In this article, we discuss the 10 best aggressive stocks to buy now according to hedge funds. If you’re in a hurry, you can skip and click to read the 5 Best Aggressive Stocks to Buy Now.
An aggressive stock can be defined as high performing above average companies that experience rapid growth in terms of cash flow, revenue, and earnings. These companies are expected to outperform their competition.
Given the COVID-19 pandemic, evaluating companies to invest in has become very challenging. However, aggressive stocks have not only shown investors that they have the capability to survive the pandemic but they consistently thrived despite the economic downturn. These stocks increased revenue quicker than an average business in their sector or than the market itself hence the loyal consumer base and the stable financial statements.
Aggressive stocks either pay low dividends or zero dividends because these companies usually reinvest their earnings back into the company to boost revenue capacity within the business such as research and expansions. In an article, we mentioned the Top 10 Earnings Growth Stocks with Dividends for 2021.
In investing in aggressive stocks, you are only able to generate substantial returns through capital gains, which is why those who invest in these stocks may be in it for the long-term. There are also a cohort of investors who chase momentum stocks to generate short-term gains. These investors are potentially subject to higher short-term capital gains taxes.
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Is this still the right time to be aggressive? A couple of days ago, I listened to GMO's Grantham telling us how we are in the middle of a huge bubble and investors should be moving to cash. Later in the interview Grantham revealed that he made hundreds of millions by investing in Quantumscape (QS) which went public by merging with a SPAC. He said his returns would have been much higher if the stock didn't fall from its high of $130 to $50. QS is a way too aggressive stock to be invested in and we find Grantham, who has been a huge bear for a decade, being invested in this stock a bit ironic. We pay more attention to Cathie Wood who puts her money where her mouth is (read Cathie Wood's recent comments on inflation, interest rates, bitcoin, and her small-cap picks with huge upside potential). Value investors have been very good at underperforming the market over the last 5 years and most of them failed to capture the technology revolution that's driving large returns in aggressive stocks.
In order to identify the 10 best aggressive stocks to buy now, we started with the top 25 holdings of the Invesco S&P 500 Pure Growth ETF (RPG) and we were able to narrow down our list to 10 stocks by using our hedge fund sentiment scores.
Our in-house analysis shows that we can use the sentiment information gathered from the hedge fund filings to classify in advance a select group of stocks that can beat the S&P 500 index by double digits annually on average. For instance, the portfolio of our monthly newsletter’s stock picks has beaten the market by over 88 percentage points since March 2017 (see details here). Some of the portfolio holdings of our monthly newsletter have been shared publicly too. In October, we shared this real estate stock and since then, it’s been up nearly 50 percent.
Based on our hedge fund sentiment data, we now present to you the 10 best aggressive stocks to buy now based on the stock picks of 800+ hedge funds tracked by Insider Monkey:
10. Autodesk, Inc. (NASDAQ:ADSK)
No of HFs: 65
Total Value of HF Holdings: $3.16 Billion
We start the list of the 10 best aggressive stocks to buy now with ADSK. The top hedge fund holder of this stock is Stephen Mandel's Lone Pine Capital which had $676 million invested in the stock at the end of September. In an article, we shared RiverPark Advisors' ADSK comments from their Q3 2020 investor letter:
“Autodesk: Autodesk was our final top detractor for the quarter. The company reported second quarter results that exceed expectations across all key metrics, but slightly lowered its billings and revenue outlook (by 1%), anticipating a slow recovery in the U.S. and U.K. In the second quarter, revenue was $913 million, up 15%, with subscription revenue (92% of total revenue), up 27% year over year, and a 29% Non-GAAP operating margin, up 500 basis points year over year (non-GAAP EPS of $0.98, increased 51% year over year).
Autodesk has a near monopoly on software for designing, building and managing buildings, as well as software for infrastructure and manufacturing plants, prototyping software for manufacturers of products (including autos, machinery and consumer products) and document sharing. The company expects to grow revenue 15%-19% annually over the next several years (which they were exceeding pre-COVID), and, as we have seen happen in similar SaaS conversions, as revenue scales, operating margins are expected to expand significantly from second quarter’s 29% to more than 40%, in-line with peers. We believe that ADSK shares can compound along with its free cash flow growth (expected to be 20%+ per year) over the next several years.”
9. Tesla, Inc. (NASDAQ:TSLA)
No of HFs: 67
Total Value of HF Holdings: $8.17 Billion
An insider purchased 1,250 shares at around $767 in February 2020. The stock is up 550% since then. In an investor letter, Baron Opportunity Fund shared the following positive expectations despite the global COVID-19 disruptions.
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, and energy storage solutions. The company reported robust second quarter results, solidly ahead of market expectations, despite the impact of the COVID-19 pandemic and associated macro-economic challenges. Indeed, in the second quarter, Tesla delivered almost 91,000 total vehicles – with strong unit level economics of 25.4% GAAP automotive gross profit margins – and another quarter of GAAP profitability and solid free cash flow (above $400 million). Moreover, Tesla recently announced a record of nearly 140,000 total vehicle deliveries for the third quarter. Despite global COVID-19 disruptions, our long-term expectations remain high due to Tesla’s differentiated products and healthy unit economics. Tesla has announced capacity expansions in Shanghai, China; Berlin, Germany; and Austin, Texas to support its short-term path to 1 million vehicles and its long-term goal of 20 million. Just a couple of weeks ago, Tesla held its Battery Day event, and presented a grand vision around its battery innovation and expanding its competitive advantages, including massively increasing internal battery production capacity (100 gigawatt-hours by 2022 and 3,000 by 2030), improving battery range (about 50%), and significantly lowering battery costs (cost per kilowatt-hour to decline by over 50%). We remain confident that Tesla will leverage its brand, technology leadership, and the electric vehicle secular trend to achieve sustainable long-term growth.”
8. Advanced Micro Devices, Inc. (NASDAQ:AMD)
No of HFs: 71
Total Value of HF Holdings: $5.08 Billion
AMD ranks 8th in our list of the 10 best aggressive stocks to buy now. Carillon Eagle Mid Cap Growth Fund mentioned AMD in their Q3 2020 Investor Letter:
“Advanced Micro Devices produces semiconductor products and devices. The stock outperformed due to healthy growth in the personal computer and data center server markets. The company also continues to gain share against its major competitor, which is having significant issues in its next generation products. Furthermore, investors have appreciated the margins and profitability the company has been posting in addition to the topline strength.”
7. ServiceNow, Inc. (NYSE:NOW)
No of HFs: 82
Total Value of HF Holdings: $5.94 Billion
NOW is an American software that develops cloud computing that enables users to manage digital workflow. During the third quarter of 2020, the company announced a subscription revenue of $1,091 million, representing 31% year-over-year growth. An insider recently purchased 3,000 shares at around $278 in November 2019. The stock is up to 86% since then.
6. NVIDIA Corp. (NASDAQ:NVDA)
No of HFs: 82
Total Value of HF Holdings: $7.67 Billion
An insider purchased 100 shares at around $537 in December 2020. The stock is down 2% since then. In an article, we talked about Vulcan Value Partners comments on NVDA in their Q3 2020 investor letter.
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. During the first quarter of 2019, its stock price declined considerably due to the combination of three factors. A capital spending hiatus by cloud providers, the collapse in demand for cryptocurrency mining, along with the end of the product cycle in its most recent gaming chip caused NVIDIA to miss its quarterly earnings estimates. As a result, we were given the opportunity to purchase NVIDIA with a significant margin of safety in March of 2019. NVIDIA’s value grew substantially while we owned it, and we continued to follow our discipline by trimming and adding to the company as its price fluctuated. We exited NVIDIA when its stock price rose close to our estimate of fair value. The combination of its value growth and the closing of the price to value gap provided substantial returns over our investment period.”
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Disclosure: No positions. 10 Best Aggressive Stocks To Buy Now is originally published at Insider Monkey.