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Top Hedge Funds are Selling These 10 Stocks

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·10 min read
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  • PYPL
  • AMZN
  • MU
  • AON
  • BABA
  • GOOGL
  • MSFT

In this article, we discuss the 10 stocks that top hedge funds are selling. If you want to skip our detailed analysis of these stocks, go directly to Top Hedge Funds are Selling These 5 Stocks.

Despite rising inflation and supply chain problems that have wreaked havoc with the United States economy in the past few months, there are indications that the market may finish the year by staging a strong comeback. According to newly released data by the US government, jobless claims in the country have fallen to a 52-week low, consumer spending accelerated by 1.3% in October, and the third quarter Gross Domestic Product (GDP) growth has been revised upward to around 2.1% after downward revisions in the third quarter.

Corporate profits also hit a record high in the last quarter, supported by inventory accumulation as the holiday season approaches and the shopping extravaganza begins. US President Joe Biden recently announced that the government will be releasing 50 million barrels of crude from the Strategic Petroleum Reserve in a bid to help contain the rise in oil prices that was leading to greater inflation. Biden has pledged to work with large oil consumers like China, India, South Korea, Japan and Britain in this regard.

As the economic outlook evolves, investors might want to get in on the act quickly. Shedding stocks that may prove to be a burden on the portfolio in the coming weeks is a good starting point.

Major companies including giants like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG) are swiftly changing their strategies to avoid plateaus in their growth and tackle the economic uncertainties caused by supply chain disruptions.

Our Methodology

These were picked from the database of 867 hedge funds tracked by Insider Monkey as of the third quarter. The stocks that registered a decrease 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, were preferred for the list.

Pixabay/Public Domain

Top Hedge Funds are Selling These Stocks

10. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders in Q3: 242

Number of Hedge Fund Holders in Q2: 271

Amazon.com, Inc. (NASDAQ:AMZN) is a diversified technology company with core interests in the ecommerce business. The stock has slumped in recent months after missing market estimates on revenue for the second quarter and antitrust investigations in Europe.

However, analysts are positive on the long-term prospects of Amazon.com, Inc. (NASDAQ:AMZN). JPMorgan analyst Doug Anmuth has an Overweight rating on the stock with a price target of $4,350. Despite this, the hedge fund sentiment around the company has turned negative, with top names like Coatue Management, Glenview Capital, and Soros Fund Management slashing their positions recently.

Among the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN) with 3.9 million shares worth more than $12 billion.

Just like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), investors are closely watching Amazon.com, Inc. (NASDAQ:AMZN) amid the swiftly changing economic situation.

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

“Amazon (AMZN):We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.

I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.

Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.

In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.

With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.

So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]

9. PayPal Holdings, Inc. (NASDAQ:PYPL)

Number of Hedge Fund Holders in Q3: 123

Number of Hedge Fund Holders in Q2: 143

PayPal Holdings, Inc. (NASDAQ:PYPL) is a payments technology firm based in California. The stock has suffered amid a broader lull around the payments industry in general over the past few weeks. On November 22, the share price of PayPal fell to a 52-week low.

UBS analyst Rayna Kumar recently assumed coverage of PayPal Holdings, Inc. (NASDAQ:PYPL) stock with a Buy rating and a price target of $263, noting that the pullback in share price was a “buying opportunity” for investors.

At the end of the third quarter of 2021, 123 hedge funds in the database of Insider Monkey held stakes worth $12.8 billion in PayPal Holdings, Inc. (NASDAQ:PYPL), down from 143 in the preceding quarter worth $16.3 billion.

In its Q4 2020 investor letter, Polen Capital Management, an asset management firm, highlighted a few stocks and PayPal Holdings, Inc. (NASDAQ:PYPL) was one of them. Here is what the fund said:

“For the full year 2020, one of the top performers was PayPal, which we purchased in 2019, the company continues to take market share in digital payments and has seen an acceleration in user adoption and engagement, especially within their “silver tech” or older user demographic. We expect many more years of ongoing double-digit growth from their various business segments and new initiatives.”

8. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders in Q3: 115

Number of Hedge Fund Holders in Q2: 146

Alibaba Group Holding Limited (NYSE:BABA) is a technology infrastructure and marketing firm. It is one of the many dual-listed companies that have been hammered amid a Chinese government crackdown against big tech and cross-border payment flows.

Argus analyst Jim Kelleher recently downgraded Alibaba Group Holding Limited (NYSE:BABA) stock to Hold from Buy, underlining that there was increased competition for the company in China and lower domestic consumption.

Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Alibaba Group Holding Limited (NYSE:BABA) with 14 million shares worth more than $2 billion.

In its Q1 2021 investor letter, Polen Capital Management, an asset management firm, highlighted a few stocks and Alibaba Group Holding Limited (NYSE:BABA) was one of them. Here is what the fund said:

“Alibaba also detracted from performance as the company continues to remain under regulatory scrutiny from both the Chinese State Administration for Market Regulation on antitrust concerns and the U.S. Securities and Exchange Commission on ADR listing requirements. Despite the regulatory overhang, we believe that Alibaba’s competitive positioning and growth outlook remains intact, even if the company must pay fines or modify some business practices. We viewed the current valuation at <20x next twelve month’s earnings as a compelling opportunity to add to our position. Alibaba is the second largest position in the Portfolio.”

7. Micron Technology (NASDAQ:MU)

Number of Hedge Fund Holders in Q3: 63

Number of Hedge Fund Holders in Q2: 87

Micron Technology (NASDAQ:MU) makes and sells memory and storage products. Pricing concerns and guidance that fell short of expectations in the third quarter earnings report are some of the headwinds facing the company.

Analysts continue to be bullish about the future of Micron Technology (NASDAQ:MU). Mizuho analyst Vijay Rakesh recently upgraded the stock to Buy from Neutral and raised the price target to $95 from $75, noting that server demand would improve in the coming months.

At the end of the third quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $3.8 billion in Micron Technology (NASDAQ:MU), down from 87 in the preceding quarter worth $6.3 billion.

In its Q1 2021 investor letter, Bonsai Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:

“Micron is a manufacturer of memory semiconductor chips. Micron appreciated 17.3% during the quarter.

With the semiconductor cycle in full swing, sentiment continued to improve for major DRAM and NAND suppliers. Spot pricing for DRAM continues its upward march due to supply shocks across the industry and sustained demand levels that continue to outstrip supply.

As a result, Micron showed improving results for the fiscal first quarter, raised guidance intra-quarter for the fiscal second quarter, and offered strong guidance for the fiscal third quarter in both growth and margins.

While the cyclical nature of DRAM hasn’t changed, the cycles themselves continue to become more benign, leading to long-term economic improvement across these businesses. Micron is now continuously profitable, with industry players in a dramatically stronger position than even just five years ago.

The biggest negative surprise in the quarter came from Micron’s exit from its 3D XPoint hybrid memory business. The company also announced its decision to sell its accompanying Utah fab. Fortunately, this development does not alter the investment thesis much since 3D XPoint was an option ticket for future growth. While it’s unfortunate this product didn’t pan out, now is an excellent time to sell a fab, so perhaps it is a blessing in disguise?”

6. Aon plc (NYSE:AON)

Number of Hedge Fund Holders in Q3: 47

Number of Hedge Fund Holders in Q2: 68

Aon plc (NYSE:AON) is a professional services firm based in Ireland. Analysts have started viewing the stock with caution after an incredible rally that saw share price climb 54% year-to-date, noting that the firm seemed fairly valued now.

Aon plc (NYSE:AON) recently posted earnings for the third quarter, reporting earnings per share of $1.74, beating estimates by $0.04. The revenue over the period was $2.7 billion, up more than 12% year-on-year.

At the end of the third quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $6 billion in Aon plc (NYSE:AON), down from 68 in the preceding quarter worth $8 billion.

Along with Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), Aon plc (NYSE:AON) is one of the growth stocks in the limelight as inflation concerns grow.

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Disclosure. None. Top Hedge Funds are Selling These 10 Stocks is originally published on Insider Monkey.