154
Salesforce, Inc. (NYSE:CRM) is a software as a service (SaaS) company that provides customer relationship management software products. 2024 has been a rough year for the firm so far after its shares tanked by 20% after the first quarter earnings marked Salesforce, Inc. (NYSE:CRM)’s first revenue miss since 2006. This miss is crucial for a SaaS company since revenue growth is a key metric for SaaS evaluations. To make matters worse, the current quarter guidance also saw Salesforce, Inc. (NYSE:CRM) guide revenue growth lower than 10% for the first time. Put together, these factors hint at a slowing economy making businesses revaluate their SaaS spending, particularly in the context of higher inflation and investor worries about AI disrupting the SaaS industry and allowing alternatives to surface.
Harding Loevner mentioned Salesforce, Inc. (NYSE:CRM) in its Q1 2024 investor letter where it remained bullish on the firm due to the SaaS company’s considerable customer base and ‘agnosticism’ when it comes to using GPUs. The financial firm shared:
SAP, and ServiceNow are also already deeply integrated into their customers’ operations and workflow. Few users want to go through the hassle of changing or adding providers if their existing systems can offer some kind of equivalent upgrade. This effect is even more powerful if a customer can add AI capabilities to existing software and, for just a few extra dollars a month, meaningfully improve productivity. Microsoft said in January that 1.3 million subscribers are already paying the additional charge for the Copilot upgrade to GitHub. Furthermore, enterprise-software companies can make money from AI without regard for whose GPUs or ASICs are used in the future. And should the industry’s AI-monetization plans disappoint, they may be more resilient than a company such as NVIDIA, whose growth is more dependent on AI investment.
Overall CRM ranks 7th 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 CRM 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 CRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
