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Hedge Funds Have Fallen Back In Love With This Group Of Stocks

Hedge Funds Have Fallen Back In Love With This Group Of Stocks

And one analyst says this stock in the bunch is their “high conviction” pick.

Some of the highest-profile hedge fund investors and money managers in the U.S. have fallen back in love with the FAANGs.

After ditching shares of Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and Google-parent Alphabet (NASDAQ: GOOGL, GOOG), late last year, Q1 2019 regulatory fillings revealed that some of the most prominent names are back to buying the infamous group.

Tiger Global Management added 8.8 million shares of Facebook during the first quarter, upping their stake by nearly 65%, and added 2.1 million shares of Netflix, an increase of 42.8%.

Soros Fund Management initiated a new stake in Netflix, and owned 50,000 shares by the end of March.

T. Rowe Price added Facebook as well, increasing their stake by 19% to 107.9 million.

Warren Buffett’s Berkshire Hathaway just revealed that it purchased 483,300 shares, worth nearly $900 million, of Amazon in the first quarter as Buffett himself said he had been “an idiot” for having underestimated the online retailer and its chief executive, Jeff Bezos. 

The FAANG stocks have largely outperformed the broader market so far this year. Netflix is up 34% even despite slowing subscriber growth and the looming threat of the new Disney+ streaming platform. Facebook is up just under 43% even as calls to break up the world’s largest social network have grown louder.

“Facebook’s stock price has been hammered on the back of recent controversies, making what was already a very attractive return outlook for the stock even brighter,” wrote Paul Greene, portfolio manager of the T. Rowe Price Communications & Technology Fund, at the end of last year. “In my view, all the worries surrounding Facebook have been more than discounted in the stock, and we have been eagerly adding to our position.”

But of the FAANG stocks, Stephen Mathai-Davis, chief investment officer at analytics firm Quantamize, says one of these stocks is more compelling than the others.

“This is our highest conviction idea. It’s Google,” Mathai-Davis said on CNBC on Wednesday. “There’s been a general sell-off across the market and that means a lot of beta stocks were selling off, a lot of our own names are selling off. So that’s a great opportunity to get long some interesting names.”

Beta, a measure of volatility, categorizes stocks by how much they move against—whether more or less than— the broader market. Alphabet trades above 1 to the market, meaning it’s more volatile than the average, the stock is considerably less volatile than other tech sector names like Tesla (NASDAQ: TSLA) and Advanced Micro Devices (NASDAQ: AMD).

“In the case of Google, what we like is a call spread collar,” Mathai-Davis said. “That’s merely buying a call spread and funding that by selling an out-of-the-money put. … We think you can do that simply because implied volatility levels are so expensive, and by putting that trade on, you’re putting it on for pennies with great upside.”

Google-parent Alphabet is up 13.35% so far this year, and the average analyst price target for the stock is $1,331.12, suggesting possible upside of 12.38% over the next twelve months. On Wednesday, Deutsche Bank boosted its price target for GOOGL to $1,400 – 18% higher than Thursday’s closing price.

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