Long/short hedge funds are generally value investors. When they buy, they want to pay less than what a stock is worth. This doesn’t mean that hedge funds don’t invest in growth stocks with high PE ratios. Last summer, David Einhorn bought more than 800 thousand shares of Apple (AAPL) arguing that the stock’s PE ratio is extremely low compared to its growth prospects. Einhorn paid less than $250 per Apple share. There are several growth stocks that hedge funds think are undervalued.
Insider Monkey compiled the list of top 30 growth stocks where earnings are expected to grow by at least 15%. The data source for Wall Street Analysts’ growth projections is Thomson Financial. Here are the 30 stocks:
Company | Ticker | One Year Return | Expected Growth Rate | No. of Funds |
Wynn Resorts Ltd | WYNN | 106% | 32.6 | 19 |
Alcoa Inc | AA | 54% | 31.0 | 23 |
Cliffs Natural Resources | CLF | 99% | 27.5 | 25 |
Harman Intl Industries | HAR | 51% | 23.2 | 19 |
Baker Hughes Inc | BHI | 64% | 21.4 | 27 |
Metropcs Comm | PCS | 93% | 21.2 | 18 |
CBS Corp B | CBS | 108% | 21.1 | 29 |
NetFlix Inc | NFLX | 152% | 20.8 | 28 |
Edwards Lifesciences | EW | 64% | 20.2 | 17 |
Tesoro Corp | TSO | 114% | 19.9 | 21 |
F5 Networks Inc | FFIV | 54% | 19.7 | 22 |
Goodyear Tire & Rubber | GT | 60% | 19.4 | 27 |
Priceline.com Inc | PCLN | 177% | 19.2 | 35 |
Salesforce.com | CRM | 71% | 18.8 | 20 |
Apple Inc. | AAPL | 39% | 18.7 | 85 |
Amazon.com Inc | AMZN | 88% | 18.6 | 41 |
Williams Cos Inc | WMB | 59% | 18.2 | 52 |
DIRECTV Class A | DTV | 49% | 17.7 | 41 |
Red Hat Inc | RHT | 52% | 17.3 | 21 |
AutoNation Inc | AN | 104% | 17.1 | 7 |
Mastercard Inc A | MA | 51% | 17.0 | 47 |
First Solar Inc | FSLR | 1% | 17.0 | 17 |
Caterpillar Inc | CAT | 78% | 16.9 | 23 |
Visa Inc | V | 20% | 16.9 | 41 |
Chipotle Mexican Grill | CMG | 133% | 16.8 | 8 |
Agilent Technologies | A | 74% | 16.5 | 19 |
Halliburton Co | HAL | 90% | 16.1 | 39 |
Cerner Corp | CERN | 60% | 15.8 | 11 |
Whole Foods Market Inc | WFM | 76% | 15.8 | - |
Freeport McMoRan | FCX | 77% | 15.7 | 37 |
Apple is the most popular growth stock among hedge funds. Sixty three hedge funds had Apple among their top 10 holdings and eighty five hedge funds have Apple in their portfolios. Hedge funds collectively own 3% of the outstanding shares. Apple is expected to grow its earnings by 19% over the next 5 years. Hedge fund stars like David Einhorn, John Griffin, Chase Coleman and Dan Loeb all have AAPL in their portfolios (See David Einhorn’s top stock picks).
Williams Co. is the second most popular growth stock in our list. Twenty hedge funds had WMB among their top 10 holdings and fifty two hedge funds own WMB. Hedge funds collectively own 15% of the outstanding shares. The stock returned 25.9% so far this year. Michael Lowenstein’s Kensico, Jeffrey Tannenbaum’s Fir Tree, and Steve Cohen’s SAC are among the hedge funds with large WMB positions. WMB is one of Steve Cohen’s top three stock picks for 2011 (See Cohen’s favorite stocks here).
Mastercard and Visa are also among the most popular growth stocks. Mastercard is slightly more popular than Visa with 47 hedge funds. Stephen Mandel, Chase Coleman, and Jim Simons are among the hedge fund managers who are bullish about Mastercard. Chase Coleman and Jim Simons also have Visa in their portfolios but in smaller quantities (Check out Jim Simons’ bullish stock picks).
Hedge funds least favorite stocks among large-cap growth stocks are Chipotle Mexican Grill, Autonation and Whole Foods. There were only eight hedge funds that are bullish about CMG out of the 300+ hedge funds we track. None of the hedge funds we track had WFM in their portfolios. Mark Broach’s Manatuck Hill Partners and Jim Simons’ Renaissance Technologies had the largest positions in CMG. Manatuck Hill Partners was the second best performing hedge fund during second quarter (See the top 25 hedge funds in Q2 2011).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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