To say that hedge fund and mutual fund managers tend to follow the herd is quite an understatement, and it always has been. While publicly they sometimes seem reluctant to discuss their holdings, especially stocks they short, the reality is that managers tend to talk among themselves, as they run in the same circles. Often the discussions are centered around their portfolios and what is in them.

What a difference a year makes for professionals running big portfolios. A year ago, the consumer heavily relied on e-commerce and shifted their consumption from services to goods. Today, the reopening is well underway and the consumer is increasing services consumption (sometimes at the expense of goods), which is hitting e-commerce.

We were interested in the stocks that fund managers have been adding to their portfolios, and the five stocks that lead that category are very strong ideas for growth investors with a degree of risk tolerance. WalletHub had a list of the 25 most popular stocks with fund managers, and four of the top five saw even more buying over the past quarter.

While all five are rated Buy across Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision. We listed the stocks in order of popularity.

Apple

This technology giant’s stock has been on a roll since the recent sell-off, and the new iPhone 13 is getting some big buzz. Apple Inc. (NASDAQ: AAPL) designs, manufactures and markets consumer electronics and has developed its own proprietary iOS and Mac OS X operating systems and related software platform/ecosystem.

Revenues are derived principally from the iPhone line of smartphones, hardware sales of the Macintosh family of notebook and desktop computers, iPad tablets and iPod portable digital music players. The company also realizes revenue from software, peripherals, digital media and services.

Shareholders receive a 1.45% dividend. Cowen has a $180 price target on the shares, and the consensus target is $190. Apple stock closed trading on Friday at $142.65 per share.

This is a conservative way for investors to participate in the massive cloud growth, and the company has posted stellar results. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses and supports a wide range of software products. The company has transformed its business model from a component-driven model (personal computer, server) to one driven by the need for cloud capacity.

Many Wall Street analysts agree that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service.

Some analysts maintain that Microsoft is discounting Azure for large enterprises, so that Azure may be cheaper than AWS for larger users. The cloud was big in the 2021 earnings reports so far and will remain a growing part of the software giant’s earnings profile.

Investors receive just a 0.86% dividend. The BofA Securities price target on Microsoft stock is $340. The consensus target is $329.18, the shares closed at $289.10 apiece on Friday.

Amazon

This is the absolute leader in online shopping and remains a technology anchor for many portfolio managers, and it also is a member of the BofA Securities US 1 list of top stocks. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.

The company serves developers and enterprises through Amazon Web Services (AWS), which provides computing, storage, database, analytics, applications and deployment services that virtually enable various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.

Like every year, online sales continue to grow, especially during the busy Christmas shopping period. Amazon remains the go-to portal for shoppers, one that was huge tailwind over the past year as the pandemic forced many to shop online.

The $4,150 BofA Securities price target compares to the $3,899.36 consensus target on Amazon.com stock. The last trade on Friday came in at $3,283.26 a share.

Alphabet

The search giant continues to expand and was the G in the FANG stocks before changing its name in 2015. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas such as search, advertising, operating systems and platforms, and enterprise and hardware products.
Alphabet generates revenue primarily by delivering online advertising and by selling apps and content on Google Play, as well as hardware products. Alphabet provides its products and services in more than 100 languages and in 190 countries, regions and territories.

The company offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as search, ads, commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.

Analysts point to Google Cloud, which is the largest cloud infrastructure play and engages in more technology, infrastructure research and development in headcount and dollars than any other company does. That gives it the strength and wherewithal to compete with and differentiate itself from Amazon’s AWS and Microsoft’s Azure.

Truist Securities has set a $3,100 target price on Alphabet stock. The consensus target is just $2,750.07, and the shares ended last week’s trading at $2,730.86 apiece.

American Express

The only financial in the top five hedge fund favorites, this stock has had a solid year but trades at a reasonable level. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.

The company’s products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.

American Express stock comes with a 0.98% dividend yield. Morgan Stanley’s $195 price target on the financial giant is well above the $183.63 consensus target. The shares closed on Friday at $173.94.

It is somewhat ironic that, after being the talk of the town on Wall Street for years, some of these hugely successful and most importantly profitable companies took a back seat to momentum names, many of which make no or very little money. With the market very pricey, and perhaps vulnerable to tail risk, like massively overleveraged hedge funds, it makes sense to continue to bet on the mega-cap leaders.

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