The 5 Dow Stocks Billionaires Like The Most

Wondering which stocks to invest in? Follow the leaders of the finance world! Insider Monkey tracks more than 40 billionaire hedge fund managers, who have proven to be very successful at picking high-potential stocks. Billionaires are the elite of the hedge fund industry, with unequaled track records when it comes to investing. The odds of uncovering great stock picks by examining billionaires’ portfolio holdings are very high, which is why we have gathered the top five Dow Jones Industrial Average stocks held by billionaire hedge fund managers. Just recently, the Insider Monkey team discussed the least favored Dow stocks by billionaires. Let’s move on to our freshly-compiled list of five Dow stocks that they love and their performance since the end of the second quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks have beaten the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) since then (see the details here).

#5 Home Depot Inc. (NYSE:HD)

The number of billionaire hedge fund investors with stakes in Home Depot Inc. (NYSE:HD) at the end of the second quarter stood at 11, compared to eight registered in the prior quarter. The value of their investments increased by slightly over 17% during the June quarter to $1.92 billion. The shares of the home improvement retailer have advanced by almost 12% since the end of the second quarter, and reached an all-time intraday high of over $125.75 on October 23. Coincidence? It might be so, but it is highly unlikely. The company also has a strong track record of cash dividend payments since 1987, and currently pays out an annualized dividend of $2.36 per share of common stock. Ken Fisher’s Fisher Asset Management was one of the bullish billionaires on Home Depot Inc. (NYSE:HD) during the second quarter, owning 8.33 million shares as of June 30.

#4 The Coca-Cola Co (NYSE:KO)

The Coca-Cola Co (NYSE:KO) lost some of its appeal among the billionaires monitored by the Insider Monkey team, with the number of billionaires decreasing to 11 from 13 during the June quarter. Similarly, the value of their investments dropped to $16.99 billion from $17.90 billion during the three-month period. The beverage giant has also performed quite strongly since the end of June, with its shares advancing by slightly over 8% thus far. The company’s cost-cutting efforts enabled it to deliver better-than-expected third quarter earnings despite facing substantial currency exchange headwinds. Its revenue declined by 5% year-over-year to $11.4 billion, but still beat analysts’ expectations. It is also worth pointing out that the stock offers a current annualized dividend yield of 3.1%. Warren Buffett’s Berkshire Hathaway was by far the largest stockholder of The Coca-Cola Co (NYSE:KO) at the end of the June quarter, with 400 million shares.

#3 Visa Inc. (NYSE:V)

Visa Inc. (NYSE:V) is another favorite of the billionaires tracked by our team, even though the number of billionaires invested in the stock decreased to 14 from 15 quarter-over-quarter. By the same token, the value of the money poured into the stock decreased to $3.67 billion from $4.09 billion during the June quarter. Earlier this week, the payments technology company announced the integration of token technology, which replaces the payment account information located on payment cards with a unique digital identifier, into its online check out service Visa Checkout. In the meantime, the stock has gained 16% since the end of the June quarter and is 19% in the green year-to-date. Stephen Mandel’s Lone Pine Capital reported owning 8.9 million shares of Visa Inc. (NYSE:V) through its 13F filing for the June quarter.

On  the following page we’ll cover billionaires’ top two Dow picks, in tech giants Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL).

#2 Microsoft Corporation (NASDAQ:MSFT)

A total of one more billionaire had Microsoft Corporation (NASDAQ:MSFT) in their portfolio at the end of the second quarter relative to the previous one, as the number of billionaires invested in the company increased to 14 by the end of June. The value of these billionaires’ stakes grew to $7.14 billion from $5.75 billion during the June quarter. Microsoft’s shares have climbed by nearly 11% since the company released its fiscal 2016 first quarter results on October 22 and have soared by 20% since the end of the second quarter. The launch of the Windows 10 operating system has been quite successful, with roughly 110 million active devices now using the software. The company posted adjusted earnings per share of $0.67 on revenues of $21.7 billion, outpacing analysts’ estimates of EPS of $0.59 and revenues of $21.0 billion. Jeffrey Ubben’s ValueAct Capital was the top stockholder of Microsoft Corporation within our database at the end of the second quarter, holding a stake of 75.27 million shares.

#1 Apple Inc. (NASDAQ:AAPL)

Apple Inc. (NASDAQ:AAPL) represents billionaires’ favorite Dow stock as of the end of the second quarter. However, the number of billionaires with positions in the tech giant decreased to 15 from 16 quarter-over-quarter. Similarly, the value of these positions decreased to $12.16 billion from $13.05 billion over this time span. Apple’s stock has lost 6% since the end of June, but is still nearly 7% in the green year-to-date. Nevertheless, the stock is currently trading at a forward P/E ratio of 11.71, compared to the 18.41 ratio for the S&P 500. This points to more upside for the stock in the years ahead considering the remarkable performance of the company’s business. It appears that Apple’s reliance on its iPhone sales can explain the cheap forward P/E ratio, as investors fear that the tech giant will not be able to generate as much sales from its iPhones in the future as it is at the moment. Carl Icahn of Icahn Capital LP believes in the future potential of Apple Inc., reporting an ownership stake of 52.76 million Apple shares as of the end of June.

Disclosure: None