In this article, we will take a detailed look at the Top 10 Stocks to Buy According to Two Sigma Investments.
Two Sigma Investments, LP, a New York City-based hedge fund, is known for its advanced use of artificial intelligence, machine learning, and distributed computing in financial trading. Founded by John Overdeck and David Siegel, the firm operates with a strong emphasis on technology-driven investment strategies. As a leader in quantitative finance, Two Sigma employs a rigorous, scientific approach to generating alpha in global markets, leveraging vast datasets and high-performance computing to identify patterns and market inefficiencies. With a workforce of approximately 1,700 employees, two-thirds of whom are dedicated to research and development, the firm remains at the forefront of data-driven investment management.
At the core of Two Sigma’s approach is its commitment to systematic research, blending creative insights with cutting-edge data analysis. Drawing from fields such as artificial intelligence, economics, and distributed computing, its analysts develop models that not only make financial and economic sense but also evolve with market conditions. The firm integrates systematic risk management tools and human oversight, ensuring disciplined execution and adaptability in dynamic financial environments. By harnessing insights from thousands of diverse data sources, Two Sigma continues to refine its strategies, pushing the boundaries of quantitative investing. The firm’s investment in high-performance computing enables it to process and analyze massive datasets with speed and precision. This data-driven methodology allows for the identification of complex market relationships that traditional investment strategies might overlook. With a steadfast focus on innovation, Two Sigma remains a leader in quantitative finance, continuously advancing the frontiers of data science and algorithmic trading.
The co-founder of Two Sigma Investments, John Albert Overdeck is a prominent American hedge fund manager and a lifelong mathematics enthusiast. He pursued higher education at Stanford University, where he earned both a bachelor’s degree in mathematics (with distinction) and a master’s degree in statistics. His expertise in quantitative analysis and data-driven decision-making laid the foundation for his future success in finance and technology.
Before co-founding Two Sigma Investments in 2001, Overdeck held key leadership roles at major financial and technology firms. He began his career at D.E. Shaw & Co., where he rose to the position of managing director, overseeing Japanese equity investments and the firm’s London investment management operations. He later joined Amazon.com as vice president and technical assistant to founder Jeff Bezos, leading the company’s customer relationship management initiatives and scaling its personalization and targeted marketing technologies. His work at Amazon played a crucial role in enhancing the company’s data-driven customer engagement strategies.
Beyond his professional achievements, Overdeck is a dedicated philanthropist and advocate for mathematics and education. He serves as chair of the Institute for Advanced Study, the National Museum of Mathematics, and the Bedtime Math Foundation. Additionally, he is a board member of Robin Hood and president of the Overdeck Family Foundation, which funds innovative programs aimed at improving education. Recognized for his contributions to technology and investment management, Overdeck was honored by the Academy of Achievement in 2017 for his pioneering work in the field.
David Mark Siegel is a distinguished computer scientist, entrepreneur, and philanthropist. As the co-founder and co-chairman of Two Sigma, he has played a pivotal role in integrating advanced technology and data science into investment management. Siegel pursued higher education at Princeton University, earning a degree in electrical engineering and computer science, followed by a PhD in computer science from the Massachusetts Institute of Technology. During his time at MIT, he conducted groundbreaking research at the Artificial Intelligence Laboratory, further cementing his expertise in computational systems.
Beyond his professional achievements, Siegel is deeply committed to philanthropy, particularly in education, science, and technology. In 2011, he founded the Siegel Family Endowment to support initiatives that explore the societal impact of technology. He serves as Chairman of the Board of Overseers at Cornell Tech and holds board positions at Carnegie Hall and the Robin Hood Learning & Tech Fund. Additionally, he co-founded the Scratch Foundation, which promotes creative problem-solving through coding education for children. His involvement extends to advisory roles at Khan Academy, Stanford’s Center on Philanthropy and Civil Society, and Princeton’s Center on Information Technology Policy. As a member of the MIT Corporation, he contributes to initiatives such as MIT Quest for Intelligence, which aims to advance human understanding of artificial intelligence and its applications. Through his work, Siegel continues to shape the future of technology and education, ensuring lasting impact in both fields.
In its latest 13F filing for the fourth quarter of 2024, Two Sigma Investments disclosed approximately $43.22 billion in managed 13F securities, with its top ten holdings comprising 19.86% of its extensively diversified portfolio.
John Overdeck of Two Sigma Advisors
Our Methodology
The stocks discussed below were picked from Two Sigma Investments’ Q4 2024 13F filings. They are compiled in the ascending order of the hedge fund’s stake in them as of December 31, 2024. To assist readers with more context, we have included the hedge fund sentiment regarding each stock using data from 1,009 hedge funds tracked by Insider Monkey in the fourth quarter of 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Top 10 Stocks to Buy According to Two Sigma Investments
10. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders as of Q4: 126
Two Sigma Investments’ Equity Stake: $517.36 Million
Known as an American multinational automotive and clean energy company, Tesla, Inc. (NASDAQ:TSLA) is headquartered in Austin, Texas. The stock has dropped over 40% since January’s peak, wiping out the previous gains it experienced after the US Election Day. The decline is largely driven by falling sales worldwide and a lack of effective action from its CEO to address the downturn.
The company is facing a major crisis, having reported its first-ever global sales decline last year, with this year showing no significant improvement. Tesla, Inc. (NASDAQ:TSLA) is particularly struggling in China, where competition from domestic manufacturers has intensified. In the past month, Tesla’s shipments in China dropped 49% year-over-year, while sales in Europe have also slumped. Germany saw an especially steep decline, with Tesla sales plummeting 76% last month, partially due to backlash over Elon Musk’s political affiliations.
The situation worsened with bad news from China, where rival automaker BYD unveiled a charging system that outperforms Tesla’s, providing 250 miles of range in just five minutes. Tesla, Inc. (NASDAQ:TSLA) also responded to its declining market share in China by offering a free monthlong trial of its Full Self-Driving software, which analysts view as a desperate move.
Following these developments, Tesla, Inc. (NASDAQ:TSLA) stock fell 5% in the U.S. on March 17 and another 5% on March 18. While the company remains the leading EV brand in the U.S., increasing competition and concerns over Musk’s political stance are damaging its brand value. JPMorgan analysts recently noted that Tesla’s rapid decline in brand perception is nearly unprecedented in the automotive industry. Meanwhile, a growing movement known as “Tesla Takedown” is gaining traction on social media, urging consumers to boycott the brand, sell their Tesla vehicles, and protest at Tesla showrooms.
Tesla, Inc. (NASDAQ:TSLA)’s Q4 2024 earnings report seemed to have predicted these challenges, with revenue increasing 2.15% year-over-year to $25.71 billion, but operating profit falling 23.3% to $1.58 billion. Earnings per share dropped 4.8% below analyst expectations, underscoring financial difficulties amid heightened competition and production setbacks.
Despite these struggles, Tesla, Inc. (NASDAQ:TSLA) remains a dominant force in the EV industry, with cutting-edge technology, strong brand recognition, and continued innovation in autonomous driving. The company’s leadership in the U.S. market, coupled with its ability to rapidly adapt, suggests that Tesla could still be a top stock to buy as a long-term investment for those willing to weather short-term volatility.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“The largest relative detractors in the quarter were Tesla, Inc. (NASDAQ:TSLA) (not owned), Thermo Fisher Scientific, and Broadcom (not owned). We’ve spoken at length about our rationale for not owning Tesla. The stock enjoyed a 54% return during the quarter, with effectively all of the share price performance strength coming in the post-election period, as the market expressed a positive view on Elon Musk’s prominent role in the incoming Trump administration and its potential implications for Tesla. While we agree this development should be a net positive for Tesla and recognize the company’s interesting future prospects for autonomous driving and humanoid robots, its current valuation demands that shareholders pay primarily for potential innovations that have yet to materialize, with uncertain risks and timelines, presenting a different type of risk profile than we are comfortable with. Today, Tesla is an automobile manufacturer limited to the higher-income segment and is increasingly challenged to sell vehicles when interest rates are not zero. As such, we continue to question the company’s long-term growth profile, its ability to scale a large robotaxi service (which seems to be the source of euphoria in Tesla shares), and its corporate governance.”
9. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders as of Q4: 151
Two Sigma Investments’ Equity Stake: $567.64 Million
Mastercard Incorporated (NYSE:MA), established in 1966, is a global financial services corporation specializing in the processing of financial transactions. Headquartered in Purchase, New York, the company provides a comprehensive suite of payment solutions and related services.
On January 20, Mastercard Incorporated (NYSE:MA) announced its financial results for the fourth quarter and full year of 2024, showcasing strong business performance. With a market capitalization of $504 billion, for the fourth quarter, the company reported a net income of $3.3 billion, with diluted earnings per share (EPS) of $3.64. Adjusted net income stood at $3.5 billion, with an adjusted diluted EPS of $3.82. The company’s net revenue for the quarter totaled $7.5 billion, marking a 14% year-over-year increase, or 16% when adjusted for currency fluctuations.
CEO Michael Miebach highlighted the resilience of consumer spending, stating, “Affluent consumers have benefited from the wealth effect, while the mass segment remains supported by the labor market.” Mastercard’s cross-border volume, which measures transactions made outside the country of card issuance, surged by 20% during the quarter. Chief Financial Officer Sachin Mehra attributed this increase to early travel spending and heightened cryptocurrency-related transactions. According to analysts, while a seasonal increase in transaction volumes was expected due to strong holiday spending, the surge in cross-border transactions was an unexpected positive development.
Throughout the fourth quarter of 2024, Mastercard Incorporated (NYSE:MA) repurchased 6.5 million shares for $3.4 billion and distributed $606 million in dividends. Over the full year of 2024, the company repurchased 23 million shares for $11 billion while paying out $2.4 billion in dividends.
Mastercard’s strong revenue growth, expanding cross-border transaction volume, and consistent share repurchase program demonstrate its financial strength and investor-friendly approach. With its diversified payment solutions and a solid strategy for long-term expansion, Mastercard Incorporated (NYSE:MA) remains a compelling investment opportunity.
Conventum – Alluvium Global Fund stated the following regarding Mastercard Incorporated (NYSE:MA) in its Q4 2024 investor letter:
“Last quarter we wrote about the credit card companies and the Fund’s latest investment, Visa (up 15.2%). With its strong share price performance, that position had grown to be greater than 5%. As we had discussed here, we consider there to be negligible differences in investment merits when compared to Mastercard Incorporated (NYSE:MA) (up 6.8%). Whilst Visa appears a little cheaper on traditional price metrics, our view is that Mastercard has marginally higher growth prospects. Irrespective, both are deserving positions in the portfolio, and given their similarities, and the 5/10/40 rule, in order for us to maintain maximum portfolio flexibility it made sense to sell a little Visa and buy a little Mastercard, and their combined position is 6.2%.”
