Do you think I’d be writing for InvestorPlace if I knew the three top stocks to invest in right now? Of course not. 

Then again, no one knows the three best stocks to invest in at any given time. That’s why hedge fund investors like Jim Simons are so successful. His firm, Renaissance Technologies, uses mathematical and statistical methods to make money in the markets. 

He’s what’s known as a quant, short for quantitative analysis. Between 1988 and 2018, Renaissance generated an average annual return of 66%. You can’t get much better than that.

At the end of June, Renaissance’s 13F said it had $84.5 billion invested in 4,173 companies. That’s an average of $20.2 million per stock. At the end of June, the hedge fund’s largest holding was Novo Nordisk (NYSE:NVO), the Danish drug company. The fund owned $1.95 billion of NVO stock at that point. 

If you are considering buying three top stocks, copying Simons’ portfolio is one way to go.

To qualify for this list, Renaissance must have at least $500 million invested in the name. The hedge fund must also have increased its position in the stock or newly added the name to its portfolio in the second quarter. 

Ten stocks met that criteria. Here are the three best stocks to invest in right now. 

Microsoft (MSFT)

I believe that Microsoft (NASDAQ:MSFT) is one of the best stocks you can own for the next 10-20 years. CEO Satya Nadella has built a business that continues to outperform most of its technology peers. 

Renaissance took a big position in MSFT in the second quarter, buying 3.82 million shares, making it the hedge fund’s second-largest position. The firm’s MSFT shares were worth $981.12 million at the end of June. As I write this article, the value of its investment in MSFT stock (assuming the company hasn’t bought or sold any shares since the end of June) has risen 14% to $1.12 billion. 

Given how quickly quant firms buy and sell stocks, I wouldn’t be surprised if Renaissance has already sold its shares of Microsoft.

The reality is that Microsoft’s many business segments collectively generate tremendous free cash flow (FCF). In the trailing 12 months (TTM), its FCF was $65.2 billion through fiscal Q4 

Despite Microsoft’s 14% run, it still has a free cash flow yield of 3.0%. While that’s not cheap — I consider 4% to 8% to be fair value for stocks — MSFT has an earnings yield of 3.3%. That metric hasn’t been so high for MSFT since 2019.

Microsoft’s shares must be owned by investors in any economic climate. 

Merck (MRK)

Every long-term investor should have a little exposure to healthcare stocks. Among Renaissance’s 20 largest holdings, there are six healthcare names. 

The hedge fund owned 7.67 million shares of Merck (NYSE:MRK) at the end of Q2, making it Renaissance’s 12th-largest position overall and its fourth-largest healthcare holding. It increased its position in Merck by 1.66 million shares or 32% during Q2. 

As I write this article, the hedge fund’s Merck position (assuming the firm hasn’t bought or sold any shares since the end of June) is worth $694.3 million, representing a 12.5% increase since the end of Q2. That’s an annualized return of more than 108%. That’s not a bad  showing for a boring old drug company. 

The latest rumor about Merck is that it’s looking to acquire Seagen (NASDAQ:SGEN) for approximately $40 billion. The issue holding Merck back was Seagen’s  battle over royalties with Japanese pharmaceutical company Daiichi Sankyo (OTCMKTS:DSNKY).

On Aug. 12, an arbitrator ruled that Daiichi Sankyo didn’t have to pay Seagen a royalty on the cancer drug that Daiichi developed in partnership with AstraZeneca (NASDAQ:AZN). 

Even though Seagen lost, Merck is now free to buy Seagen, adding more cancer drugs to its portfolio. With the patents  on Merck’s Keytruda cancer drug starting to expire in 2028, Seagen would offset some of Merck’s  revenue losses over the next few years. 

Merck remains an excellent defensive play.

Hersey (HSY)

Who doesn’t like chocolate? I’m sure some people don’t like it, but most do. That’s why Hershey (NYSE:HSY) is an excellent stock to invest in during recessions.

Despite inflation and rising input costs, Hershey  continues to deliver excellent quarterly results. In Q2 , its earnings per share rose 22% year-over-year to $1.80 on $2.37 billion of revenue. Analysts, on average, were expecting its EPS to come in at $1.69.

The chocolate maker’s sales jumped 19.3% YOY last quarter.  Nearly 10% of the increase was generated by higher prices, 5.3% of the gain was from acquisitions, and 4.6% was due to higher volumes.

For the full year, analysts’ mean revenue and EPS estimates for Hershey are $10.2 billion and $8.21 a share. Trading at 28 times analysts’ mean 2022 EPS estimate, HSY stock isn’t cheap. However, in the sweets and confectionery space,  no company is  much better than Hersey. 

Morningstar.com recently named Hershey one of the top ten women-run companies. As far back as June 2018, I had Hershey on my list of women-led S&P 500 companies. The company’s CEO back then was Michelle Buck, who still has the same job.   

“Only in the job a little more than a year, it’s too early to say how she’s doing, but it’s safe to say the December 2017 acquisition of Amplify Snack Brands — makers of Skinny Pop snack foods — for $1.6 billion suggests she’s ready to shake things up at the iconic chocolate company,” I wrote in June 2018.

HSY stock is up 151% since then. That compares to 55% for the S&P 500 over the same period. 

I like Hershey stock as long as Buck is in the top job. A lot! 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.