Many of the hedge fund favorites are technology companies, my analysis of the most popular stocks among the 40 largest hedge funds shows. Additionally, the top five hedge funds in 2022 hold widely followed names like Coca-Cola (NYSE:KO).
The media tends to closely cover the stocks that are most widely owned by hedge funds, making those equities popular among retail investors. And after the market rebounded for four straight weeks this summer, investors may want to copy the trades of top hedge funds in order to avoid missing out on the market’s rebound .
In the quantitative table above, six of the seven firms receive high ratings on quality and growth. Although Uber (NYSE:UBER) has poor grades, the stock still bottomed in the low $20s.
In the smartphone market, Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) have strong growth prospects, so hedge funds cannot risk leaving those stocks out of their portfolios.
Although inflation is causing some consumers to reduce their spending on certain items, they are unlikely to avoid upgrading their smartphones. Still, consumers may delay buying the latest Apple iPhone.
But such behavior will only prevent Apple’s profit from increasing for one or two quarters. In the interim, the vast majority of iPhone users will likely continue to buy apps, listen to Apple Music, and subscribe to Apple TV.
| BABA | Alibaba | $90.57 |
| AAPL | Apple | $175.67 |
| KO | Coca-Cola | $65.12 |
| NFLX | Netflix | $243.00 |
| NVDA | Nvidia | $185.20 |
| QCOM | Qualcomm | $149.25 |
| UBER | Uber Technologies | $30.80 |
Alibaba Group (BABA)
Alibaba (NYSE:BABA) is still a hedge fund favorite despite its growth slowdown and its potential delisting from the NYSE .
Alibaba, however, has alternatives. For example, the company may list its shares on the Hong Kong Stock Exchange, enabling the current holders of BABA stock to convert their holdings to shares listed in Hong Kong.
Softbank (OTCMKTS:SFTBY) is planning to sell its shares of Alibaba. Softbank will use contracts to exit its position over time. As a result, the risk of it unloading the stock too quickly will be minimized, reducing the chances of the share price dropping when Softbank sells its BABA stock.
Softbank needs to raise cash because it invested in many illiquid start-up companies.
Apple (AAPL)
Apple (NASDAQ:AAPL) stock bottomed at around $130 in early summer. Apple reportedly told its suppliers to make 90 million of its newest iPhone, the iPhone 14.
Apple enjoys strong brand recognition and customer loyalty. After the prices of its supplies rose due to inflation, Apple will probably raise iPhone prices. For example, it could keep iPhone 13 prices at their current levels even after it launches the iPhone 14. After launching new iPhones in the past, Apple has cut the prices of its older models.
This year, investors should expect the company to raise the prices of its new iPhone by up to 15% versus last year’s new models. Apple’s stores are always packed, suggesting that there is strong demand for the company’s Macbooks, iPads, and smartphones.
In its fiscal third quarter, Apple’s revenue climbed 2% year-over-year to $83 billion,, and it generated earnings per share of $1.20.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) reported that its net revenue climbed 12% YOY in Q2. Its global unit case volume grew by 8% YOY. For the full year, the company expects revenue growth of 12%-13%.
CEO James Quincey said that Coca-Cola has accelerated its growth by dominating the industry, while the firm is growing its market share.
While inflation is squeezing consumers’ purchasing power in some parts of the world, in countries like China and Southeast Asia, inflation is only running at around 3% annually. Still, as consumers reprioritize their spending habits, they are not reducing their purchases of Coca-Cola’s products, its CEO reported.
Coca-Cola has a favorable sales mix and, to cope with inflation, it has increased its prices. The company will pass its increased costs onto its customers. Coke’s price hikes will, however, be minimal because it has hedged its exposure to the commodities that it uses.
Coca-Cola will also sustain its profitability by focusing on its productivity. For example, it may seek to develop closer relationships with its key suppliers.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) reported that it had lost 970,000 net subscribers in Q2. That was better than its previous guidance of a loss of 2 million net subscribers.
CEO Reed Hastings said that the company had developed strong content. Its successful shows included Ozark and Stranger Things. In addition, the company used marketing to slow the decline of its customer base while improving its service.
The owners of NFLX stock are accepting the fact that the linear growth of the demand for streaming has ended. In the next few years, Netflix needs to optimize its price changes in order to minimize the turnover of its customers .
It also must create better content to deter customers from canceling their subscriptions. In the second half of the year, the company expects to generate stronger growth, in-line with its usual seasonal trends.
NVIDIA (NVDA)
NVIDIA (NASDAQ:NVDA) preannounced weak Q2 sales. The semiconductor firm reported preliminary Q2 revenue of $6.7 billion, compared to its previous guidance of $8.1 billion. The shortfall was primarily a result of lower-than-expected gaming revenue.
NVDA stock fell, only to snap back subsequently. Hedge funds are betting that the company’s price cuts will re-kindle the demand for its products.
During the pandemic and the cryptocurrency boom, retailers sold Nvidia graphics cards for more than double the suggested retail price. When the pandemic lockdown ended and crypto prices fell, their prices also slumped.
Hedge funds are betting that Nvidia’s sales will rebound after Q2. Chances are better that the sales will grow after Q1 of 2023, but investors cannot predict how soon the excess supply of Nvidia’s products will be cleared.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) provided Q4 revenue guidance of between $11.0 billion and $11.8 billion. The lower guidance overshadowed its strong Q3 revenue which jumped 37% YOY to $10.9 billion.
On the company’s earnings conference call, CFO Akash Palkhiwala said that elevated uncertainty in the global economy and the impact of anti- Covid measures in China would slow the company’s orders in the second half of 2022. Conversely, the gross margins of Qualcomm’s CDMA technology will increase in the second half. In addition, many handsets will have more of Qualcomm’s processors.
Qualcomm has growth drivers in the 5G market. Although the firm lowered its 5G unit sale guidance, it will increase the average selling price of its 5G products.
Another growth driver for Qualcomm is the radio frequency front-end market. The RF segment is expanding because automotive Internet of Things and Wi-Fi systems need Qualcomm’s RF offerings. Qualcomm has over $900 million of RF front-end design wins with automotive companies.
Patient investors should hold QCOM stock for the long- term.
Uber Technologies (UBER)
Uber Technologies (NYSE:UBER) posted all-time high gross bookings. of $29.1 billion in Q2, as its gross bookings surged 33% YOY. The ridesharing company’s revenue soared 105% YOY to $8.07 billion.
But Uber lost a massive $2.6 billion in Q2, including a $1.7 billion loss generated by its investments in other firms. However, its Monthly Active Platform Consumers (“MAPCs”) increased a robust 21% YOY to 122 million.
For Q3, Uber expects gross bookings of $29 billion to $30 billion and EBITDA, excluding certain items, of $440 million to $470 million. To meet the guidance, Uber’s investments will have to pay off.
For example, it relaunched its shared ride concept, UberX Share. Past aggressive investments pushed Uber ahead of the competition. Now, however, its end market is weaker, so Uber must curtail its investments. It will need to leverage its platform advantages to stay ahead of its peers.
On the date of publication, Chris Lau 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.