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Goldman Sachs survey finds 9 stocks hedge & mutual funds are bullish on

Yahoo Finance's Brian Sozzi and Myles Udland discuss Goldman Sachs' latest hedge & mutual funds survey finding the top 9 bullish stocks, including Adobe (ADBE), Fiserv (FISV), General Motors (GM), Liberty Broadband (LBRDK), Mastercard (MA), Square (SQ), Twilio (TWLO), Visa (V) and Wells Fargo (WFC).

Video Transcript


MYLES UDLAND: All right, welcome back to Yahoo Finance Live on this Monday morning. Taking a look at the markets here, we can see a mixed picture for the three majors. The Dow trading in the red, the NASDAQ and the S&P are higher. NASDAQ up almost 0.8%. And we do have the S&P and NASDAQ both trading at record highs here.

But looking underneath the surface at individual names that investors are enjoying right now, Brian Sozzi, you looked at a note from Goldman Sachs that flagged nine stocks that both the mutual fund and the hedge fund crowd are interested in. And I think an interesting one in here, let's start with General Motors. We've got nine names we'll get through them but let's start with GM because that is a stock that has had a couple of different lives here, big value play for a long time. And this year, man, that chart, that looks like a growth stock, not exactly an old stuffy value play.

BRIAN SOZZI: Yeah, I wish there was 10 here because 10 historically clicks better on the internet but nonetheless, Myles, nine is what we're working with here, and really, let me just go back to what Goldman in fact did here. Goldman, they analyzed 813 hedge funds with $2.9 trillion in gross equity exposure and 573 mutual funds with $3 trillion in assets under management. And they were looking for stocks both of these groups like.

Now obviously, historically hedge funds like quicker growth-type companies, and the mutual funds actually, of course, tend to be a little boring, looking more longer-term investments. But there were nine companies both of them liked and you mentioned General Motors. The other list includes Adobe, Pfizer, Liberty Broadband, Mastercard, Square, Twilio, Visa, and yes, believe it or not, Wells Fargo despite its many, many years of fundamental problems and likely many, many years of fundamental problems at least going forward for that company.

But the tie that seems to bind all these, at least when you look at Adobe, a Pfizer, of a Mastercard, Square, Twilio, Visa, is it's tied to this fintech space that continues to be very, very hot. A lot capital raises, you've seen a lot of these companies go public. So both mutual funds and hedge funds looks like they want exposure to that what looks to be a lasting fundamental driver in let's say even in the payment space, Bitcoin, you name it.

Now, a couple of other things worth noting here, Goldman notes that these stocks don't come cheap. These nine stocks trade at a 63% valuation premium compared to the S&P 500, which may explain why these stocks have been underperforming because stocks, despite we joke around a lot about it but stocks don't go up in a straight line. These nine shared favorite stocks as Goldman references them, have lagged the S&P 500 by 14 percentage points in the year. So 6% gain for these nine shared favorite stocks versus about a 20% gain for the S&P 500. So but all-in-all, you have hedge funds and mutual funds clearly, Myles, out there looking for some form of growth.

MYLES UDLAND: Yeah, let's go to the valuation point here. I'm just reading your story, sorry I'm looking off-camera here. So a 63% valuation premium to the S&P, let's call the S&P's multiple right now 21, 22. So we're talking about a group that's trading at 34, 35 times earnings per share as a group.

And what's notable is individual names, the valuation on individual names certainly can be justified in different ways. It is a different kind of input than just the overall market. The overall market is typically how fast the economy growing, what's the overall margin profile of the index? You can get to 50, 70 times earnings for an individual stock. You can get to that appearing to look cheap.

But it's interesting that this group has been such a laggard. And we haven't really seen, I mean, we look at the year-to-date chart of Mastercard, it's flat. We haven't seen the kind of appreciation of that premium for this group that I think investors would expect in this environment when stocks are going up every day, S&P's at a record high right now.

BRIAN SOZZI: And it could be a short-term phenomenon, Myles. Look, Goldman Sachs calling this out, since 2013 an equal-weighted list of shared favorites or stocks that both mutual funds and hedge funds like has generated an annualized return of 20% versus the S&P 500's 16% return and has outpaced the S&P 500 in 62% of months. So this might just be a short-term phenomenon. Longer-term and when both mutual funds and hedge funds like them, usually a pretty good sign.

MYLES UDLAND: And I think you mentioned the fintech tie-in, right? With you got your Square, Visa, Mastercard, you probably can draw a line there between the fintech tie-in. And when I look at all these nine names, maybe General Motors is a little bit less applicable but you know this old-- maybe Wells doesn't fit in here quite as well either-- but as you know, the old thought, I'm not sure how I feel about it but picks and shovels everyone wants to do picks and shovels for X, picks and shovels for the digital economy, picks and shovels for the payments future.

I mean, that's Visa, Mastercard, and Square, that's literally the whole business. You get the crypto thing with I guess, all of them now but really that's the whole business. And it's funny you know, as an analyst, each of these stocks kind of has a story that is really easy to talk about but it's funny that that group is also underperforming the market by as large a margin as it is this year.

BRIAN SOZZI: Well, Myles, I'll just leave it on this one, General Motors is really not an automaker. They are a long-term play on climate change, Myles.

MYLES UDLAND: I'm Sorry. Excuse me, long-term climate change play. I got to know more about the Wells Fargo thing.

BRIAN SOZZI: No you don't.

MYLES UDLAND: I mean, I just-- I understand--

BRIAN SOZZI: We just lost half our viewers when we talk about Wells Fargo.

MYLES UDLAND: Look, you know, rates are going to go higher, that's going to be good for financials. That's the name, we landed on Wells Fargo. We landed on Wells. Maybe there's a turnaround?

BRIAN SOZZI: Maybe it's value.

MYLES UDLAND: Maybe there's a turnaround story here? I don't know. I don't know.

BRIAN SOZZI: Yeah, good luck.

MYLES UDLAND: So we'll let that one go. But always fun to see these lists and always fun to think about as you mentioned, that equal-weighted basket outperforming over the last several years but this year notable underperformance to the market. So we'll see sort of what the annual round of investor letters looks like. If these are the names that you're holding and maybe you're lagging by a couple of percentage points or so.