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Hedge Funds Prefer These 10 Stocks Over Square (SQ)

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·13 min read
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In this article, we discuss the 10 stocks that hedge funds prefer over Square. If you want to skip our detailed analysis of these stocks, go directly to Hedge Funds Prefer These 5 Stocks Over Square.

Square, Inc. (NYSE:SQ), the California-based payments firm, recently announced that it had signed a deal with social media platform TikTok for integration of the services of the former with the video-sharing services of the latter to help businesses expand their online presence and reach new customers. The partnership underscores the rising clout of both firms. TikTok has a user base of over a billion, directly rivaling giants like Facebook that presently has over 3 billion users but reached the 1 billion milestone almost a decade ago.

Similarly, Square, Inc. (NYSE:SQ) has established itself as a rising star in the payments universe. The user base of Cash App of the company has already reached close to 40 million and is growing at a brisk pace. The application handles close to $100 billion in transaction volume. The company is heavily invested in emerging technologies, with reports indicating that it has invested over $400 million in crypto assets. This has proved to be a double-edged sword for the firm, with the share of the firm falling in tandem with a pullback in crypto prices this year. Perhaps paying heed to this, Amrita Ahuja, the CEO of the company, disclosed in May that the firm had no plans to increase reserves of Bitcoin, the most popular cryptocurrency.

At the end of the second quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $10 billion in Square, Inc. (NYSE:SQ), up from 92 the preceding quarter worth $9 billion. Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm ARK Investment Management is a leading shareholder in the firm with 8 million shares worth more than $1.9 billion. Investors who are keen to avoid some of the risks associated with crypto should check out other options in the payments sector. Some of the stocks that hedge funds presently prefer over Square, Inc. (NYSE:SQ) include Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), and PayPal Holdings, Inc. (NASDAQ:PYPL), among others discussed in detail below.

cellanr, CC BY-SA 2.0 <https://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons

Our Methodology

With this context in mind, here is our list of the 10 stocks that hedge funds prefer over Square. These were picked from a database of hedge funds tracked by Insider Monkey. Only those companies that have more hedge funds with stakes in them, as compared to Square, Inc. (NYSE:SQ), at the end of the second quarter of 2021 were selected for the list.

The list is ranked according to the number of hedge funds having stakes in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose.

Special importance was assigned to outlining the analyst ratings and business fundamentals for each firm to provide readers with some context so they can make more informed investment choices.

Why should we pay attention to hedge fund sentiment? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Hedge Funds Prefer These Stocks Over Square

10. Sea Limited (NYSE:SE)

Number of Hedge Fund Holders: 104

Sea Limited (NYSE:SE) is placed tenth on our list of 10 stocks that hedge funds prefer over Square, Inc. (NYSE:SQ). The company operates as a diversified technology firm with interests in the ecommerce, fintech, and entertainment sectors. It is headquartered in Singapore.

On August 18, investment advisory Cowen maintained an Outperform rating on Sea Limited (NYSE:SE) stock and raised the price target to $355 from $345. John Blackledge, an analyst at the advisory, issued the ratings update.

At the end of the second quarter of 2021, 104 hedge funds in the database of Insider Monkey held stakes worth $12.2 billion in Sea Limited (NYSE:SE), up from 98 the preceding quarter worth $10.4 billion.

Just like Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), and PayPal Holdings, Inc. (NASDAQ:PYPL), Sea Limited (NYSE:SE) is one of the stocks that hedge funds are buying.

In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:

“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.

A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.

Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).

For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and

Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)

I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!

Part of this stems from the fact that Shopee..”[read the entire letter here]

9. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 108

JPMorgan Chase & Co. (NYSE:JPM) is ranked ninth on our list of 10 stocks that hedge funds prefer over Square, Inc. (NYSE:SQ). The firm provides financial services and operates from New York.

On July 17, investment advisory Credit Suisse maintained an Outperform rating on JPMorgan Chase & Co. (NYSE:JPM) stock and raised the price target to $177 from $170, appreciating the earnings beat of the firm in the second quarter.

Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. (NYSE:JPM) with 6.9 million shares worth more than $1 billion.

In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:

“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”

8. Berkshire Hathaway Inc. (NYSE:BRK-B)

Number of Hedge Fund Holders: 116

Berkshire Hathaway Inc. (NYSE:BRK-B) is a Nebraska-based firm with interests in the insurance, transportation, and utility businesses. It is placed eighth on our list of 10 stocks that hedge funds prefer over Square, Inc. (NYSE:SQ).

On August 9, investment advisory UBS maintained a Buy rating on Berkshire Hathaway Inc. (NYSE:BRK-B) stock and raised the price target to $329 from $319. Brian Meredith, an analyst at the advisory, issued the ratings update.

At the end of the second quarter of 2021, 116 hedge funds in the database of Insider Monkey held stakes worth $22 billion in Berkshire Hathaway Inc. (NYSE:BRK-B), up from 111 in the preceding quarter worth $19 billion.

In addition to Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), and PayPal Holdings, Inc. (NASDAQ:PYPL), Berkshire Hathaway Inc. (NYSE:BRK-B) is one of the stocks attracting the attention of hedge funds.

In its Q1 2021 investor letter, Vltava Fund, an asset management firm, highlighted a few stocks and Berkshire Hathaway Inc. (NYSE:BRK-B) was one of them. Here is what the fund said:

“Despite the considerable rise in stock markets over the past year, there are still many attractive opportunities. Human nature also is playing a bit into our hands. Investor crowds often chase popular stocks, hot IPOs, or mysterious SPACs and completely leave aside stocks they consider boring and not sexy enough. A typical example of this category is our long-term largest position in Berkshire Hathaway. Since we bought it for the first time, its price has nearly quadrupled and yet it remains just as undervalued today as it was at that time. Considering the current rate at which it is buying back its own shares and the amount of cash that Berkshire Hathaway has, my greatest wish as a shareholder is for the company’s share price to remain as low as possible for as long as possible.”

7. Uber Technologies, Inc. (NYSE:UBER)

Number of Hedge Fund Holders: 135

Uber Technologies, Inc. (NYSE:UBER) is a California-based technology company with core interests in the ride hailing sector. It is ranked seventh on our list of 10 stocks that hedge funds prefer over Square, Inc. (NYSE:SQ).

On September 21, investment advisory MKM Partners reiterated a Buy rating on Uber Technologies, Inc. (NYSE:UBER) stock with a price target of $68, noting that the firm was on an “accelerating pathway to profitability”.

Out of the hedge funds being tracked by Insider Monkey, California-based investment firm Altimeter Capital Management is a leading shareholder in Uber Technologies, Inc. (NYSE:UBER) with 24 million shares worth more than $1.2 billion.

Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), and PayPal Holdings, Inc. (NASDAQ:PYPL) are some of the top stocks to buy now, along with Uber Technologies, Inc. (NYSE:UBER).

RiverPark Advisors, LLC, in its Q4 2020 investor letter, mentioned Uber Technologies, Inc. (NYSE:UBER). Here is what the fund has to say in its letter:

“UBER was also a strong contributor, as shares rallied following the approval of California’s Proposition 22 by voters, allowing the company’s California-based drivers to remain independent contractors (rather than become more expensive employees). We believe this news is not just about the 10%-15% of Uber’s revenue tied to California, but the influence this will have on other states reassessing driver pay. UBER also reported strong third quarter results with Delivery Gross Bookings growing 135% year-over-year which nearly fully offset a reduction in Mobility Gross Bookings, which were down 50% year over year. Total Gross Bookings for the quarter were down only 10% year over year as compared with down 35% last quarter.

Despite the COVID disruption, UBER remains the undisputed global leader in ride sharing (44% of the Company’s third quarter revenue), with greater than 50% share in every major region in which it operates. The company is also a leader in food delivery (46% of revenue), where it is number one or two in the more than 25 countries in which it operates. We view UBER as more than just ride sharing and food delivery, but also as a global mobility platform with the ability to sell to its more than 100 million users (by comparison, Amazon Prime has 130+ million members) and penetrate new markets of on-demand services, such as grocery delivery, truck brokerage and worker staffing for shift work. At its current $96 billion market capitalization, UBER trades at only 6x next year’s revenue from its two core businesses. Additionally, the company has substantial, seemingly unrecognized, value in its several nascent development businesses and another $12 billion in equity stakes in synergistic businesses around the world.”

6. Apple Inc. (NASDAQ:AAPL)

Number of Hedge Fund Holders: 138

Apple Inc. (NASDAQ:AAPL) is placed sixth on our list of 10 stocks that hedge funds prefer over Square, Inc. (NYSE:SQ). The company operates as a technology firm with a large stake in the consumer electronics business. It is headquartered in California.

On October 7, investment advisory Bernstein kept a Market Perform rating on Apple Inc. (NASDAQ:AAPL) stock with a price target of $132, underlining that the valuation of the firm was now “relatively full”.

At the end of the second quarter of 2021, 138 hedge funds in the database of Insider Monkey held stakes worth $145 billion in Apple Inc. (NASDAQ:AAPL), up from 127 in the preceding quarter worth $131 billion.

Visa Inc. (NYSE:V), Mastercard Incorporated (NYSE:MA), and PayPal Holdings, Inc. (NASDAQ:PYPL) are some of the elite stocks to buy now, in addition to Apple Inc. (NASDAQ:AAPL) .

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

“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”

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Disclosure. None. Hedge Funds Prefer These 10 Stocks Over Square (SQ) is originally published on Insider Monkey.