We recently published a list Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. Since Netflix Inc (NASDAQ:NFLX) ranks 3rd on the list, it deserves a deeper look.
Venu Krishna, Head of U.S. Equity Strategy & Global Equity Linked Strategies at Barclays, recently shared a basket of stocks he recommends offsetting the risks that come from market concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that he remains inclined towards big tech stocks, but the important question he addressed is which stocks offer more value outside of the tech sector in the long term.
Krishna’s methodology to find some of the best stocks outside of the tech sector is simple: find out at what “core fundamental” metrics big tech stocks are “excelling” at and then “try to come close to that and create a portfolio which can give us that kind of exposure.” Through this methodology, Krishna says, he came up with a well-diversified portfolio of stocks that could act as a “hedge” against market concertation in big tech.
Krishna said he applied “liquidity filters” on the whole market to remove a “bunch of companies” and narrow down to stocks with strong growth and FCF multiples.
Despite him pointing out the concentration of gains problem, Venu Krishna believes the rise of big tech stocks is a “healthy trend” and some of the gains are now bifurcating to other sectors, too.
However Krishna said that over the past 18 months his portfolio of stocks has lagged behind the Big Tech, but outperformed equal-weighted S&P 500 and market cap-weighted S&P 500.
For this article, we took a look at Krishna’s latest basket of stocks to offset concentration in big tech risks and picked 10 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Netflix Inc (NASDAQ:NFLX)
Number of Hedge Fund Investors: 107
Barclays recommends Netflix Inc (NASDAQ:NFLX) as a stock to offset risks in the concentrated market where most of the gains are coming from AI stocks. Barclays isn’t alone. Evercore ISI recently said in a note that Netflix Inc (NASDAQ:NFLX) is in “the strongest position financially, fundamentally and competitively that we have ever seen.” Evercore reiterated an Outperform rating on the stock and increased its price target to $700 from $650.
Sensing major threats amid rising competition in the market from Disney Plus, Peacock (CMCSA), Max. Amazon and YouTube, Netflix Inc (NASDAQ:NFLX) has fired all engines and is using a multi-pronged approach to thrive. Netflix Inc (NASDAQ:NFLX) is expanding into emerging markets, aggressively focusing on user engagement and tapping into advertisement and gaming. Netflix Inc (NASDAQ:NFLX) is also expanding into NFL games and WWE. Netflix’s ad-tier now has 40 million global monthly active users, up from 23 million in January.
Thanks to its aggressive focus on expansion, Netflix Inc’s (NASDAQ:NFLX) revenue stream has become extremely diversified, which can protect it from the headwinds at home. In 2023, Netflix Inc (NASDAQ:NFLX) raked in $14.9 billion revenue from US and Canada combined, while revenue from the EMEA region jumped 8% to $10.6 billion. Latin America and Asia-Pacific revenue came in at $4.4 billion and $3.8 billion.
Netflix Inc (NASDAQ:NFLX) added a whopping 9.3 million subscribers in the first quarter alone, a sign that its strategies are working. For context, Netflix Inc (NASDAQ:NFLX) had added 1.8 million subscribers in the prior-year quarter. The subscriber growth is expected to continue as Netflix Inc (NASDAQ:NFLX) focuses on user stratification and new content. Netflix Inc (NASDAQ:NFLX) is targeting original content spending of $17 billion by 2024.
RiverPark Large Growth Fund stated the following regarding Netflix, Inc. (NASDAQ:NFLX) in its first quarter 2024 investor letter:
“Netflix, Inc. (NASDAQ:NFLX): NFLX was a top contributor in 1Q24 following strong fourth quarter earnings and 2024 guidance driven by better-than-expected subscriber adds (+13.1 million versus estimates of +8.9 million). The company’s subscriber growth continued to accelerate following the company’s crack down on password sharing and the rollout of the lower cost, advertising supported subscriber offering known as the Ad Tier. ARPU came in below expectations, but recently announced price increases in the US, UK and France showed signs of moving ARPU higher. NFLX guided 2024 operating margins to 24%, ahead of prior guidance of 22-23%, and guided to 2024 free cash flow of $6 billion.
The recent re-acceleration of subscriber growth, plus price increases on premium memberships and a stabilization of content investments, should position the company for low double digit annual revenue growth over the next few years while driving improved operating margin to more than 25%. We also believe that the stabilization of content spend should allow the company to continue to scale its FCF.”
Overall, Netflix Inc (NASDAQ:NFLX) ranks 3rd on Insider Monkey’s list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. While we acknowledge the potential of Netflix Inc (NASDAQ:NFLX), 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 Netflix Inc (NASDAQ:NFLX) 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.
