Goldman Sachs has a secret portfolio. Its hedge fund VIP (yes, very important position) basket of stocks contains the 50 stocks that appear most often in the top-10 holdings of fundamentally driven hedge funds. Or, in the firm’s words: The Goldman Sachs Hedge Industry VIP Index is designed to deliver exposure to equity securities whose performance is expected to influence the long portfolios of hedge funds.
“Recent hedge fund returns have benefited from the outperformance of the most popular long positions as well as the decision to increase net length ahead of the equity market bottom in December 2018,” commented the firm’s Ben Snider recently.
At any rate, the crucial point is that this tech-heavy basket of stocks is performing very nicely right now. In fact, since 2001, this group of stocks has outperformed the S&P 500 in 62% of the quarters.
And here we take a closer look at seven of the basket’s biggest holdings. By using TipRanks market data, we can also check in with top analysts and see how they are rating the stocks. Let’s dive in now:
Hedge Fund Stocks to Buy: GoDaddy (GDDY)
GoDaddy (NYSE:GDDY) is a leading internet tech provider for small, independent ventures. Plus it is the sixth-place top holding in the Goldman Sachs portfolio.
“We continue to view GDDY as a leading internet technology provider to small businesses and individuals, and it is now the largest global host of paid WordPress instances” enthuses RBC Capital’s Mark Mahaney (Track Record & Ratings).
He believes that GoDaddy faces a multi-billion-dollar addressable market (TAM), including well over 300MM SMBs and entrepreneurs worldwide. Moreover, that’s with a business model that has generated consistently robust double-digit revenue growth and improving margins.
“We also view the GDDY management team as particularly strong and experienced, and we believe the company’s focus on rapid product iteration (esp with GoCentral) is a correct one” adds the analyst. And with a “highly reasonable valuation” and potential upside through strategic M&A, it’s not surprising the stock earns a “strong buy” consensus from the Street (and the thumbs up from the Smart Money).
That’s with an $87.67 average analyst price target (21% upside potential). Want to learn more about GoDaddy? Get the free GDDY Stock Research Report.
SS&C Technologies (SSNC)
SS&C Technologies Holdings (NASDAQ:SSNC) — the second top stock in GS’s VIP basket — is extremely interesting right now, and I highly recommend taking a closer look. The company provides traditional and cloud-based services and software to the global financial services industry. This includes automating functions at all levels of the business, from trading and modeling to portfolio management and reporting accounting and clearing.
Mayank Tandon (Track Record & Ratings) from Needham has a Street-high $75 price target on SSNC (25% upside potential). This five-star analyst highlights the stock’s stellar growth potential, explaining: “SSNC continues to drive solid organic growth and over-deliver on cost synergies from the recent acquisitions. We anticipate these trends to continue and believe management will be able to simultaneously reduce leverage and average 20% EPS growth over the medium term.”
And with the stock expected to open at around 14x the FY2020 EPS estimate, he believes the risk-reward remains compelling. Indeed, according to RBC Capital’s Daniel Perlin, SSNC is looking at revenues growing at 10%–20% CAGR over the medium term (next three to five years). That’s with EPS growth hitting the mid-teens to mid-20%s.
Note that shares have already exploded 34% year-to-date, and all the recent analyst ratings on this “strong buy” stock are buys. Get the SSNC Stock Research Report.
Alibaba Group Holding (BABA)
In third place on the VIP basket’s list comes Alibaba (NYSE:BABA). This Chinese e-commerce giant is a perennial favorite with the Smart Money and the Street alike.
Most recently, Mark Mahaney (Track Record & Ratings) of RBC Capital reiterated his “buy” rating on the stock; just one of the 18 back-to-back buy ratings BABA has recently received. Meanwhile the average analyst price target comes out at $209 (14% upside potential).
“Though Macros remain a big unknown, we view BABA’s Fundamental Risk/Reward as very compelling here” states the analyst. “Trading at ~6x P/S and ~19x EV/EBITDA on CY19 estimates … even on investment-depressed margins, we continue to view fundamental valuation as attractive” Mahaney explains.
Plus in the near-term investors can gain confidence in the improving profit growth from Alibaba’s core marketplace EBITA. That’s as BABA continues to invest in strategic initiatives (Ele.me, Lazada, New Retail and Cainiao) to improve their TAM and business moats. Get the BABA Stock Research Report.
At fourth place on Goldman’s top hedge fund list, Boeing (NYSE:BA) is among the best stocks to buy, boasting clearly positive sentiment from the Smart Money.
Interestingly, the Street is also growing increasingly bullish on the stock’s prospects. Analysts are keeping a close eye on Boeing’s new giant plane — the 777X. According to Boeing, this will be the largest and most efficient twin-engine jet in the world.
“The 777X is currently Boeing’s largest development program and with it entering the most critical time it its development, we’re focusing on tracking the company’s progress on certification as well as working capital trends for the program,” top-rated UBS analyst Myles Walton (Track Record & Ratings) commented.
As a result, Walton reiterates his BA buy rating with a $525 price target (24% upside potential). “From the supply chain data points we’ve collected and based on the company’s disclosures, we feel increasingly comfortable in our model estimates for 2019 and actually a touch better about our implied 2020 working capital estimate on the program.”
Meanwhile Morgan Stanely’s Rajeev Lalwani hiked up his price target $50, writing that he sees “a clear path” to $500, “given broadly higher market multiples alongside a potential order boost from China trade resolution.” Get the BA Stock Research Report.
Moreover, he told investors that “Microsoft remains in an enviable position heading into the next 12 to 18 months on the heels of its cloud success and is firing on all cylinders around its Office 365 and Azure strategic vision based on our recent checks in the field.”
“With roughly 30% of workloads in the cloud today and poised to hit 55% by 2022, we believe (CEO Satya) Nadella & Co. are in the catbirds seat to get more of these complex workloads (e.g. AI, machine learning, etc.) as more enterprises take the leap to a hybrid cloud architecture over the coming years” the analyst continued.
And Ives isn’t alone in his singling out of MSFT. In a similar message, Morgan Stanley analyst wrote that the company’s recent quarter results were “strong where it matters.” Weiss sees Microsoft pulling “ahead as the best secularly positioned firm in tech.” What’s more, he thinks the company’s secular positioning and durable growth give it the “best risk/reward in software.” Get the MSFT Stock Research Report.
Now for a stock that you may not have been expecting. Coming in at 10th place in the VIP basket is Hilton Worldwide Holdings (NYSE:HLT). In Q4, hedge funds ramped up HLT holdings by a whopping 34% to 74.632 million shares.
As one of the world’s largest hotel companies, HLT has about 5,600 managed, franchised or owned hotels/time shares totaling 912,000-plus rooms. The company has three operating segments: managed and franchised (M&F) hotels, owned or leased hotels, and timeshares.
“We believe HLT shares will outperform the peer group due to the company’s favorable positioning within the lodging market” writes RBC Capital’s Wes Golladay (Track Record & Ratings).
According to Golladay, the HLT platform is preferred by developers. So it makes sense that the company continues to take a disproportionate share of new openings and hotels under construction. In fact HLT brands account for around 20% of rooms under construction globally, which suggests meaningful share gain for HLT.
Net-net “HLT remains very well positioned to produce good earnings growth in a low-growth environment.” As a result the analyst hitches his price target from $84 to $93. Get the HLT Stock Research Report.
Nexstar Media (NXST)
Last but not least comes the No. 1 portfolio stock for Goldman Sachs VIP basket. Following its completion of the Media General acquisition, Nexstar Media Group (NASDAQ:NXST) owns 174 television stations. As the largest TV station operator in the U.S. reaching nearly 39% of households, Nexstar is a stock worth watching.
Analysts certainly seem to think so. Nexstar has received six recent buy calls from the Street. Most notably, Evercore ISI’s David Joyce (Track Record & Ratings) upgraded NXST from “hold” to “buy” back in December. As a result, the stock now scores unanimous support.
Crucially, the company is on the verge of a fresh acquisition. It has agreed a $6.4 billion deal to buy Tribune’s (NYSE:TRCO) ABC, CBS, FOX, and NBC stations. The company is still working through the final requirements for its pending Tribune Media acquisition. As things stand, Nexstar expects the deal to close by the third quarter. Nexstar remains in the process of finding buyers for stations it is seeking to sell.
“We assign Nexstar an Outperform rating and a $112 price target. We believe that the Tribune acquisition should create significant value for shareholders” top RBC Capital analyst Leo Kulp tells investors. He ramped up his price target from $96 to $112 (23% upside potential)
“We see limited risk around regulatory approvals … We expect the FCF yield to moderate as the company completes the milestones to closing the deal and de-levers post-closing” the analyst added. Get the NXST Stock Research Report.
TipRanks.com offers exclusive insights for investors by focusing on the moves of experts: Analysts, Insiders, Bloggers, Hedge Fund Managers and more. See what the experts are saying about your stocks now at TipRanks.com. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.