In this article, we will take a look at the 10 stocks hedge funds are talking about. To see more such companies, go directly to 5 Stocks Hedge Funds Are Talking About.
Hedge funds represent the ultimate asset class for ultra-wealthy investors, serving the financial needs of high and ultra-high-net-worth individuals. Globally, there is a total of 30,077 hedge funds as reported by the Financial Times. Among this extensive array of investment managers, the majority, comprising 65%, are located in the United States. During the second quarter of 2023 alone, there were 133 new introductions of hedge funds, indicating a significant rise in fixed income-based relative value arbitrage, particularly in the form of credit multi-strategy funds. In the first half of 2023, the hedge fund landscape witnessed a notable upswing, with 226 new launches taking the forefront, particularly dominated by multi-strategy funds poised to navigate the challenges of rising rates and generational inflation, as highlighted by HFR, a prominent global authority in hedge fund industry analysis. Performance metrics have been encouraging, showcasing a 4.5% year-to-date increase in the HFRI fund-weighted composite index through August. This positive momentum was mainly driven by equity hedge and event-driven strategies, with a noteworthy contribution from relative value arbitrage.
Hedge funds have different strategies as to how they base their investment decisions. One of the most notable hedge funds with a very rare strategy is Renaissance Technologies. The hedge fund firm is led by mathematicians and scientists rather than market professionals. Renaissance CEO, Peter Brown, explained that this intentional approach stems from the belief that it's simpler to instruct mathematicians about markets than the other way around. The firm heavily relies on its models for trading, with human judgment playing a minimal role. Renaissance has gained a near-legendary status in the hedge-fund sphere, primarily attributed to the remarkable performance of its exclusive Medallion fund, available only to employees. From over a 30-year period from 1988 to 2018, the Medallion fund achieved an impressive 66% gross annual return.
“We know how to build large mathematical models and that is all we know. We don’t know economics, we don’t interfere with our trading systems. We will cut back if we think the model doesn’t appreciate the risk…But those are rare.” said Peter Brown, CEO of Renaissance, a hedge-fund firm led by mathematicians and scientists rather than market professionals.
In the second quarter of 2023, global hedge funds accumulated a total fund amounting to $3.6 billion, contributing to a positive net inflow of $12.64 billion in the first half of the year, as reported by data provider HFR. As of June 2023, hedge funds managed assets worth $3.95 trillion, showing a 1.8% increase from March 2023. This growth was primarily propelled by hedge funds' performance in the second quarter, with an average rise of 2.15%, contributing to a 3.4% increase in the first half of the year. Additionally, In the first half of 2023, hedge fund fees experienced an uptick, attributable not only to robust performance and increased capital but also to constrained capacities in established firms and heightened costs associated with expanding inflation portfolio teams. While the industry's average management fee held steady at 1.36%, there was a notable surge in the incentive fee, reaching 16.19%.
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Our Methodology
In order to compile our list of the 10 stocks hedge funds are talking about, we selected companies that stood out in the investor letters of various hedge funds during the third quarter of 2023. Subsequently, we determined the prominence of these companies based on the frequency with which they were highlighted or mentioned in the Q3 letters. Employing this approach allowed us to identify the top 10 companies that were most frequently discussed. From there, we rank these companies based on the number of hedge fund holders to eventually compile our list of the 10 stocks hedge funds are talking about.
Expedia Group Inc. (NASDAQ:EXPE) ranks 10th in our list of the 10 stocks hedge funds are talking about. The online travel company revealed a 13% growth in adjusted EBITDA, reaching $1.22 billion compared to the consensus estimate of $1.15 billion. Earnings per share were reported at $5.41, surpassing both the consensus of $5 and the previous year's figure of $4.05.
In its Q3 2023 earnings call, CEO Peter Kern highlighted the robust third-quarter results, emphasizing that the record revenue and profitability exceeded expectations. He attributed these positive outcomes to the enduring strength of travel demand and ongoing improvements resulting from the company's strategic execution.
"As we unify stacks, this will also further enhance the capabilities on offer for our B2B partners. But as pleased as I am with the continued growth of our B2B business, I’m even happier to see our B2C business picking up momentum with year-over-year revenue growth in Q3, accelerating over 400 basis points sequentially. This is what we’ve all been working so hard for us. So it’s very gratifying to see these results beginning to improve.
Patient Capital Management made the following comment about Expedia Group, Inc. (NASDAQ:EXPE) in its Q3 2023 investor letter:
“At Expedia Group, Inc. (NASDAQ:EXPE), we believe the market is underappreciating the company’s transformation. Over the past few years, the company has prioritized its top three brands (expedia.com, hotels.com, vrbo.com), successfully implemented a single technology stack, and officially rolled out OneKey their combined loyalty program, across all brands. With strong free cash flow generation, the company continues to buy back their stock, creating a positive flywheel of shareholder return.”
Shopify Inc. (NYSE:SHOP) is one of the 10 stocks hedge funds are talking about. In its third quarter earnings report, Shopify Inc. (NYSE:SHOP)'s total revenue surged by 25% to reach $1.7 billion compared to the previous year. Monthly recurring revenue experienced a robust 32% increase, reaching $141 million, propelled by sustained growth in all of Shopify Inc. (NYSE:SHOP)'s subscription plans. Additionally, Shopify Inc. (NYSE:SHOP) disclosed an operating income of $122 million, a notable improvement from the $346 million loss reported a year ago.
Shopify Inc. (NYSE:SHOP)'s CFO made the following remarks in its Q3 earnings report:
"Our results showcased the durability of our business model as we delivered a compelling combination of both top line growth and profitability, with revenue growing 25% year over year and free cash flow margin reaching 16%. We will continue to operate with discipline, thoughtfully investing in the huge opportunities ahead across regions, products, and channels to help merchants capture every opportunity every step of the way."
Here is what Baron Global Advantage Fund has to say about Shopify Inc. (NYSE:SHOP) in its Q3 2023 investor letter:
“Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares gave back some of their strong performance from the first half of 2023, declining 15.5% on the back of rising concerns related to the health of the consumer and the expansion of TikTok and Temu into the U.S. While we are cognizant of these near-term risks, we believe that Shopify will continue to benefit from its position as the commerce operating system for its merchants. Rather than replacing Shopify, various selling channels, including TikTok, are managed within the platform, which should enable Shopify to maintain its competitive advantage over the long term. During the quarter, Shopify announced an agreement with Amazon that will allow merchants to offer Buy with Prime within the Shopify ecosystem, enabling Shopify to act as the payments provider for these transactions and alleviating a key concern. Lastly, the company also reported strong financial results, including 17% year-over-year gross merchandise volume growth, 31% revenue growth, and consensus-beating non-GAAP operating income that outpaced estimates by over $90 million. We remain shareholders due to Shopify’s strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.”
Ranking 8th on our list of the 10 stocks hedge funds are talking about is Oracle Corporation (NYSE:ORCL). The revenue of Oracle Corporation (NYSE:ORCL) for the latest reported quarter reached a record $12.45 billion but fell short of estimates, displaying minimal growth over the past few quarters.
According to Insider Monkey's database of 943 hedge funds, Oracle Corporation (NYSE:ORCL) was held in 84 hedge fund portfolios at the close of the second quarter, compared to 67 in the previous quarter. Ken Fisher's Fisher Asset Management stands out as the leading hedge fund holding Oracle Corporation (NYSE: ORCL), owning 18.7 million shares valued at over $1.98 billion.
Oakmark Global Fund made the following comment about Oracle Corporation (NYSE:ORCL) in its Q3 2023 investor letter:
“Oracle Corporation (NYSE:ORCL) (U.S.), a global software company, was the Fund’s top contributor for the fiscal year, with its share price rising primarily after reporting its fiscal fourth-quarter results. More recently, Oracle announced fiscal first-quarter results, which were in line with consensus expectations. The drivers of the core business are performing well, in our view, and management expressed confidence that annual revenue growth will accelerate as planned based on demand trajectory and its strong bookings trends. For the quarter, total revenue increased 8% in constant currency (9% reported), and operating income grew 12% with margins showing improvement. Cloud and support revenue grew 11% in constant currency, powered by Fusion +20% and Netsuite +21%. The “strategic back office cloud” is now up to $6.9 billion in run-rate revenue. Infrastructure cloud and support revenue grew 14% in constant currency, powered by infrastructure cloud services +72% ex-legacy hosting services to $5.6 billion in run-rate revenue. Momentum is continuing to build as Oracle signed several deals for its cloud business greater than $1 billion in total value during the quarter and booked an additional $1.5 billion in the first week of the second quarter. We continue to believe Oracle is an attractive holding and undervalued due to our perception of its intrinsic value.”
PayPal Holdings, Inc. (NASDAQ:PYPL) secured the 7th spot on our list of the 10 stocks hedge funds are talking about. During the third quarter of 2023, PayPal Holdings, Inc. (NASDAQ:PYPL)'s adjusted EPS was $1.30, surpassing the $1.23 consensus, showing an increase from $1.16 in the second quarter and $1 in the third quarter of 2022. Moreover, PayPal Holdings, Inc. (NASDAQ:PYPL)'s Q3 revenue reached $7.42 billion, surpassing the $7.38 billion consensus, marking an increase from $7.29 billion in the previous quarter.
Wedgewood Partners made the following comment about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2023 investor letter:
“PayPal Holdings, Inc. (NASDAQ:PYPL) was a detractor from performance during the quarter. Total payment volume grew +11% while revenues grew +8% – both FX-neutral. Adjusted operating earnings grew +20%. E-commerce industry sales trends have normalized back to their pre-pandemic trend of growth, with high-margin branded payments keeping track with the industry. Despite this, investors continue to be concerned that PayPal’s fast-growing private-label payments solutions will dilute Company returns. However, payments is a very scalable business, and the Company will be able to manage both private label and branded for attractive returns and double-digit growth. While multiples in the payment industry have significantly compressed, especially after the multi-year process of being added to the index @inancial sector, PayPal’s businesses are substantially different enough from traditional spread-based businesses; in addition to possessing much more compelling growth drivers, PayPal’s well below market multiple should revert to its higher, historical average.”
Eli Lilly and Company (NYSE:LLY) is one of the 10 stocks hedge funds are talking about. In the third quarter of 2023, Eli Lilly and Company (NYSE:LLY) showcased a revenue of $9.49 billion with a significant 37% increase, surpassing expectations by $500 million. This was driven by substantial growth in its key pharmaceuticals, including Mounjaro, Verzenio, and Jardiance, along with a noteworthy $1.42 billion from the strategic sale of rights for the olanzapine portfolio (Zyprexa).
RiverPark Advisors made the following comment about Eli Lilly and Company (NYSE:LLY) in its Q3 2023 investor letter:
“Eli Lilly and Company (NYSE:LLY): LLY discovers, develops, manufactures, and markets pharmaceuticals. The company manufactures and distributes products through facilities in the United States and seven other countries and sells into 110 countries. The company has a broad and deep portfolio of products including a focus on diabetes, oncology, immunology, and neuroscience. More recently, LLY’s obesity drug Mounjaro, has delivered revenue growth acceleration, and investors are optimistic that the company’s Alzheimer drug, currently in trials, will add to that growth in the future. LLY has a stable portfolio of franchise products that enables it to invest heavily in its product pipeline. We believe that this combination of franchise and growth products will drive high teens revenue growth and a four-fold increase in free cash flow in the next five years. We initiated a small position in August.”
