We recently compiled a list of the 12 Safest Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against the other safe stocks.
Hedge funds, known for their sophisticated investment strategies and ability to generate returns across market cycles, have a complex performance history. Since their inception in 1949, hedge funds have evolved significantly, with returns varying widely by strategy, market conditions, and the broader economic environment. The first hedge fund was created by Alfred Winslow Jones in 1949, combining long and short equity positions to hedge against market risk. During the 1950s and 1960s, hedge funds gained attention for their ability to outperform traditional mutual funds. Jones’s fund reportedly generated returns of approximately 20% annually in its early years, setting a precedent for the industry.
Read more about these developments by accessing 10 Best AI Data Center Stocks and 10 Buzzing AI Stocks According to Goldman Sachs.
The 1970s and early 1980s were challenging due to high inflation, stagflation, and the oil crisis, but some hedge funds excelled by capitalizing on macroeconomic trends. Macro-focused funds like those led by George Soros delivered impressive returns by making bold bets on currencies and commodities. For example, Soros famously earned $1 billion in 1992 by shorting the British pound. The 1990s were a golden era for hedge funds, marked by rapid industry growth and strong performance. The average annual return of hedge funds during this period was approximately 15%, according to data from Hedge Fund Research. Managers benefited from a booming stock market, globalization, and the rise of new asset classes.
Notable successes included Tiger Management, led by Julian Robertson, and Renaissance Technologies, whose Medallion Fund achieved annualized returns exceeding 30%. The 2000s were a mixed decade for hedge funds. The early 2000s saw strong performance during the dot-com crash, as many funds profited from short positions in overvalued tech stocks. Between 2000 and 2002, the S&P 500 fell by 43%, while hedge funds, on average, delivered positive annualized returns of around 6%. However, the 2008 financial crisis tested the industry. The HFRI Fund Weighted Composite Index declined by 19% in 2008, its worst annual performance on record. However, since the 2010s, there has been a prolonged bull market, barring minor blips during the pandemic, during which hedge funds have shined relative to other investment vehicles.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
For this article, we selected stocks that have solid businesses with recurring revenue streams, reliable dividend payouts, and burgeoning growth pipelines. These stocks are also popular among hedge funds. 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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Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 286
Amazon.com, Inc. (NASDAQ:AMZN) operates as a technology conglomerate with core interests in the ecommerce business. This company offers a robust investment case for several reasons. To begin with, the financial performance, as depicted in the report for the third quarter of 2024, shows a compelling investment opportunity. For instance, net income increased to $15.3 billion or $1.43 per diluted share, compared with $9.9 billion, or $0.94 per diluted share, in the third quarter of the prior year. Additionally, operating cash flow increased 57% to $112.7 billion for the trailing twelve months, compared with $71.7 billion for the trailing twelve months ended in September of the prior year. This demonstrates the company’s improved cash generation and financial health over the period. Moreover, Amazon.com (NASDAQ:AMZN) has started a strategic collaboration with Databricks to accelerate the development of custom models built with Databricks Mosaic AI on AWS. Databricks will also use AWS Trainium chips to help customers improve price performance when building generative AI applications.
Overall AMZN ranks 1st on our list of the safest stocks to buy according to hedge funds. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a stock that is more promising than AMZN 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.