In this article, we will take a look at the starter stock portfolio: 1o safe stocks to invest in now.
The Market Outlook for the Rest of 2024
A probable rate cut has provided hope for the economy. Despite that, the impact on financial markets and stocks remains uncertain. On September 4, Adam Parker, Trivariate Research founder and CEO, appeared in an interview on CNBC. Parker was not surprised that tech stocks were down by close to 4% at the beginning of September, that too right before an impending rate cut. Parker highlights that the inconsistency in the market at the moment is not normal, and with multiple rate cuts over the next two years, he has no reason to hold a positive economic outlook. He suggests that eight probable rate cuts indicate that the economy is slowing, consumer spending is declining, and unemployment is rising, all of which are not good signs for the market. The interviewer counter questions that eight rate cuts with a 25 basis point reduction are not as disastrous to presume a faltering economy. Parker then highlights that rate cuts in the past have been supported by consistent data, an incremental fiscal, and an expansion of the balance sheet, all of which are currently out of the picture. You can also read our piece on the best battery stocks to buy according to short sellers.
The Possible Impact of Rate Cuts on Stocks
On September 2, CNBC published a detailed report on the impact of rate cuts on the stock market in the United States. The Fed, in the footsteps of countries in Europe and Asia, recently announced an easing cycle, after a long period of high interest rates. As per current pricing data, the Fed is expected to have three 25-basis point cuts by the end of this year. Speaking of the global economic outlook, 2025 will see a lower-rate environment followed by easing inflationary pressures. However, the fear of recession in the United States tells another story. Analysts believe that the last four months of 2024 will be considerably weak and choppy amid geopolitical factors, uncertainty from the AI sector, corporate earnings, and most importantly, an overdue consolidation correction.
On September 3, JP Morgan reported that investors must not expect the cutting cycle to provide a fresh start to stocks. Leading strategists at the firm suggested that the rate cut cycle is rather reactive and is in response to a wilting economy, having little to no impact on stocks. Paul Christopher, head of global investment strategy, on the other hand, suggested that the market environment today resembles the market in 1995, increasing hopes for a market upside amid stable GDP strength and forecasts.
Bear market or bull market, certain stocks deserve a place in every investor’s portfolio. These are long-term opportunities to hold and will continue to provide superior returns, as they have for decades. With that let’s take a look at the 10 safe stocks to invest in now.
A trader in a financial institution using fundamentals analysis to select stocks for a portfolio.
Our Methodology
To come up with the 10 safe stocks to invest in now, we looked for well-established companies in the energy, finance, healthcare, technology, and fast-moving consumer goods (FMCG) industries. These stocks have a history of performing well and boasting consistent financial results, making them ideal and safe long term investments for beginners. We then picked the top 10 stocks that were the most widely held by money managers and ranked them in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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).
Starter Stock Portfolio: 10 Safe Stocks To Invest In Now
10. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 100
Eli Lilly and Company (NYSE:LLY) ranks as the 10th safest stock to invest in now. Eli Lilly and Company (NYSE:LLY) is a pharmaceutical company that sells products to 125 countries and has offices in 18 countries. The company produces and sells various medicines for serious illnesses including Mounjaro, Zepbound, and Verzenio, also referred to as the “blockbuster” medicines in the US.
Eli Lilly’s Zepbound, a medicine for patients with obesity or excess weight, brought in $1.2 billion in sales in the second quarter of 2024. Similarly, Mounjaro, an injection for adults with type 2 diabetes, logged in $3.1 billion in sales. With solid investments in research and development, Eli Lilly and Company (NYSE:LLY) has also been running trials to assess whether Tirzepatide can prevent the development of type 2 diabetes, rather than just treating it. Current trials reveal that the drug presented a 94% lower risk of progressing to diabetes among pre-diabetic adults who were overweight or obese.
In the second quarter of 2024, Eli Lilly and Company (NYSE:LLY) reported revenue worth $11.3 billion, up by 36% year-over-year, beating analyst estimates by $1.34 billion. The United States is the major market and accounted for nearly 64% of the company’s sales in 2023. In addition to that, the company’s products are gaining immense traction across the globe. Its new drug, Tirzepatide received approval on July 19th from National Medical Products Administration in China. Previously, the drug was approved by the European Union in April 2024, a breakthrough in the world of medicine.
Overall, Eli Lilly and Company (NYSE:LLY) is consistent with its financial performance and is also the giant behind some of the most important medicines in the United States. The company is notorious for rolling out new drugs regularly, which shows its commitment to healthcare.
Analysts are bullish on LLY and their 12-month high price target of $1,025 points to a 7% upside from current levels. In Q2 2024, 100 hedge funds owned stakes in Eli Lilly and Company (NYSE:LLY), with total stakes amounting to $16 billion. With nearly 5 million shares, Fisher Asset Management was the company’s leading stakeholder.
Baron Funds mentioned Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter:
“Shares of global pharmaceutical company Eli Lilly and Company increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
9. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 111
JPMorgan Chase & Co. (NYSE:JPM) is one of the safest stocks to buy. The multinational finance company is headquartered in the United States, serving millions of customers in over 100 countries and territories. The company provides investment banking solutions, risk management services, and capital-raising services to companies, institutions, and the government. JPMorgan Chase & Co. (NYSE:JPM) runs several subsidiaries including Chase Bank, Global Shares, Nutmeg, WePay, and Chase Paymentech, to name a few.
As of March 31, JPMorgan Chase & Co. (NYSE:JPM) has $4.1 trillion in assets and $3.6 trillion in assets in management, making it the largest bank in the United States, ahead of its competitors including Bank of America and Wells Fargo. During the first three months of 2024, the company raised $655 in total credit and capital for consumers, small businesses, government entities, and nonprofit entities.
Financial results aside, the company understands the dire need to integrate technology for operational efficiency. Earlier in August, JPMorgan Chase & Co. (NYSE:JPM) launched a generative AI assistant that helps over 60,000 employees complete tedious tasks such as drafting emails and reporting. On the customer front, the company introduced in-store pay-by-face biometric payment solutions for merchants in the US. Additionally, earlier in May, the company launched a new data-managed service for institutional investors allowing them to streamline their operating models for consistent data.
JPMorgan Chase & Co.’s (NYSE:JPM) strong customer base is a testament to its financial performance, which is also its economic moat. Overall, JPM was held by 111 hedge funds in the second quarter of 2024, with total stakes worth $6.98 billion. Fisher Asset Management is the top shareholder of the company with a position worth $2.58 billion.
Carillon Tower Advisers’s Carillon Eagle Growth & Income Fund stated the following regarding JPMorgan Chase & Co. (NYSE:JPM) in its first quarter 2024 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) contributed positively to performance following solid financial results and positive guidance for the remainder of 2024. Moreover, growing chatter around rising capital markets activity likely contributed to the stock’s strong performance relative to other banks. Recall that JPMorgan has a robust capital markets franchise.”
8. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 114
UnitedHealth Group Incorporated (NYSE:UNH) ranks eighth on our list of the safest stocks to invest in. It is a multinational health insurance and services company based in the United States. UnitedHealth Group Incorporated (NYSE:UNH) owns a range of subsidiaries including UnitedHealthcare Servic LLC, Optum, Change Healthcare, and United Health Foundation, to name a few.
In less than a decade, UnitedHealth Group Incorporated (NYSE:UNH) has grown its revenue from $101 billion in 2011 to $372 billion in 2023. The company currently provides health coverage to over 50 million people in the United States, indicative of its crucial position. In the past year, UnitedHealth’s professionals made 2.5 million home visits, enabling the swift identification of health emergencies that would have gone undiagnosed otherwise. Over 75% of patients received a follow-up within 90 days of the original visit in a clinical setting.
In the second quarter of 2024, UnitedHealth Group Incorporated (NYSE:UNH) logged $98.9 billion in revenue, up by nearly $6 billion. The company’s financial results were led by Optum and UnitedHealthcare. UnitedHealthcare, its healthcare benefits subsidiary, reported revenue worth $74.1 billion, up by $4 billion, year-over-year. Overall, customers in the segment grew by 2.3 million to reach 29.6 million in the United States. Optum, the company’s global healthcare services provider which uses data to optimize care quality, reduce costs, and improve performance, logged $62.9 billion in revenue, up by $6 billion year-over-year.
The healthcare market in the United States is currently valued at $5 trillion, providing a golden opportunity to UnitedHealth Group Incorporated (NYSE:UNH). That said, the company believes it holds a strong position to post strong results in 2025, which is evident from its 148 million strong client base.
Analysts are bullish on UNH and their 12-month median price target of $620 points to a 4% upside from current levels. Overall, 114 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $12.5 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $1.57 billion.
Invesco Distributors, Inc. stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”
7. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 120
Berkshire Hathaway Inc. (NYSE:BRK-B) is a multinational conglomerate company with businesses in multiple industries including financial services, insurance, energy, transportation, rail, and utility. The company not only provides services across several insurance lines, but also engages in the generation and distribution of electricity from natural gas, coal, wind, solar, and nuclear sources. Berkshire Hathaway also retails household appliances, electronics, kitchenware, and motorcycle equipment.
The company boasts a reliable source of income from its stable operating businesses. In the second quarter of 2024, Berkshire Hathaway Inc. (NYSE:BRK-B) logged $93 billion in revenue, of which $26 billion came from insurance. In the first half of 2024, the company’s investment income increased by 36% year-over-year. GEICO, Berkshire’s auto-insurance subsidiary provides coverage for 28 million vehicles, up from 17 million in 2019.
Berkshire Hathaway Inc. (NYSE:BRK-B) holds a strong position in the world, especially in the United States. It has ownership rights and control over multiple major companies across the globe. According to the company’s latest shareholder letter, it currently owns 6% of the entire universe in which it operates. Additionally, as of 2023, the company owned 27.8% of common shares in Occidental Petroleum with the option to increase ownership at a fixed price.
Insurance underwriting and insurance investment income were the two dominant segments of the company in FY 2023. The two segments reported $5.4 billion and $9.6 billion in operating earnings, respectively. Its railroad segment was the third largest segment, with operating earnings worth $5 billion. Its railroad subsidiary operates a 24,000-mile track, 99 tunnels, 13,500 bridges, and 7,500 locomotives.
Berkshire Hathaway Inc.’s (NYSE:BRK-B) competitive edge lies in its presence in multiple industries diversifying its risk and making it one of the safest stocks to invest in. According to our database, 120 hedge funds held stakes in Berkshire Hathaway Inc. (NYSE:BRK-B) in the second quarter, with positions worth $12.54 billion. With stakes amounting to $10.02 billion, Bill & Melinda Gates Foundation Trust is the largest shareholder of the company, as of June 30.
6. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 142
Mastercard Incorporated (NYSE:MA) is a multinational payment services corporation in the United States. It facilitates electronic funds transfers through branded debit cards and credit cards. The company provides financial services to large companies, small to medium-sized enterprises, banks, credit unions, and the public sector.
In the second quarter of 2024, Mastercard Incorporated (NYSE:MA) increased its revenue by 13% and net income by 24% year-over-year. During the same quarter, the company managed $2.4 trillion in payment volume, up by 50% from five years ago. Other than payment services, the company is also venturing into value-added services like data analytics, fraud prevention, and cybersecurity solutions, which posted an 18% increase in sales in the previous quarter.
Mastercard Incorporated (NYSE:MA) aims to bring 1 billion people into the digital economy by 2025. To achieve such, the company launched several partnerships in the past few months. Earlier in August, Mastercard Incorporated (NYSE:MA) launched an Open Banking program to facilitate lending via digital verification of income and employment. During the same month, Mastercard Incorporated (NYSE:MA) launched its payment passkey service in India to improve security and improve payment speed.
While the macroeconomic environment is uncertain, the company does hold a strong position in the industry and has strategic initiatives locked in solidifying its future growth potential. Analysts are bullish on MA and their 12-month median price target of $528 points to a 10% upside from current levels. According to our database, 142 hedge funds held stakes in Mastercard Incorporated (NYSE:MA) in the second quarter, with positions worth $15.34 billion. As of June 30, Akre Capital Management is the largest shareholder of the company with a position worth $1.78 billion.
L1 Capital said the following about Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter:
“The share prices of Mastercard and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
5. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 163
Visa Inc. (NYSE:V) ranks fifth on our list of the safest stocks to invest in right now. Visa Inc. (NYSE:V) is a multinational payment card service provider based in the United States that facilitates electronic fund transfers across the globe. The company also offers commercial patent solutions, sells cards, has virtual cards, and provides B2B payment options.
In the past quarter, Visa Inc. (NYSE:V) has leveraged its proprietary services to expand its presence globally. Yape, a super app in Peru with more than 15 million users has now integrated Visa’s services to facilitate money transfers directly through mobile devices. Moreover, MoMo VNPAY, and ZaloPay, prominent digital wallets in Vietnam have enabled Visa cards for over 50 million users.
The company currently has more than 4.5 billion cards in circulation in over 200 countries. In the past 12 months, Visa has facilitated 296.8 billion transactions with a total volume of $15.5 trillion. With more than 130 million merchants across the globe, Visa Inc. (NYSE:V) is a dominant player in the market.
In the fiscal third quarter of 2024, the company logged $8.9 billion in revenue, up by 10% year-over-year. Additionally, the company grew its global payments volume by 7% and 5% in the US. While citizens in mature markets like America partially rely on cash, the best bet for a company like Visa Inc. (NYSE:V) is developing countries in Asia, Africa, and Latin America that are rapidly transitioning to cashless payments.
Analysts are bullish on V and their 12-month median price target of $310 points to an 11% upside from current levels. According to our database, 163 hedge funds held stakes in Visa (NYSE:V) in the second quarter, with positions worth $24.9 billion. With stakes amounting to $4.4 billion, TCI Fund Management is the largest shareholder of the company, as of June 30.
Wedgewood Partners stated the following regarding Visa Inc. (NYSE:V) in its Q2 2024 investor letter:
“Visa Inc. (NYSE:V) detracted from performance despite healthy corporate results. The Company grew earnings per share +12% as payment volume growth was up +8% and cross-border payment grew +16%, adjusted for currency. There are over 4.4 billion Visa debit and credit cards in circulation generating over $15 trillion in volume over the past 12 months. There is another estimated $10 trillion in cash and check volume, globally, which we think Visa can continue to move over to its electronic payment rails. In addition, the Company has spent the past several years extending its payment capabilities into new flows of commerce, particularly for business-to-business transactions. This is another, extremely large (+$200 trillion) long-term growth opportunity for Visa that we believe investors are ignoring.”
4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is one of the safest stocks to invest in. Apple is the company behind the iPhone, used by a vast majority across the globe, accounting for 46% of the company’s net sales. Apple Inc. (NASDAQ:AAPL) also offers services such as iCloud, Apple Pay, Apple Music, and Apple TV+.
In the fiscal third quarter of 2024, the company launched Apple Intelligence, a personal intelligence system backed by AI. Apple Intelligence is integrated into all new iPhone, iPad, and Mac models and Apple is on the cusp of an iPhone upgrade super cycle. The new feature aims to dramatically enhance a user’s experience across all Apple devices.
In the FQ3 2024, Apple Inc. (NASDAQ:AAPL) logged $85.8 billion in quarterly revenue, up by 5% year-over-year. Of this, the iPhone reported revenue worth $39.3 billion and Mac revenue was $7 billion, up by 2% from a year ago. Apple’s economic moat lies in its consistent financial performance. Over the past 10 years, the company has grown its revenues and net income by 8% and 10%, respectively.
Analysts are bullish on AAPL and their 12-month median price target of $250 points to a 12% upside from current levels. Overall, AAPL was held by 184 hedge funds in the second quarter of 2024, with total stakes worth $124.18 billion. Berkshire Hathaway is the top shareholder of the company with a position worth $84.25 billion.
Baron Funds said the following about Apple Inc. (NASDAQ:AAPL) in its second-quarter 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on[1]device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms Inc (NASDAQ:META) ranks third on our list of the safest stocks to invest in. Meta Platforms Inc (NASDAQ:META), commonly referred to as Meta and formerly known as Facebook, is a technology conglomerate behind the leading social media platforms such as Facebook, Instagram, Threads, and WhatsApp. The company currently boasts a user base of 3.27 billion daily active users across all its social media platforms, up by 7% year-over-year.
Meta Platforms Inc (NASDAQ:META) is making incredible feats in artificial intelligence. During the second quarter, the company launched its AI Studio in the United States, a platform for people to create, share, and discover artificial intelligence models. Users can use the studio to create characters and reach a wider audience. The characters are customizable and can be used by creators as an extension of themselves, hereby enhancing direct interactions with viewers.
Meta Platforms Inc (NASDAQ:META) has a strong position in the market, making it one of the safest stocks in the market right now. By 2026, the company expects to own the best recommendation technology on its social media platforms. Meta Platforms Inc (NASDAQ:META) is achieving this by expanding its collection of open models and tools for generative artificial intelligence. As of today, Meta’s video-enhancing tools have increased private sharing across apps by more than 80% year-over-year, making it easier for people to find, explore, and consume media.
Overall, Meta Platforms Inc (NASDAQ:META) reported $39.1 billion in revenue, in the second quarter of 2024, up by 22% year-over-year. The company also generated $10.9 billion in free cash flow supporting its dividend payouts and stock repurchases. With strong expectations ahead of 2024, the company projects revenue to reach $38.5 billion in the third quarter of 2024.
META is currently trading at 25 times this year’s earnings estimate and the sector forward P/E is 13. While META is trading at a higher multiple, its earnings are expected to grow by 43% this year to $21.2.
Mar Vista Focus strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom and Meta Platforms, Inc. (NASDAQ:META). We previously divested from Meta during a period of stagnant advertising growth and the company’s initial, significant investment in the metaverse project. At that time, investors appeared complacent to the risks associated to an increasingly competitive landscape, and the Street’s robust financial expectations as the company transitioned towards monetizing short-format video (Reels). The subsequent decline in Meta’s stock price during 2022 reflected these concerns.
Since then, Meta has demonstrably shifted its strategic focus. The company has prioritized operational efficiency, implemented strategies to monetize Reels effectively, and initiated a robust artificial intelligence (AI) development program. We believe the focus on AI represents a more prudent capital allocation strategy compared to the earlier metaverse initiative. Meta AI holds significant potential to unlock substantial monetization opportunities and enhance user engagement, while maintaining tight controls on operating costs…”(Click here to read the full text)
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is one of the biggest technology companies in the world that develops productivity and business suite applications, cloud products, and personal computing products.
The company’s chairman and CEO, Satya Nadella believes that Microsoft’s financial performance is attributable to its market-competitive platforms and cloud services. Microsoft Corporation (NASDAQ:MSFT) reported revenue worth $64.7 billion in FQ4 2024, up by 15% year-over-year. During the same quarter, Microsoft Cloud had $36.8 billion in quarterly revenue, up by 21% year-over-year, and posted record bookings. Its productivity/business processes and intelligent cloud segment, on the other hand, logged revenue worth $20.3 billion and $28.5 billion in revenue, respectively.
The company is a leading investor in artificial intelligence technology. Its AI-backed cloud service, Azure OpenAI service witnessed an increase in customer base by 60%, reaching 60,000 clients in the second quarter of 2024. Previously in July, Microsoft and Lumen Technologies signed a partnership to enhance and modernize Lumen’s workloads to Microsoft Azure. Earlier in August, Microsoft Corporation (NASDAQ:MSFT) partnered with Palantir Technologies, a data software company, to deploy Palantir’s suite of products in Microsoft Azure.
Overall, Microsoft Corporation’s (NASDAQ:MSFT) financial strength coupled with its strategic partnerships make it one of the safest stocks to invest in. In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT) and their stakes amounted to $89.068 billion. As of June 30, the Bill & Melinda Gates Foundation Trust is the most dominant shareholder in the company and has a position worth $15.6 billion.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
1. Amazon.com Inc (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com Inc (NASDAQ:AMZN) ranks first on our list of the 10 safe stocks to invest in now. Amazon.com Inc (NASDAQ:AMZN) is a technology company that specializes in e-commerce, online retail, streaming, and data cloud services. Its e-commerce platform is functional in 20 countries and ships to over 100 countries.
The company was first launched in 1994 and is on track to capture over 40% of the e-commerce market in the United States. Its proprietary cloud service, Amazon Web Services (AWS), increased its revenue by 17.2%, year-over-year in Q1 to 18.8% in Q2. AWS has logged 30% plus operating margins consistently for the past five quarters.
Amazon.com Inc (NASDAQ:AMZN) is also spearheading the AI transformation. Over the past few months, the company has partnered with AI startups like Anthropic and signed deals with the US government to test new AI models. In July, the e-commerce giant processed a new server design, similar to the ones produced by NVIDIA. The company’s investment in hardware is not recent. Its non-AI computing chip, Graviton, has been under development for almost a decade now. More recent chips by the company include Trainium and Inferentia. On Prime Day, Amazon deployed a quarter million Graviton Chips and 80,000 custom AI chips to manage the surging activity on its platforms.
Analysts are bullish on AMZN and their 12-month median price target of $220 points to a 25% upside from current levels. Overall, AMZN was held by 308 hedge funds at the close of Q2 2024 with total stakes amounting to $65.85 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $8.46 billion.
AMZN is currently trading at 38 times this year’s earnings estimate and the sector forward P/E is 16. While AMZN is trading at a higher multiple, its earnings are expected to grow by 63% this year to $4.73.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
Overall, AMZN ranks first among the 10 safe stocks to invest in now. While we acknowledge the potential of data cloud companies, 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 the stocks mentioned on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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