We recently compiled a list of the top 10 stocks that hedge funds currently own the most. In this article, we’ll take a look at how Alphabet Inc. (NASDAQ:GOOGL) stands compared to other stocks owned by hedge funds.
Wall Street stocks soared this month after the Federal Reserve released the minutes of its September meeting that led to its first interest rate cut in four years. Details revealed that a “substantial majority” of central bankers support a 0.5 percentage point cut in interest rates, increasing investors’ optimism about further rate cuts in the future.
The overall market hit a record high on October 11, led by several financial stocks that reported better-than-expected results during the recently ended quarter. Another factor encouraging investors is the slump in U.S. inflation, which fell to 2.4% in September, inching closer to the Federal Reserve’s annual rate of 2%. This has raised expectations that interest rates will be cut by a quarter point at the central bank’s next meeting in November.
However, some analysts caution against jumping into stocks after the rate cut, citing uncertainty surrounding the upcoming presidential election. Liz Young Thomas, head of investment strategy at SoFi, spoke with Business Insider in early September to discuss the historical pattern of the U.S. market from the end of the third quarter to the beginning of the fourth quarter. .
He noted that while the market will perform well from June to August as traders are on vacation and volume is low, there will be increased activity and volatility after traders return to their desks in September. But in election years, this fluctuation peaks around mid-October rather than September, Young-Thomas said.
Tom Lee, co-founder of Fundstrat Global Advisors, also warned investors about election-related uncertainty. Here’s what he said in an interview with CNBC late last month.
I think this Fed rate cut cycle is setting the stage for a very strong market over the next month or three months. However, I think there is still a high degree of uncertainty as to what will happen to stock prices between now and, say, voting day. That’s why I’m a little hesitant for investors to jump in.
Earlier in the month, in the weeks leading up to the interest rate cut, Lee, who is generally bullish on the stock market, predicted a 7-10% drop from September to October amid tensions over the presidential election. But Mr. Lee urged investors to “buy on the edge,” suggesting he sees the potential decline in share prices as an opportunity to buy stocks while they are down.
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LPL Financial’s Adam Turnquist also expects seasonal fluctuations in the coming weeks, but the dip offers an opportunity to buy when stocks are trading low and earn higher returns when the market stabilizes. He reiterated Lee’s point that he would do so. Turnquist advises investors not to rebalance existing portfolios because seasonal fluctuations have short-term effects and are difficult to predict.
With that said, let’s now shift our focus to hedge fund sentiment towards the stock market and discuss some of the stocks most widely held by hedge funds.
methodology
We scanned Insider Monkey’s database of 912 hedge funds in Q2 2024 and selected the top 10 companies with the most number of hedge funds holding shares. We have ranked each company in descending order of the number of hedge fund holders.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Learn more ).
User’s hand typing a search query in the Google search box. Highlights the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Number of hedge fund holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the world’s leading technology companies by revenue and owns several prominent platforms, including Google Search, Google Maps, Gmail, and YouTube.
On August 5, the U.S. Department of Justice ruled against Alphabet in an antitrust case over its search monopoly, with the judge declaring that the company suppressed competition in the online search market to maintain its monopoly. This could potentially result in the company paying billions of dollars in hefty fines and legal settlements. And earlier this month, in a separate case, a district judge ordered Google to overhaul its mobile app business and open up its Play Store to rivals. These rulings have damaged Alphabet’s reputation and created a sense of weakness among some people.
Financially, the company continues to perform well. Driven by strong performance from Google Search and Google Cloud, Alphabet reported solid results in the second quarter, with revenue totaling $84.7 billion, up 14% year over year. Net income for the quarter was $23.6 billion and EPS was $1.89, beating analysts’ estimates of $1.85 per share.
Google services revenue was recorded at $73.9 billion, up from $66.2 billion in 2023. Google Search & More’s revenue totaled $48.5 billion, with YouTube and Google Network bringing in $8.7 billion and $7.4 billion in the second quarter. Alphabet Inc. (NASDAQ:GOOGL) received significant investor optimism after its strong performance in the quarter. Here’s what The London Company Large Cap Strategy said about Alphabet in its Q2 2024 investor letter:
Alphabet Inc. (NASDAQ:GOOGL) – GOOG was a top performer this quarter, reporting strong search revenue, tight cost controls, and cloud momentum. YouTube’s monetization continues to be strong, with both direct search ads and branded search ads outperforming expectations. Expense management improved margins by 700bps. Management is removing layers to improve efficiency, which should increase profit margins. GOOG also provided details on the path to monetizing Al for advertisers. GOOG began paying dividends during the quarter to return additional cash to shareholders. The company has a strong balance sheet, a large market share, and generates high profits.
Alphabet is currently one of the most hedge fund-owned stocks, with 216 funds holding shares in the company, according to the Insider Monkey database for Q2 2024. Wall Street analysts are also bullish on the stock, with all analysts agreeing on Alphabet’s buy rating. They also predict that the company’s stock price could rise by 20%.
Overall, GOOGL currently ranks #4 on the list of stocks most held by hedge funds. While we recognize GOOGL’s potential as an investment, we believe AI stocks are more likely to deliver higher returns and do so in a shorter period of time. If you’re looking for AI stocks with more promise than GOOGL, but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: A $30 trillion opportunity: 15 humanoid robot stocks to buy as NVIDIA has ‘become a wasteland’, according to Morgan Stanley and Jim Cramer.
Disclosure: None. This article was originally published on Insider Monkey.
