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Hedge Funds are Buying These 10 Stocks for the Rest of 2021

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·9 min read
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In this article, we discuss the 10 stocks that hedge funds are buying for the rest of 2021. If you want to skip our detailed analysis of these stocks, go directly to Hedge Funds are Buying These 5 Stocks for the Rest of 2021.

Even as valuations soar and inflation fears rise, the overall market environment is still providing investors with plenty of opportunities for growth. The past few months have proven to be a revelation for the hedge fund industry in particular even after a record 2020 that saw hedge fund assets under management reach an all-time high of $3.6 trillion at the end of the fourth quarter. According to a report from JPMorgan, the fiscal stimulus, above-trend growth, rebounding economies, and ultra-low interest rates have all helped the funds grow their portfolios this year.

Investment bank Barclays predicts that hedge funds will witness up to $30 billion of net inflows and $450 billion in gross allocations across the industry in 2021. Some of the reasons behind this bullish outlook are pent-up demand and the adaptation of the funds to the evolving post-virus economy. For example, a survey by market research firm Deloitte reveals that a majority of digital investments for the funds, especially those in artificial intelligence, seem to be paying off handsomely.

Hedge fund performance is also expected to be strong this year as the market normalizes. Last year, stock sell-offs were based more on sentiment rather than on actual fundamentals. This year, these fundamentals are expected to be at the forefront of growth, and hedge funds could use their capital of experience to beat the wider market in terms of value plays. Sustainable investing and emerging retail investor interest in equities could also play an important part in determining hedge fund performance this year, according to JPMorgan.

John Frede, a hedge fund manager and industry expert, said earlier this year that portfolio managers of long/short equity hedge fund strategies took advantage of market disruption and dislocation in the first half of 2021, noting that the year was shaping up to be a very good environment for hedge funds as managers focused more on fundamentals. However, there is reason to be cautious about this bullish outlook on the hedge fund industry. A Bloomberg report has detailed the damage growth-focused portfolios could go through in an inflationary scenario.

Citing data from a recent Goldman Sachs study, the report claims that companies that had values exceeding 10 times sales accounted for a third of the equity holdings of hedge funds. This was the highest level of exposure to growth since at least 2002, the study underlined. With the benchmark S&P 500 returning more than 25% this year, the returns of the funds have not been that impressive, clocking in at around 12%. Famous growth investor Cathie Wood has termed this a “value stock trap”, doubling down on her bets on growth equities.

Investors who want to follow the smart money to grow their portfolios should check out the third quarter activity of hedge funds and their latest moves at the market. Some of the top stocks to buy now according to hedge funds include Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), among others discussed in detail below.

Our Methodology

These were picked from the database of 867 hedge funds tracked by Insider Monkey for the third quarter. Only those stocks that registered an increase of at least 20 in the number of hedge funds with stakes in them at the end of September, compared to filings for the end of June, feature on the list. However, many of these stocks went public recently. We picked these stocks because hedge funds are showing a lot of interest in these new companies.

Hedge Funds are Buying These 10 Stocks for the Rest of 2021
Hedge Funds are Buying These 10 Stocks for the Rest of 2021

Speedcurve Performance Analytics

Hedge Funds are Buying These Stocks for the Rest of 2021

10. Five9, Inc. (NASDAQ:FIVN)

Number of Hedge Fund Holders in Q3: 76

Number of Hedge Fund Holders in Q2: 45

Five9, Inc. (NASDAQ:FIVN) provides cloud software for contact centers. The company recently beat market estimates on earnings per share and revenue for the third quarter by $0.05 and $7 million respectively. The shares surged 14% after the earnings report was released.

On November 9, investment advisory UBS upgraded Five9, Inc. (NASDAQ:FIVN) stock to Buy from Neutral and raised the price target to $195 from $175, noting the revenue growth of the company against peers.

At the end of the third quarter of 2021, 76 hedge funds in the database of Insider Monkey held stakes worth $3.5 billion in Five9, Inc. (NASDAQ:FIVN), up from 45 in the preceding quarter worth $2.1 billion.

Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Alkeon Capital Management is a leading shareholder in Five9, Inc. (NASDAQ:FIVN) with 3 million shares worth more than $480 million.

Alongside Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), Five9, Inc. (NASDAQ:FIVN) is one of the stocks that hedge funds are buying.

In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Five9, Inc. (NASDAQ:FIVN) was one of them. Here is what the fund said:

“Five9 is a cloud-based contact center as a service software provider that is replacing aging on-premise legacy solutions that dominate the installed base. Companies are being forced to modernize and cloud penetration is still low; Five9 is positioned to benefit and should see further growth driven by its cross-selling add-on modules and an AI product that generates high revenue.”

9. ZoomInfo Technologies Inc. (NASDAQ:ZI)

Number of Hedge Fund Holders in Q3: 57

Number of Hedge Fund Holders in Q2: 35

ZoomInfo Technologies Inc. (NASDAQ:ZI) owns and runs a market intelligence platform. The company had announced in September that it would be acquiring RingLead, a data quality management platform, to improve intelligence and engagement.

Credit Suisse analyst Phil Winslow recently initiated coverage of ZoomInfo Technologies Inc. (NASDAQ:ZI) stock with an Outperform rating and a price target of $100, noting the firm was a clear leader in the go-to intelligence solutions market.

Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm GQG Partners is a leading shareholder in ZoomInfo Technologies Inc. (NASDAQ:ZI) with 5.2 million shares worth more than $323 million.

At the end of the third quarter of 2021, 57 hedge funds in the database of Insider Monkey held stakes worth $1.9 billion in ZoomInfo Technologies Inc. (NASDAQ:ZI), up from 35 in the preceding quarter worth $670 million.

In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and ZoomInfo Technologies Inc. (NASDAQ:ZI) was one of them. Here is what the fund said:

“Favorable stock selection in Communication Services came from ZoomInfo Technologies Inc., a leading go-to-market intelligence platform for sales and marketing teams. We believe that the company’s recent acquisition of Chorus.ai, a conversation intelligence business, dramatically increased the data visibility and benefits that ZoomInfo can offer its clients. In addition, its organic revenues reaccelerated for a fifth consecutive quarter and management significantly raised its earnings guidance.”

8. Olaplex Holdings, Inc. (NASDAQ:OLPX)

Number of Hedge Fund Holders in Q3: 52

Number of Hedge Fund Holders in Q2: 0

Olaplex Holdings, Inc. (NASDAQ:OLPX) makes and sells hair care products. It recently posted earnings for the third quarter, reporting earnings per share of $0.11, beating estimates by $0.02. The revenue over the period was $161 million, up 80% year-on-year.

Morgan Stanley analyst Dara Mohsenian recently upgraded Olaplex Holdings, Inc. (NASDAQ:OLPX) stock to Overweight from Equal Weight with a price target of $31, noting that the valuation looked “compelling”.

At the end of the third quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $710 million in Olaplex Holdings, Inc. (NASDAQ:OLPX).

7. Hill-Rom Holdings, Inc. (NYSE:HRC)

Number of Hedge Fund Holders in Q3: 46

Number of Hedge Fund Holders in Q2: 22

Hill-Rom Holdings, Inc. (NYSE:HRC) is a medical technology company based in Illinois. The company recently beat market estimates on earnings for the third quarter and declared a quarterly dividend of $0.24 per share, in line with previous.

Hill-Rom Holdings, Inc. (NYSE:HRC) stock has rallied since Baxter, a healthcare firm, announced that it would acquire the former in a deal worth more than $10 billion. The deal will be closed by early 2022.

Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Pentwater Capital Management is a leading shareholder in Hill-Rom Holdings, Inc. (NYSE:HRC) with 1.8 million shares worth more than $277 million.

At the end of the third quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Hill-Rom Holdings, Inc. (NYSE:HRC), up from 22 in the previous quarter worth $387 million.

6. Alight, Inc. (NYSE:ALIT)

Number of Hedge Fund Holders in Q3: 42

Number of Hedge Fund Holders in Q2: 0

Alight, Inc. (NYSE:ALIT) provides digital human capital and business solutions. It had announced back in August that it would be purchasing ConsumerMedical, a clinical advocacy firm, for a data-driven and personalized approach to growth.

Credit Suisse analyst Kevin McVeigh has an Outperform rating on Alight, Inc. (NYSE:ALIT) stock with a price target of $15. The firm missed market estimates on earnings per share for the third quarter but smashed expectations on revenue.

At the end of the third quarter of 2021, 42 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in Alight, Inc. (NYSE:ALIT).

In addition to Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), Alight, Inc. (NYSE:ALIT) is one of the stocks on the radar of elite investors.

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Disclosure. None. Hedge Funds are Buying These 10 Stocks for the Rest of 2021 is originally published on Insider Monkey.