For the most part, the big hedge funds have been mostly net sellers of stocks in recent quarters. And while it may seem ominous to have many smart money managers ringing the register this year, I’d argue that profit-taking and rotating capital into some of the more defensive areas of the market is only smart. Of course, taking a bit of capital off the risk-on AI trade for some cheaper, less-loved names comes with the risk of missing out on additional upside, especially if the bull market runs strong and the AI trade heats up again.
While the smart money has been doing quite a bit of selling lately, there have also been some opportunistic buys, which I think should have the attention of value investors with extra cash sitting on the sidelines and not nearly enough ideas in this arguably expensive stock market.
Even if stocks are overdue for a course correction, there’s likely still value to be had if you can find it. And in this piece, we’ll look at three of the most popular picks of several big-name hedge funds in the third quarter.
UnitedHealth Group
If you follow a couple of smart money managers, odds are you’ve seen a bit of nibbling in shares of UnitedHealth Group (NYSE:UNH | UNH Price Prediction). It’s been a hedge fund favorite in the last quarter, thanks in part to how violently the shares cratered in the first half of the year, as well as the last quarter of last year. Whenever a blue-chip Dow Jones Industrial Average component implodes by more than 60% from peak to trough, such a move should have your attention if you’re a value seeker.
In recent months, shares of UnitedHealth Group have shown signs of settling, which has to be comforting for those who aren’t big fans of catching falling knives. With a nice near-40% rally off July’s multi-year depths, UnitedHealth Group stock may finally be at a turning point.
The technical picture looks a whole lot better today, despite slipping close to 8% in the past month. Though the coast looks clear, investors might wish to be cautious and incremental with such a name, given the likelihood that some dip-buyers might be a bit overly optimistic with the company’s recovery prospects. The latest quarter was decent, and with full-year earnings guidance raised, it feels as though the worst is already in the rearview. However, it takes more than a quarter to reverse a brutal trend.
Perhaps Deutsche Bank’s words of caution should be heeded by investors after the latest relief run. There still might be pressure on growth going into the new year and the year after that. As such, interested dip-buyers may wish to spread their buys over an extended period of time, much as some hedge funds have done in the past two quarters.
Nvidia
For some reason or another, it’s hard to give up on shares of AI chip titan Nvidia (NASDAQ:NVDA), even after recent volatility and Dr. Burry’s widely-publicized short bet. With a handful of hedge funds adding to their position in the most recent quarter, it seems like not everybody sees the name as a victim of an AI bubble, as Burry might.
With shares of Nvidia back in correction territory, things could easily worsen such that the bear market makes its return. Either way, many analysts still see upside in the name, and until AI demand does enter a slowdown, it might be best not to sell the company short. Though I don’t want to go against Dr. Burry, I also wouldn’t want to bet against the genius of Nvidia’s top boss, Jensen Huang.
As I noted in prior pieces, Nvidia stock does not scream AI bubble to me, and it probably doesn’t for the many who’ve been net buyers in the third quarter. As long as Nvidia has the earnings to show, I think the shares will remain popular among money managers. Sure, Nvidia stock is basically the consensus trade right now, and as obvious and unsurprising as it may seem, it’s still a name with significant growth potential as AI sub-themes (robotics and agentic AI) play out.
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